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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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.)
100 RENAISSANCE CENTER, DETROIT, MICHIGAN 48243-7301
3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202-3091
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (313) 556-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON, $1 2/3 PAR VALUE (743,213,618 SHARES OUTSTANDING AS
OF FEBRUARY 28, 1997)..................................... NEW YORK STOCK EXCHANGE, INC.
CLASS H COMMON, $0.10 PAR VALUE (100,831,170 SHARES
OUTSTANDING AS OF FEBRUARY 28, 1997....................... NEW YORK STOCK EXCHANGE, INC.
PREFERENCE, $0.10 PAR VALUE, SERIES B 9 1/8% DEPOSITARY
SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE
(20,020,586 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY
28, 1997)................................................. NEW YORK STOCK EXCHANGE, INC.
PREFERENCE, $0.10 PAR VALUE, SERIES D 7.92% DEPOSITARY
SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE
(6,069,909 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY
28, 1997)................................................. NEW YORK STOCK EXCHANGE, INC.
PREFERENCE, $0.10 PAR VALUE, SERIES G 9.12% DEPOSITARY
SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE
(10,079,899 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY
28, 1997)................................................. NEW YORK STOCK EXCHANGE, INC.
NOTE: THE $1 2/3 PAR VALUE COMMON STOCK OF THE REGISTRANT IS ALSO LISTED FOR
TRADING ON:
CHICAGO STOCK EXCHANGE, INC. ........................... CHICAGO, ILLINOIS
PACIFIC STOCK EXCHANGE, INC. ........................... SAN FRANCISCO, CALIFORNIA
PHILADELPHIA STOCK EXCHANGE, INC. ...................... PHILADELPHIA, PENNSYLVANIA
MONTREAL STOCK EXCHANGE................................. MONTREAL, QUEBEC, CANADA
TORONTO STOCK EXCHANGE.................................. TORONTO, ONTARIO, CANADA
BORSE FRANKFURT AM MAIN................................. FRANKFORT ON THE MAIN, GERMANY
BORSE DUSSELDORF........................................ DUSSELDORF, GERMANY
BOURSE DE BRUXELLES..................................... BRUSSELS, BELGIUM
COURTIERS EN VALEURS MOBILIERES......................... PARIS, FRANCE
THE LONDON STOCK EXCHANGE............................... LONDON, ENGLAND
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES X . NO ___ .
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ( )
THE AGGREGATE MARKET VALUE (BASED UPON THE AVERAGE OF THE HIGHEST AND
LOWEST SALES PRICES ON THE COMPOSITE TAPE ON FEBRUARY 28, 1997) OF GENERAL
MOTORS CORPORATION $1 2/3 PAR VALUE, CLASS H COMMON STOCKS HELD BY NONAFFILIATES
ON FEBRUARY 28, 1997 WAS APPROXIMATELY $42.7 BILLION AND $5.9 BILLION,
RESPECTIVELY.
DOCUMENTS INCORPORATED BY REFERENCE:
PART AND ITEM NUMBER OF FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
-------- ---------------------------------
GENERAL MOTORS NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO
BE HELD MAY 23, 1997...................................... PART III, ITEMS 10 THROUGH 13
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PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
THE CORPORATION
General Motors Corporation, incorporated in 1916 under the laws of the
State of Delaware, is hereinafter sometimes referred to as the "Registrant" or
the "Corporation" and, together with its subsidiaries, is hereinafter sometimes
referred to as "General Motors" or "GM."
ITEM 1. BUSINESS
GENERAL
The following information is incorporated herein by reference to the
indicated pages in Part II:
ITEM PAGE
- ---- ----
Wholesale Sales............................................. II-48 and 50
Employment and Payrolls..................................... II-68
Note 22 of Notes to Consolidated Financial Statements
(Segment Reporting)....................................... II-37
While the major portion of General Motors' operations is derived from the
automotive products industry segment, General Motors also has a financing and
insurance industry segment and produces products and provides services in other
industry segments. The automotive products segment consists of the design,
manufacture, assembly, and sale of automobiles, trucks and related parts and
accessories. The financing and insurance operations, primarily General Motors
Acceptance Corporation (GMAC), assist in the merchandising of General Motors'
products as well as other products. GMAC offers financial services and certain
types of insurance to dealers and customers. In addition, GMAC is engaged in
mortgage banking services. The other products segment consists of satellite
construction, ownership and operation, communications services, ground
equipment, direct-to-home satellite television entertainment services, missile
systems, command and control systems, torpedoes and sonar systems,
electro-optical systems, airborne radar and communication systems, military
training and simulation systems, air traffic control systems, information
systems, and guidance and control systems; as well as the design, development,
and manufacture of locomotives.
Substantially all of the products in the automotive segment are marketed
through retail dealers and through distributors and jobbers in the United
States, Canada, and Mexico, and through distributors and dealers overseas. At
December 31, 1996, there were approximately 8,300 General Motors vehicle dealers
in the United States, 1,000 in Canada and Mexico, and approximately 5,500
outlets overseas.
BACKLOG OF ORDERS
Shipments of General Motors' automotive products are made as promptly as
possible after receipt of firm sales orders; therefore, no significant backlog
of unfilled orders accumulates. Hughes Electronics Corporation had a $15.1
billion and $14.9 billion backlog of defense and commercial contracts at the end
of 1996 and 1995, respectively.
RAW MATERIALS AND SERVICES
General Motors purchases materials, parts, supplies, freight
transportation, energy, and other services from numerous unaffiliated firms.
Interruptions in production or delivery of these goods or services could
adversely affect General Motors.
COMPETITIVE POSITION
General Motors' principal competitors in passenger cars and trucks in the
United States and Canada include Ford Motor Company, Chrysler Corporation,
Toyota Corporation, Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd.,
Mazda Motor Corporation, Mitsubishi Motors Corporation, Fuji Heavy
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Industries, Ltd. (Subaru), Volkswagen A.G., Hyundai Motor Company, Ltd.,
Daimler-Benz A.G. (Mercedes), Bayerische Motoren Werke AG (BMW), and Volvo AB.
All but Volkswagen and Mercedes currently operate vehicle manufacturing
facilities in the United States or Canada, however, Mercedes currently has an
assembly plant under construction in the United States. Toyota and GM operate
the New United Motor Manufacturing, Inc. facility in Fremont, California as a
joint venture which currently builds passenger cars and light-duty trucks.
Wholesale unit sales of General Motors passenger cars and trucks during the
three years ended December 31, 1996 are summarized in Management's Discussion
and Analysis in Part II.
Total industry new motor vehicle (passenger cars, trucks, and buses)
registrations of domestic and foreign makes and General Motors' competitive
position during the three years ended December 31, 1996 were as follows:
1996(1) 1995 1994
------- ---- ----
(UNITS IN THOUSANDS)
Total industry registrations
In the United States............................... 15,586 15,219 15,257
In Canada and Mexico............................... 1,531 1,343 1,839
In other countries................................. 34,718 32,853 31,429
------ ------ ------
Total industry registrations -- all countries........ 51,835 49,415 48,525
====== ====== ======
1996(1) 1995 1994
------- ---- ----
(PERCENT OF TOTAL INDUSTRY)
General Motors' registrations
In the United States............................... 31% 32% 33%
In Canada and Mexico............................... 30 32 28
In other countries................................. 9 9 9
Total General Motors' registrations -- all
countries.......................................... 16 17 17
- -------------------------
(1) Preliminary
The above information on registrations of new cars, trucks, and buses was
obtained from outside sources and that pertaining to General Motors'
registrations includes units which are manufactured overseas by other companies
and which are imported and sold by General Motors and affiliates.
RESEARCH AND DEVELOPMENT
In 1996, General Motors spent $8.9 billion for research, manufacturing
engineering, product engineering, and development activities related primarily
to the development of new products or services or the improvement of existing
products or services, including activities related to vehicle emissions control,
improved fuel economy, and the safety of persons using General Motors products.
In addition, $1.6 billion was spent for customer-sponsored activities, the
majority of which were government related. Comparable data for 1995 were $8.2
billion for company-sponsored activities and $1.4 billion for customer-sponsored
activities and for 1994 were $6.9 billion for company-sponsored activities and
$1.5 billion for customer-sponsored activities, respectively.
ENVIRONMENTAL MATTERS
AUTOMOTIVE EMISSIONS CONTROL
Both the Federal and California governments currently impose stringent
emission control requirements on motor vehicles sold in their respective
jurisdictions. These requirements include pre-production testing of vehicles,
testing of vehicles after assembly, the imposition of emission defect and
performance warranties, and the obligation to recall and repair customer-owned
vehicles determined to be non-compliant with emissions requirements.
Both the U.S. Environmental Protection Agency (EPA) and the California Air
Resources Board (CARB) continue to place great emphasis on compliance testing of
customer-owned vehicles. Failure to comply with the emission standards or
defective emission control hardware discovered during such testing can
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lead to substantial cost for General Motors related to emissions recalls. New
CARB and Federal requirements will increase the time and mileage periods over
which manufacturers are responsible for a vehicle's emission performance.
Both the EPA and the CARB emission requirements will become even more
stringent in the future. A new tier of exhaust emission standards for cars and
light-duty trucks, the "Tier 1" standards began phasing in for California
vehicles in the 1993 model year and for Federal vehicles in the 1994 model year.
The phase-in of these "Tier 1" standards was completed in the 1997 model year.
In addition to the Tier 1 standards is the CARB Low Emission Vehicle (LEV)
Program that began with the 1994 model year and defines requirements through
model year 2003 and beyond. This program sets even more stringent exhaust
emission standards for cars and trucks sold in California. General Motors will
have to meet the LEV Program requirements by marketing a mix of vehicles
complying with the Tier 1 standards, Transitional Low Emission Vehicles (TLEVs),
Low Emission Vehicles (LEVs), Ultra-Low Emission Vehicles (ULEVs), or Zero
Emission Vehicles (ZEVs). From model years 2003 and later, 10% of cars and small
light-duty trucks (up to 3,750 lb Loaded Vehicle Weight) sold in California must
be ZEVs. Also, GM and six other major vehicle manufacturers signed Memorandum of
Agreements (MOAs) with CARB to provide for a more market driven-introduction of
ZEVs. The MOAs include provisions for an advanced battery ZEV demonstration
program of 3,750 vehicles in the 1998-2000 time frame, a National LEV program or
an alternative that provides equivalent emission benefits in California, the
capability to produce specified numbers of ZEVs as warranted by demand, and
continued research and development of advanced batteries.
The Clean Air Act permits states that have areas with air quality problems
to adopt the California car and truck emission standards in lieu of the Federal
requirements and six states have done so. In addition, the Ozone Transport
Commission (OTC), representing twelve Northeast states and the District of
Columbia, asked the EPA to require the OTC jurisdictions to impose the
California LEV program requirements throughout the Northeast Ozone Transport
Region (OTR). The EPA granted this request on January 24, 1995. This could mean
that vehicles designed for the California LEV program, including ZEVs, would
have to be offered for sale in that region of the country. As an alternative,
the auto industry has proposed a National LEV program, which would require the
phase-in of TLEVs and LEVs in the northeast starting in 1997, and vehicles in
all states outside California meeting LEV standards on average starting in 2001.
The EPA has proposed rulemaking which would implement the National LEV program
as a voluntary alternative available to automakers.
In addition to the above-mentioned exhaust emission programs, onboard
diagnostic (OBD) devices, far more complex than those currently used to diagnose
problems with emission control systems, are required both Federally and in
California effective with the 1996 model year. This new system has the potential
of increasing warranty costs and the chance for recall.
New evaporative emission control requirements for cars and trucks begin
phasing in with the 1995 model year in California and the 1996 model year
Federally. Systems will need to be further modified to accommodate Federal
onboard refueling vapor recovery (ORVR) control standards. ORVR phases in on
passenger cars in the 1998 through 2000 model years and on light-duty trucks in
the 2001 through 2006 model years.
Starting in the 2000 model year, today's test procedure for exhaust
emissions will become more complex with vehicles required to meet two additional
test requirements: 1) measuring exhaust emissions over a new test cycle with the
air conditioner operating; and 2) measuring exhaust emissions over a new high
speed (80 mph) and high load cycle. Both of these requirements have the
potential of adding hardware (and thus costs) to many vehicles.
INDUSTRIAL ENVIRONMENTAL CONTROL
General Motors is subject to various laws relating to the protection of the
environment, and is in various stages of investigation or remediation for sites
where contamination has been alleged. GM has recorded an
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accrued liability of $646 million at December 31, 1996 and $692 million at
December 31, 1995 for worldwide environmental cleanup as summarized below:
- - GM has been identified as a potentially responsible party at sites identified
by the EPA and state regulatory agencies for cleanup under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) and similar
state statutes. GM voluntarily and actively participates in cleanup activity
where such involvement is verified. The foreseeable total liability for 1997
and beyond for sites involving GM is estimated to be $209 million, which was
recorded at December 31, 1996. This compares to $227 million at December 31,
1995.
- - For closed or closing plants owned by the Corporation, an estimated liability
for environmental cleanup is typically recognized at the time the closure
decision is made for actions which are not specifically required by
regulations or government action but which serve to minimize future liability.
Such liability, which is based on an environmental assessment of the plant
property, is estimated at $121 million, which was recorded at December 31,
1996. This compares to $136 million at December 31, 1995.
- - GM is involved in investigations and cleanup activities at additional
locations worldwide with a foreseeable liability of approximately $316
million, which was recorded at December 31, 1996. This compares to $329
million at December 31, 1995.
The cost impact of the Clean Air Act Amendments under Title V are the
annual emission fees of approximately $9 million per year. Additionally, the
cost of obtaining Title V permits are approximately $5 million for 1996 and an
estimated $2 million for 1997, not including any internal labor costs.
Additional programs under the Clean Air Act, including Hazardous Air Pollutant
standards, and Compliance Assurance Monitoring requirements are estimated to
cost $500 to $700 million through the year 2003.
Expenditures by General Motors in the United States for industrial
environmental control facilities during the three years ended December 31, 1996
were (in millions): 1996-$117; 1995-$116; and 1994-$118. The Corporation
currently estimates that future expenditures for industrial environmental
control facilities through 2000 will be (in millions): 1997-$129; 1998-$106;
1999-$88; and 2000-$62. Specific environmental expenses are difficult to isolate
since expenditures may be made for more than one purpose, making precise
classification difficult.
VEHICULAR NOISE CONTROL
The Federal Truck Regulation preempts all state/local noise regulations for
trucks over 10,000 lb Gross Vehicle Weight Rating (GVWR). All jurisdictions
regulating noise levels of school buses which are built on medium-duty truck
chassis have adopted standards compatible with Federal regulations for
medium-duty trucks. The Federal Truck Regulations contain label and owner's
manual requirements.
Passenger cars and light-duty trucks are subject to state and local motor
vehicle noise regulations. The current standard for vehicles in these classes is
80 dB as measured at 50 feet. Future implementation of more stringent exhaust
emission regulations and more stringent fuel economy regulations will require an
assessment of increased costs of noise control.
SAFETY AFFAIRS AND REGULATIONS
Expenditures to maintain the operational safety, occupant protection, and
vehicle theft deterrence capability of new GM models continue. These
expenditures include amounts for the study of alternative approaches for meeting
the needs of all three areas.
A final rule allowing use of Daytime Running Lamps (DRL) as an option was
issued by the National Highway Traffic Safety Administration (NHTSA). As a
result, GM announced its intent to provide DRL starting in 1995 on selected
models. Daytime Running Lamps (DRL) are standard on all GM 1997 model year cars
and light trucks, with the exception of the Oldsmobile 'W' car (Cutlass
Supreme). The new Olds 'W' car (Intrigue) will be a 1998 model year vehicle
introduced mid-year 1997, and will be equipped with DRL.
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GM is meeting the government requirement for passive restraints by
installing driver and passenger supplemental inflatable restraints (air bags) on
all passenger cars and selected light trucks and vans. Driver air bags have been
approved for all remaining light trucks and vans during the 1997 and 1998 model
years, with a phase-in of dual front passenger air bags in these same vehicles
through the 1999 model year. This will meet the requirements of NHTSA's final
rule specifying that air bags be the only means used to meet the automatic
restraint requirements for passenger cars and light trucks and vans on a
phased-in basis beginning September 1, 1996 and culminating Sept. 1, 1998.
GM is working with NHTSA and suppliers to introduce less aggressive air
bags in order to address concerns about inflation injuries, particularly to
children and smaller adult passengers who are not properly restrained.
New dynamic side impact protection requirements similar to those for cars
will apply to certain light trucks and vans beginning September 1, 1998. Side
structure and interior trim designs of future models will continue to be
affected. Additional market pressure and future model design effects are likely
regarding side impact performance at higher crash speeds. This will result as
the federal government begins its consumer information side impact crash test
program at an elevated impact speed, starting with 1997 model passenger cars.
A new government requirement for vehicle interior impact protection was
proposed in 1993. The final rule, similar to the proposal, was promulgated in
August 1995. This rule will significantly affect upper body structure and
interior trim designs of future model passenger cars and light trucks and vans.
The phase-in for this rulemaking begins in the 1999 model year and will apply to
all these vehicles in the 2003 model year.
The NHTSA currently is considering the effects of fuel system crash
integrity requirements of the Federal Motor Vehicle Safety Standard 301. If any
of the considerations ultimately are adopted as final rules, some undetermined
redesign, cost, and weight increase could be expected for most of GM's vehicles.
See Item 3, Legal Proceedings, Other Matters.
With the passage of the Anti-Car Theft Act of 1992, implementation costs
affect approximately 22 passenger car assembly plants and 4 light-duty truck
plants. For the affected truck plants, the major expenditures were for new label
printer installations and additional stamping equipment.
AUTOMOTIVE FUEL ECONOMY
The Energy Policy and Conservation Act passed in 1975 provided for
production-weighted average fuel economy standards for passenger cars for 1978
and thereafter. Based on EPA combined city-highway test data, the General Motors
1996 model year domestic passenger car fleet is projected to attain a Corporate
Average Fuel Economy (CAFE) of 28.3 miles per gallon (mpg) versus the standard
of 27.5 mpg. The CAFE estimate for 1997 model year passenger cars is projected
at 28.1 mpg versus the standard of 27.5 mpg.
Fuel economy standards for light-duty trucks became effective in 1979.
General Motors' light truck CAFE fleet average for the 1995 model year reached
20.1 mpg versus the standard of 20.6 mpg. For the 1996 model year, GM's truck
CAFE is projected to be 20.7 mpg which is also the standard. GM's 1997 model
year truck CAFE is projected at 20.4 mpg versus a standard of 20.7 mpg.
Projected shortfalls to the standard are expected to be offset by credits from
future model years.
GM's ability to meet increased CAFE standards is contingent on various
future economic, consumer, legislative, and regulatory factors that GM cannot
control and cannot predict with certainty. If GM could not comply with any new
CAFE standards, GM could be subject to sizable civil penalties and could have to
close plants or severely restrict product offerings to remain in compliance.
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SEASONAL NATURE OF BUSINESS
In the automotive business, there are retail sales fluctuations of a
seasonal nature, so that production varies from month to month. In addition, the
changeover period related to the annual new model introduction has traditionally
occurred in the third quarter of each year. For this reason, third quarter
operating results are, in general, less favorable than those in the other three
quarters of the year, depending on the magnitude of the changeover needed to
commence production of new models incorporating, for example, design
modifications related to more fuel-efficient vehicle packaging, stricter
government standards for safety and emission controls, and consumer-oriented
improvements in performance, comfort, convenience, and style.
SEGMENT REPORTING DATA
Industry segment and geographic segment data for 1996, 1995, and 1994 are
summarized in Note 22 of Notes to Consolidated Financial Statements in Part II.
******
The Registrant makes no attempt herein to predict the future trend of its
business and earnings or the effect thereon of the results of changes in general
economic, industrial, regulatory, and international conditions.
ITEM 2. PROPERTIES
The Corporation, excluding General Motors Acceptance Corporation, has 309
locations operating in 36 states and 165 cities in the United States. Of these,
25 are engaged in the final assembly of GM cars and trucks; 30 are service parts
operations responsible for distribution or warehousing; 30 major plants,
offices, and research facilities relate to the operations of Hughes Electronics
Corporation; and the remainder are offices or involved primarily in the testing
of vehicles or the manufacture of automotive components and power products. In
addition, the Corporation has 18 locations in Canada and assembly,
manufacturing, distribution, or warehousing operations in 54 other countries,
including equity interests in associated companies which conduct assembly,
manufacturing, or distribution operations. The major facilities outside the
United States and Canada, which are principally vehicle manufacturing and
assembly operations, are located in Germany, the United Kingdom, Brazil, Mexico,
Austria, Belgium, and Spain.
Most facilities are owned by the Corporation or its subsidiaries. Leased
properties consist primarily of warehouses and administration, engineering, and
sales offices. The leases for warehouses generally provide for an initial period
of five years and contain renewal options. Leases for sales offices are
generally for shorter periods.
Properties of the Registrant and its subsidiaries include facilities which,
in the opinion of management, are suitable and adequate for the manufacture,
assembly, and distribution of their products.
Additional information regarding worldwide expenditures for plants and
equipment is presented under Management's Discussion and Analysis in Part II.
ITEM 3. LEGAL PROCEEDINGS
(a) Material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Corporation became, or was,
a party during the year ended December 31, 1996, or subsequent thereto, but
before the filing of this report are summarized below. Reference should also be
made to Note 18 to Consolidated Financial Statements in Part II.
ENVIRONMENTAL MATTERS
In November, 1996, the Wayne County Department of Health Air Pollution
Division ("Wayne County") informed General Motors that it was seeking fines in
excess of $100,000 in connection with allegations that intermittent emissions of
offensive odors have occurred since 1993 at GM's Oil Reclamation
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Facility at Clark Street in Detroit, Michigan. General Motors and Wayne County
are continuing discussions to resolve this matter.
* *
On March 1, 1993, the U.S. Environmental Protection Agency ("EPA") Region V
issued a civil administrative complaint alleging that stormwater from the
Chevrolet-Pontiac-GM of Canada Group's Pontiac Fiero plant in Pontiac, Michigan
exceeded the facility's National Pollutant Discharge System Permit from May 1989
through May 1992.
On March 26, 1993, the Region V office of the EPA issued a Civil
Administration Complaint against the Corporation alleging that 65 petroleum and
hazardous substance underground storage tanks (USTs), which it has operated at
its Technical Center in Warren, Michigan, have been in violation of certain of
the EPA UST regulations. The EPA has proposed a civil penalty of $267,447. Based
upon its current evaluation of this matter, General Motors believes that the
operations cited by the EPA's complaint have been and remain in substantial
compliance with applicable UST regulations. On June 28, 1996, an EPA
Administrative Law Judge ("ALJ") made a determination that General Motors is
liable for stormwater discharges from the closed Fiero assembly plant in
Pontiac, Michigan which exceed the 1988 permit limits for copper, lead and zinc.
The ALJ rejected General Motors' arguments that the permit (a) was void by Act
of Congress, (b) had expired in 1990, and (c) in any event, did not apply
because the source of the metals is not industrial operations but rather from
(1) ambient rainfall and (2) dissolving by acid rain of copper gutters, lead
solder and flashing, and galvanized roof decking. Ruling that copper, lead and
zinc are pollutants for which dischargers are strictly responsible regardless of
their source, the ALJ found General Motors liable for 92 permit exceedances.
General Motors came into compliance in 1992 by coating the metal on the roof.
The EPA sought the $125,000 maximum administrative penalty; the ALJ supervised
negotiations between the EPA and General Motors regarding the amount of the
penalty and recommended a penalty of $62,500. General Motors is appealing the
amount of the penalty and the determination of strict liability before the EPA
Board of Appeals.
* *
In March 1993, the Michigan Department of Natural Resources (MDNR) notified
the Corporation's Powertrain Division (PD) that MDNR was making a referral to
the Michigan Attorney General for resolution of allegations by MDNR that a PD
facility in Saginaw, Michigan had failed to conduct a timely environmental
investigation to MDNR's satisfaction of a landfill and certain other areas at
the facility's property, and that PD's on-site water recycling basins were
improperly discharging contaminants into the groundwater and the Saginaw River.
* *
On June 28, 1994, the Attorney General for the State of Michigan, on behalf
of the MDNR, filed a complaint in Circuit Court of the 30th Judicial Circuit in
Ingham County, Michigan alleging that several of GM's plants released
polychlorinated biphenyls (commonly referred to as "PCBs") into the Saginaw
River thereby causing damage to natural resources in the river and Saginaw Bay.
The State has not asserted that it is seeking fines or penalties and no amount
is specified in the complaint as damages, but the State is seeking reimbursement
of all its past and future response costs, including enforcement costs, and
natural resource damages relating to the Saginaw River and Bay. In this regard,
representatives of the State have indicated that the State will be seeking "tens
of millions of dollars" in damages as well as several million dollars in past
response costs. GM is currently in discussions with representatives of the
Michigan Attorney General and the MDNR regarding this matter.
GM has also been advised that the U.S. Department of Interior ("DOI") may
be conducting an investigation of these matters and any related damage to the
environment, and that DOI may pursue independent claims against GM, the City of
Saginaw and Bay City.
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* *
OTHER MATTERS
In October, 1994, as previously reported, a California jury awarded a total
of $89.5 million in damages against Hughes, including punitive damages of $40
million to each of two former Hughes employees, Lane (race
discrimination/retaliation) and Villalpando (retaliation), based on claims of
mistreatment and denials of promotions. The trial court granted Hughes' motion
to set aside the verdicts because of insufficient evidence. On January 6, 1997,
the Court of Appeal reversed the trial court's decision to set aside the
verdicts, reinstated the jury verdicts, but reduced the two $40 million punitive
damage awards to $5 million and $2.83 million, resulting in an aggregate
judgment of $17.33 million. Hughes has filed a petition for review by the
California Supreme Court, which was supported by various amicus briefs. Because
review by the California Supreme Court is in the discretion of that court, no
assurance can be given that the case will be accepted for review, or that if
accepted, the Supreme Court's decision will be favorable to Hughes.
* *
On April 26 and 27, 1996, two purported class actions, Keith McGill v.
General Motors Corporation and Richard Dolowich v. General Motors Corporation,
were filed against General Motors in the Supreme Court of the State of New York,
Counties of Bronx and Suffolk, alleging defective rear disc brake caliper pins
in the "GM W-Body car". These actions have been consolidated in the Supreme
Court of the State of New York, County of Bronx. The Dolowich suit is brought on
behalf of all persons and entities in the United States who currently own or
lease or previously owned or leased a 1988-1993 Buick Regal, Oldsmobile Cutlass
Supreme, Pontiac Grand Prix or Chevrolet Lumina. The McGill suit includes the
same model year vehicles, but is brought on behalf of persons and entities
residing in the State of New York who purchased or leased such vehicles and
still own them. Three additional purported nationwide class actions, brought on
behalf of current and previous owners of the same vehicles, have been filed in
Federal courts in New Jersey, Garcia v. General Motors, and Pennsylvania, Neff
v. General Motors and Marcel v. General Motors. Two additional purported class
actions involving the same vehicles were filed, one in the Superior Court of New
Jersey for Burlington County, Bishop v. General Motors Corporation and another
in the United States District Court for the Eastern District of Pennsylvania,
Cohen v. General Motors Corporation. Together, the complaints allege violation
of state consumer protection laws, fraud, negligent misrepresentation, and
breach of express and implied warranty, and seek unspecified amounts of economic
damages, punitive damages not less than $20 million, attorneys' fees and costs,
and injunctive relief. The Neff, Marcel and Cohen actions have been consolidated
in Pennsylvania State Court. The Garcia and Bishop actions have been
consolidated in New Jersey State Court. On November 11, 1996, the New Jersey
state court rendered a decision certifying a class of all past and present
owners of 1988 through 1993 model year Buick Regals, Chevrolet Luminas,
Oldsmobile Cutlass Supremes and Pontiac Grand Prix. The New Jersey Appellate
Division denied GM's motion for leave to appeal, but noted that the trial court
is required to monitor compliance with the requirements to maintain a class.
General Motors had requested the New Jersey Supreme Court to review the class
certification.
* *
Two suits, Stephen A. Solomon v. General Motors Corporation, et al. and TRV
Holding Company v. General Motors Corporation, et al., (collectively
"Solomon/TRV"), were filed in Delaware Chancery Court on May 13 and 18, 1994,
respectively. Such actions have been consolidated and a consolidated amended
complaint was filed on April 2, 1996. In addition, on May 10, 1996, a second
amended and supplemental consolidated complaint (the "Second Amended Complaint")
was filed by plaintiffs in this action. Another lawsuit, Ward et al., as
Trustees for the Eisenberg Children's Irrevocable Trust II v. General Motors
Corporation, et al. ("Ward"), was filed in Delaware Chancery Court on November
15, 1995. On May 17, 1996, Solomon/TRV and Ward (collectively,
"Solomon/TRV/Ward") were consolidated and the Second Amended Complaint was
adopted as the complaint for the consolidated action.
Solomon/TRV/Ward purports to be a class action brought on behalf of former
holders of Class E common stock, $0.10 par value per share (the "Class E Common
Stock"), of General Motors Corporation, a Delaware corporation ("General
Motors"), against certain present and former directors of General Motors, as
I-8
10
well as a double derivative action brought on behalf of EDS against certain
present and former directors of General Motors and certain former directors of
EDS (all of whom are also directors or officers of General Motors). EDS is named
in the complaint only as a nominal defendant with respect to the double
derivative action. The Second Amended Complaint alleges that defendants have
breached and are continuing to breach their fiduciary duties in connection with
their conduct with respect to EDS and the proposed split-off of EDS from General
Motors (the "Split-Off"). In particular, the complaint alleges that the process
of establishing terms for the Split-Off, including the consideration of
alternatives to such transaction and the negotiating process in connection
therewith, was unfairly dominated and controlled by General Motors and that the
resulting terms unfairly benefit General Motors and its continuing shareholders,
including the holders of common stock, $1 2/3 par value per share (the "$1 2/3
Common Stock"), and the Class H common stock, $0.10 par value per share (the
"Class H Common Stock"), of General Motors, to the detriment of EDS and the
former holders of Class E Common Stock. The complaint also alleges that the
Split-Off would unfairly effect a disposition of EDS because it would not
provide for a recapitalization of the Class E Common Stock into $1 2/3 Common
Stock at a 120% exchange ratio, as had been provided in the General Motors
Certificate of Incorporation upon a disposition by General Motors of
substantially all of the business of EDS. Furthermore, the complaint alleges
that the solicitation of consents by General Motors with respect to the proposed
Split-Off is wrongfully coercive and the solicitation statement being used in
connection therewith is materially deficient. The Second Amended Complaint seeks
monetary damages from the defendants, as well as an injunction against further
action in connection with the Split-Off. In addition, the complaint seeks an
order appointing independent representatives to act on behalf of and protect the
interests of EDS and the former holders of Class E Common Stock. The complaint
also seeks an order requiring the defendants to disseminate completely all
material information to the former holders of Class E Common Stock in connection
with the Split-Off.
On May 10, 1996, the plaintiffs in the consolidated action filed a motion
for expedited proceedings, including a request for a hearing on their
application for a preliminary injunction against further action in connection
with the Split-Off. As a result of such application, a hearing on the
plaintiffs' application for a preliminary injunction had been scheduled for May
30, 1996. On May 23, 1996, after limited discovery, the plaintiffs' counsel
informed the court that plaintiffs had concluded that adequate relief could be
afforded to the plaintiff class members after the Split-Off is consummated and
were withdrawing their application for expedited proceedings including a
preliminary injunction hearing. Thus, plaintiffs abandonded their pursuit of an
injunction to prevent consummation of the Split-Off. On June 7, 1996, having
received consent of a majority of the holders of each class of its common stock,
General Motors Split-Off EDS to former General Motors Class E stockholders. (See
Tabulation of consents at Item 4, page 36 of the Form 10-Q filed by General
Motors for the Quarter Ended June 30, 1996). Since the date of the Split-Off,
plaintiffs have not filed a further amended complaint.
* *
In September 1973, Hughes Aircraft Company ("HAC") filed suit against the
U.S. Government in the U.S. Court of Claims seeking reasonable and entire
compensation for the unauthorized manufacture or use by the United States of the
invention claims in a HAC patent (the "Williams Patent") covering "Velocity
Control and Orientation of a Spin Stabilized Body," principally satellites. In
late 1983, the United States Court of Appeals for the Federal Circuit (the U.S.
Court with appellate jurisdiction for patent cases) ruled that the Williams
Patent was valid and that the Government had infringed that patent. The
compensation which HAC is entitled to recover as a result of the Government's
infringement is now being determined by the U.S. Court of Claims, as well as
whether additional U.S. Government satellites also infringe.
The trial concluded in December 1988. HAC contended that its recovery
should be calculated in accordance with either of two methods for computing
delay compensation and introduced evidence to support an award of approximately
$4.8 billion or $1.5 billion depending upon the methods used. The Government
sought to demonstrate to the Court that any damages awarded to HAC in this case
should not exceed $20-30 million. In August 1993, the Court determined that
approximately $4 billion in satellite purchases infringed the patent. On June
17, 1994, the U.S. Court of Claims awarded Hughes damages of $114 million.
Because Hughes believed that the record supported a higher royalty rate, it
appealed that decision. The U.S.
I-9
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Government, contending that the award was too high, also appealed. On June 19,
1996, the Court of Appeals for the Federal Circuit affirmed the decision of the
Court of Claims which awarded Hughes $114 million in damages, together with
interest. The U.S. Government petitioned the Court of Appeals for the Federal
Circuit for a rehearing. That petition was denied in October of 1996. The U.S.
Government has filed a petition with the U.S. Supreme Court seeking certiorari.
In the opinion of management of Hughes, there is a reasonable possibility that
this matter could be resolved in the near term. While no amount has been
recorded in the financial statements of Hughes to reflect the $114 million
award, a resolution of this matter could result in a gain that would be material
to the earnings of General Motors attributable to Class H Common Stock.
* *
As previously reported, thirty-eight class actions have been filed in state
and Federal courts against the Corporation, claiming that 1973-1987 model
Chevrolet and GMC full-size pickup trucks are defective because their fuel tanks
are mounted below the cab and outside the frame rails. Twenty-four Federal court
class actions were transferred to the Federal court in Philadelphia,
Pennsylvania by the Judicial Panel on Multidistrict Litigation. In these
actions, plaintiffs claimed that the fuel tank locations make the vehicles
unreasonably susceptible to fuel-fed fires following side-impact collisions.
Plaintiffs alleged breach of contract and warranty, negligence, fraud and
negligent misrepresentation, as well as violation of various state consumer
protection laws. The lawsuits seek compensatory and punitive damages and
injunctions requiring notice to owners, repairs, retrofitting and "disgorgement"
of revenues.
An agreement for a nationwide settlement of the class actions pending in
federal and state courts received final court approval on December 19, 1996, by
a state court in Louisiana. The settlement, which is not expected to have a
material effect on the consolidated financial statements of General Motors,
provides for owners of 1973 to 1991 full-size pickup trucks and cab chassis with
outside-the-frame fuel tanks, as of July 3, 1996, to receive certificates for
$1,000 toward the purchase of any new General Motors passenger car or light
truck, except Saturns. The certificates can be used for the first 15 months at
$1,000 or transferred one time, whereupon the transferee would be able to use
the certificate for $500 ($250 if used with a General Motors rebate) toward the
purchase of an eligible vehicle until expiration of the 15-month period. After
the first 15 months, original recipients of the certificates may use them for an
additional 18 months at $500 or transfer them, whereupon the transferee would be
able to use the certificates for $250 towards the purchase of an eligible
vehicle. For fleets and governmental entities, after the first 15 months, the
certificates are reduced to $250 for an additional 35 months, but are not
transferable, except to other departments or agencies of the same governmental
entity.
The settlement also provides for $4.1 million to fund motor vehicle fire
safety research. Research funds will be used to benefit motor vehicle safety
generally, and research will not be done on the pickup trucks. The court ordered
General Motors to pay plaintiffs' attorneys' fees and costs totaling $27.875
million. Various appeals have been filed, including an appeal by General Motors
seeking to reduce the award of fees and costs to plaintiffs' attorneys.
Certificates will not be issued until appeals are concluded and the approval of
the settlement is final. General Motors cannot estimate the amount of time
required to resolve the various appeals.
There are also pending individual product liability claims and lawsuits
involving allegations of defects in the design of such vehicles resulting in
fuel-fed fires following side-impact collisions. GM intends to defend these
cases vigorously.
* *
On December 2, 1996, a purported class action, Alma Rose Rangel, et al. v.
General Motors Corporation, was filed in District Court, Webb County, Texas,
claiming that the Type III door latches used in approximately 40 million 1978 to
1986 model GM passenger cars and light trucks are defective. Plaintiffs allege
breaches of express and implied warranties, negligence and gross negligence and
seek compensatory and punitive damages and attorneys' fees. No determination has
been made that the case can proceed as a class action. GM has removed the case
to the United States District Court, Southern District of Texas, Laredo Division
and intends to oppose certification of a class and defend the case vigorously.
Separately, a petition to
I-10
12
open a defect investigation of the Type III door latches was denied by the
National Highway Safety Traffic Administration.
* *
Eight suits, denominated by plaintiffs as class actions, were filed in
Delaware Chancery Court, Jules Levine v. General Motors Corporation, et al., on
February 6, 1997; Steven Verkouteren v. General Motors Corporation, et al., on
February 6, 1997; Malcolm Rosenwald v. General Motors Corporation, et al., on
February 7, 1997; Richard Strauss v. General Motors Corporation, et al., on
February 7, 1997; Jeanette Whited, et al. v. General Motors Corporation, et al.,
on February 26, 1997; Andrew Carlucci, I.R.A. v. General Motors Corporation, et
al., on March 3, 1997; Dr. Joseph Mantel v. General Motors Corporation, et al.,
on March 5, 1997; and John P. McCarthy Profit Sharing Plan v. General Motors
Corporation, et al., on March 6, 1997. On March 19, 1997, a proposed Order of
Consolidation of all eight actions was forwarded to the Delaware Chancery Court
on behalf of counsel for all plaintiffs. Under the proposed order, the complaint
in the Whited suit would be adopted as the complaint in the consolidated action.
That complaint purports to be brought against General Motors and its directors
on behalf of Class H stockholders who either do not own any $1 2/3 common stock
or who own a larger percentage of outstanding Class H common stock than they own
of outstanding $1 2/3 common stock. The complaint alleges, essentially, that
defendants are breaching their contractual and fiduciary obligations to holders
of Class H common stock by structuring the spin-off of Hughes Electronics
Corporation's defense business and related transactions (see discussion of
Hughes Transactions at pp. II-58 and 59) to benefit General Motors and its
$1 2/3 common stockholders at the expense of General Motors Class H common
stockholders. It is further alleged, among other things, that Class H common
stockholders are being coerced to forfeit the current provisions of GM's
Certificate of Incorporation that would result under certain circumstances in a
recapitalization of Class H common stock at a 120 percent exchange rate in order
to receive the benefits of the transactions. It is also alleged that no
independent representative is separately representing the interests of Class H
common stockholders. Principally, the complaint seeks monetary damages, an order
enjoining the transactions, the implementation of procedural safeguards to
protect the interests of Class H stockholders, and the rescission of the
transactions if they are consummated. Plaintiffs have advised that they intend
to serve a Consolidated Amended Complaint as soon as practicable. GM believes
the suits are without merit and intends to defend them vigorously.
* *
Four separate putative class actions have been filed alleging defects in
vehicle paint. One has been dismissed. No determination has been made as to
whether any of the three pending cases may proceed as a class action.
As previously reported, on March 24, 1995, a purported nationwide class
action, Christian Amedee and Louis Fuxan v. General Motors Corporation, et al.,
was filed in the Civil District Court for the Parish of New Orleans, State of
Louisiana, alleging the paint or paint application process used by GM at several
unspecified North American assembly plants was defective due to the omission of
a surface layer primer, allegedly causing the paint to prematurely delaminate,
deteriorate, and peel. Plaintiffs seek unspecified compensatory damages,
equitable relief, interest, costs and attorneys' fees. On May 3, 1995, another
purported class action, Barney Kizzire v. General Motors Corporation and Bynum
Oldsmobile-Pontiac-Cadillac-GMC, Inc., was filed in the Circuit Court for
Fayette County, Alabama, on behalf of a proposed class of Alabama residents who
purchased 1989 GMC pickup trucks alleging that the paint was defective. That
case was subsequently removed to federal court and the named plaintiff's claims
were all dismissed with prejudice on November 27, 1996. On July 12, 1996, the
Corporation was served with a putative class action filed in the Circuit Court
of Greene County, Alabama, Robert J. Reining, et al. v. General Motors
Corporation. The complaint alleges that the paint systems used in the 1985
through 1995 model years are defective or potentially defective because GM
switched to "water-based primers" which could result in various problems with
vehicle finish, and seeks compensatory damages, disgorgement of profits,
exemplary damages, costs and a determination that GM is financially responsible
for the costs of repair or replacement.
On January 29, 1997, the Corporation was served with a putative class
action, Karpowicz v. General Motors Corporation, filed in the Circuit Court of
the Sixteenth Judicial Circuit in Kane County, Illinois. This
I-11
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case, purportedly brought on behalf of Illinois purchasers of new vehicles which
experienced peeling paint, alleges that GM broke a promise to repair paint
conditions for six years from the date of purchase and failed to implement fair
and uniform corrective measures. The complaint seeks unspecified compensatory
damages, statutory damages and penalties; an injunction halting the practices
alleged; and attorneys' fees, litigation expenses and costs.
* *
As previously reported, several actions seeking compensatory and punitive
damages in unspecified amounts were filed against Hughes by plaintiffs alleging
that they suffered injuries as a result of the migration into the Tucson,
Arizona water supply of alleged toxic substances that were disposed of at a
facility owned by the United States Government which Hughes operates under a
contract with the U.S. Air Force. These actions included a putative class action
filed in Arizona State Court, Cordova v. Hughes Aircraft Company, an individual
action filed on behalf of approximately 800 plaintiffs in Federal District Court
in Arizona, Yslava v. Hughes Aircraft Company, and a class action filed in
Federal District Court in Arizona, Lanier v. Hughes Aircraft Company. Other
governmental and private entities are known to have also been sources of
substances which may have migrated into the Tucson water supply. Hughes believes
that it has strong defense to the claims asserted against it and that it may
have claims for contribution against the other entities. In July, 1996, the
Cordova court denied plaintiffs' motion for class certification and,
subsequently, an amended complaint in intervention on behalf of more than 400
plaintiffs asserting individual claims was filed.
* *
On January 23, 1997, in the matter of Jacobson, et al v. Hughes Aircraft
Co. et al, the U.S. Court of Appeals for the 9th Circuit reversed and remanded a
decision of the U.S. District Court in Los Angeles in which the District court
had dismissed the plaintiff's complaint without leave to amend, for failure to
state a claim. The complaint in that action, filed in January, 1992, by five
retired employees of Hughes as a putative class action to obtain increased
retirement benefits, alleged that the Hughes Non-Bargaining Retirement Plan had
been constructively terminated and split into two separate plans by virtue of
action by Hughes in 1991 in which it amended the Plan in order to implement a
non-contributory benefit formula for newly hired employees. The complaint
alleges that an effect of the amendment is that assets of the Plan have been
used improperly. On February 20, 1997, Hughes filed a request for rehearing
seeking to reinstate the decisions of the District court, all of which was
supported by friend of the court briefs by the Pension Benefit Guaranty
Corporation, Raytheon, various industry groups, and Hughes retirees and
employees associations. Hughes strongly believes that it should prevail in this
action and that ultimately it will do so. If the rehearing is not granted by the
U.S. Court of Appeals Hughes will seek certiorari from the U.S. Supreme Court.
On February 10, 1997, citing the January 16, 1997 announcement by General
Motors, Hughes Electronics and Raytheon of the planned spin-off of Hughes
Aircraft Company from General Motors, and the planned merger of Hughes Aircraft
Company with Raytheon Company, plaintiffs filed a motion with the U.S. Court of
Appeals for the 9th Circuit seeking to enjoin Hughes and the Plan from
transferring assets, control, or administration of the Plan to any other
employer, or from terminating or amending the Plan. Hughes believes there is no
basis for the injunctions sought by Plaintiffs. Hughes and the Plaintiffs have
filed briefs with the Court of Appeals relating to Plaintiffs motion to enjoin,
and await a decision of the Court. Hughes is vigorously contesting the motion.
* *
(b) Previously reported legal proceedings which have been terminated,
either during the quarter ended December 31, 1996, or subsequent thereto, but
before the filing of this report are summarized below:
In connection with a matter that was reported as terminated in the GM Form
10-Q for the period ended June 30, 1996, specifically, approval by the United
States District Court for the District of Columbia, on April 30, 1996 of a
consent decree previously signed by the U.S. Environmental Protection Agency
("EPA"), the U.S. Department of Justice, and General Motors to resolve
allegations that GM violated the Clean Air Act and EPA emissions regulations
with regard to 470,000 1991-1995 model Cadillacs having 4.9 liter engines.
I-12
14
GM has entered into a related agreement with the California Air Resources Board
("CARB") under which General Motors will pay $600,000 to the California Air
Pollution Control Board, $500,000 to the University of Southern California to
fund studies on the effects of air pollution on children's health and provide a
number of electric vehicles and advanced electric vehicle batteries to CARB to
resolve potential allegations that CARB was considering asserting against
General Motors regarding non-compliance of the aforementioned Cadillac 4.9 liter
engines under various vehicle emission standards and vehicle certification
procedures required by California statutes and regulations.
* *
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the three months ended December 31, 1996.
* * *
I-13
15
PART II
GENERAL MOTORS CORPORATION
AND SUBSIDIARIES
CROSS REFERENCE SHEET
10-K ITEM PAGE (AND CAPTION) IN PART II
--------- -----------------------------
5. Market for Registrant's Common Equity and
Related Stockholder Matters
(a) Market information.................... II-42 -- Selected Quarterly Data
(b) Approximate number of holders of
common stocks......................... II-43 -- Selected Quarterly Data
(c) Dividends
(1) History.......................... II-42 -- Selected Quarterly Data
(2) Policy........................... II-35 -- Dividends on Common Stocks
6. Selected Financial Data..................... II-45 -- Selected Financial Data
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ II-48 -- Management's Discussion and Analysis
8. Financial Statements and Supplementary
Data........................................ II-2 -- Responsibilities for Consolidated
Financial Statements
II-3 -- Independent Auditors' Report
II-4 -- Consolidated Statements of Income for the
Years Ended December 31, 1996, 1995, and
1994
II-5 -- Consolidated Balance Sheets, December 31,
1996 and 1995
II-6 -- Consolidated Statements of Cash Flows for
the Years Ended December 31, 1996, 1995,
and 1994
II-7 -- Notes to Consolidated Financial Statements
II-42 -- Selected Quarterly Data
9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................ None
II-1
16
RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of General Motors
Corporation and subsidiaries were prepared by management, which is responsible
for their integrity and objectivity. The statements have been prepared in
conformity with generally accepted accounting principles and, as such, include
amounts based on judgments of management. Financial information elsewhere in
this Annual Report is consistent with that in the consolidated financial
statements.
Management is further responsible for maintaining a system of internal
accounting controls that is designed to provide reasonable assurance that the
books and records reflect the transactions of the companies and that its
established policies and procedures are carefully followed. From a stockholder's
point of view, perhaps the most important feature in the system of controls is
that it is continually reviewed for its effectiveness and is augmented by
written policies and guidelines, the careful selection and training of qualified
personnel, and a strong program of internal audit.
Deloitte & Touche LLP, an independent auditing firm, is engaged to audit
the consolidated financial statements of General Motors Corporation and
subsidiaries and issue reports thereon. The audit is conducted in accordance
with generally accepted auditing standards that comprehend the consideration of
internal accounting controls and tests of transactions to the extent necessary
to form an independent opinion on the financial statements prepared by
management. The Independent Auditors' Report appears on the next page.
The Board of Directors, through the Audit Committee (composed entirely of
non-employee Directors), is responsible for assuring that management fulfills
its responsibilities in the preparation of the consolidated financial
statements. The Committee selects the independent auditors annually in advance
of the Annual Meeting of Stockholders and submits the selection for ratification
at the Meeting. In addition, the Committee reviews the scope of the audits and
the accounting principles being applied in financial reporting. The independent
auditors, representatives of management, and the internal auditors meet
regularly (separately and jointly) with the Committee to review the activities
of each, to ensure that each is properly discharging its responsibilities, and
to assess the effectiveness of the system of internal accounting controls. It is
management's conclusion that the system of internal accounting controls at
December 31, 1996 provides reasonable assurance that the books and records
reflect the transactions of the companies and that its established policies and
procedures are complied with. To ensure complete independence, Deloitte & Touche
LLP has full and free access to meet with the Committee, without management
representatives present, to discuss the results of the audit, the adequacy of
internal accounting controls, and the quality of the financial reporting.
/s/ JOHN F. SMITH, JR. /s/ J. MICHAEL LOSH
- ------------------------------------- ---------------------------
JOHN F. SMITH, JR. J. MICHAEL LOSH
Chairman, Chief Executive Officer, Chief Financial Officer
and President
II-2
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INDEPENDENT AUDITORS' REPORT
General Motors Corporation,
its Directors, and Stockholders:
We have audited the Consolidated Balance Sheets of General Motors
Corporation and subsidiaries as of December 31, 1996 and 1995 and the related
Consolidated Statements of Income and Cash Flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed at Item 14. These financial statements and the
financial statement schedule are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of General Motors Corporation and subsidiaries
at December 31, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, effective January 1,
1995 the Corporation changed its method of accounting for sales to daily rental
car companies. Also, as discussed in Notes 1 and 4 to the financial statements,
respectively, effective January 1, 1994 the Corporation changed its methods of
accounting for postemployment benefits and certain investments in debt and
equity securities.
/s/ DELOITTE & TOUCHE LLP
- --------------------------------------
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 28, 1997
II-3
18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
Net sales and revenues (Note 1)
Manufactured products....................................... $145,341 $143,666 $134,760
Financial services.......................................... 12,674 11,664 9,419
Other income (Note 3)....................................... 6,054 4,942 4,320
-------- -------- --------
Total net sales and revenues.......................... 164,069 160,272 148,499
-------- -------- --------
Costs and expenses
Cost of sales and other operating charges, exclusive of
items listed below........................................ 123,922 121,300 113,585
Selling, general and administrative expenses................ 14,580 12,550 11,319
Depreciation and amortization expenses (Note 1)............. 11,840 11,213 9,645
Interest expense (Note 11).................................. 5,695 5,182 5,392
Plant closings reserve adjustments (Note 17)................ (727) -- --
Other deductions (Note 3)................................... 2,083 1,678 1,460
-------- -------- --------
Total costs and expenses.............................. 157,393 151,923 141,401
-------- -------- --------
Income from continuing operations before income taxes....... 6,676 8,349 7,098
Income taxes (Note 7)....................................... 1,723 2,316 2,232
-------- -------- --------
Income from continuing operations before cumulative effect
of accounting changes..................................... 4,953 6,033 4,866
Income from discontinued operations (Note 2)................ 10 900 793
Cumulative effect of accounting changes (Note 1)............ -- (52) (758)
-------- -------- --------
Net Income............................................ 4,963 6,881 4,901
Preference shares tender offer premium (Note 19)............ -- 153 --
Dividends on preference stocks (Note 19).................... 81 211 321
-------- -------- --------
Earnings on common stocks............................. $ 4,882 $ 6,517 $ 4,580
======== ======== ========
Earnings attributable to common stocks (Note 20)
$1 2/3 par value from continuing operations before
cumulative effect of accounting changes................. $ 4,589 $ 5,404 $ 4,296
Income (loss) from discontinued operations (Note 2)....... (5) 105 349
Cumulative effect of accounting changes (Note 1).......... -- (52) (751)
-------- -------- --------
Net earnings attributable to $1 2/3 par value......... $ 4,584 $ 5,457 $ 3,894
======== ======== ========
Income from discontinued operations attributable to Class
E (Note 2).............................................. $ 15 $ 795 $ 444
======== ======== ========
Class H before cumulative effect of accounting change..... $ 283 $ 265 $ 249
Cumulative effect of accounting change (Note 1)........... -- -- (7)
-------- -------- --------
Net earnings attributable to Class H.................. $ 283 $ 265 $ 242
======== ======== ========
Average number of shares of common stocks outstanding (in
millions)
$1 2/3 par value.......................................... 756 750 741
Class E (Notes 2 and 20).................................. 470 405 260
Class H................................................... 98 96 92
Earnings per share attributable to common stocks (Note 20)
$1 2/3 par value from continuing operations before
cumulative effect of accounting changes................. $6.07 $7.14 $5.74
Income (loss) from discontinued operations (Note 2)....... (0.01) 0.14 0.46
Cumulative effect of accounting changes (Note 1).......... -- (0.07) (1.05)
-------- -------- --------
Net earnings attributable to $1 2/3 par value......... $6.06 $7.21 $5.15
======== ======== ========
Income from discontinued operations attributable to Class
E (Note 2).............................................. $0.04 $1.96 $1.71
======== ======== ========
Class H before cumulative effect of accounting change..... $2.88 $2.77 $2.70
Cumulative effect of accounting change (Note 1)........... -- -- (0.08)
-------- -------- --------
Net earnings attributable to Class H.................. $2.88 $2.77 $2.62
======== ======== ========
Reference should be made to the notes to consolidated financial statements.
II-4
19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
1996 1995
---- ----
(DOLLARS IN MILLIONS)
ASSETS
Cash and cash equivalents................................... $ 14,063 $ 10,495
Other marketable securities................................. 8,199 5,523
-------- --------
Total cash and marketable securities (Notes 1 and 4)... 22,262 16,018
Finance receivables -- net (Note 5)......................... 57,550 59,806
Accounts and notes receivable (less allowances)............. 6,557 6,979
Inventories (less allowances) (Note 6)...................... 11,898 11,348
Net assets of discontinued operations (Note 2).............. -- 5,055
Contracts in process (less advances and progress payments of
$1,010 and $1,327) (Note 1)............................... 2,507 2,469
Deferred income taxes (Note 7).............................. 19,510 19,720
Equipment on operating leases (less accumulated depreciation
of $7,661 and $7,225) (Note 8)............................ 30,112 27,702
Property (Note 1)
Real estate, plants, and equipment (Note 9)............... 69,770 67,415
Less accumulated depreciation............................. (41,298) (41,017)
-------- --------
Net real estate, plants, and equipment................. 28,472 26,398
Special tools -- net...................................... 9,032 8,171
-------- --------
Total property......................................... 37,504 34,569
Intangible assets -- net (Notes 1 and 10)................... 12,691 10,273
Other assets................................................ 21,551 19,724
-------- --------
Total assets........................................... $222,142 $213,663
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable (principally trade)........................ $ 14,221 $ 12,685
Notes and loans payable (Note 11)........................... 85,300 81,222
Deferred income taxes (Note 7).............................. 3,207 3,108
Postretirement benefits other than pensions (Note 14)....... 43,190 41,596
Pensions (Note 16).......................................... 7,599 6,691
Other liabilities and deferred credits (Note 15)............ 45,207 45,015
-------- --------
Total liabilities...................................... 198,724 190,317
Stockholders' equity (Notes 19 and 20)
Preference stocks........................................... 1 1
Common stocks
$1 2/3 par value (issued, 756,619,625 and 753,008,273
shares)................................................ 1,261 1,255
Class E (Note 2; issued, 442,812,166 shares in 1995)...... -- 44
Class H (Note 23; issued, 100,075,000 and 97,152,014
shares)................................................ 10 10
Capital surplus (principally additional paid-in capital).... 19,189 18,871
Retained earnings........................................... 6,137 7,185
-------- --------
Subtotal............................................... 26,598 27,366
Minimum pension liability adjustment (Note 16).............. (3,490) (4,736)
Accumulated foreign currency translation adjustments........ (113) 223
Net unrealized gains on investments in certain debt and
equity securities (Note 4)................................ 423 493
-------- --------
Total stockholders' equity............................. 23,418 23,346
-------- --------
Total liabilities and stockholders' equity............. $222,142 $213,663
======== ========
Reference should be made to the notes to consolidated financial statements.
II-5
20
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Cash flows from operating activities
Income from continuing operations before cumulative effect
of accounting changes................................... $ 4,953 $ 6,033 $ 4,866
Adjustments to reconcile income from continuing operations
before cumulative effect of accounting changes to net
cash provided by operating activities
Depreciation and amortization expenses................ 11,840 11,213 9,645
Provision for ongoing postretirement benefits other
than pensions, net of cash payments................ 1,575 1,684 2,253
Pension expense, net of cash contributions............ 801 (2,932) (5,018)
Plant closings reserve adjustments.................... (727) -- --
Pre-tax loss (gain) on sale of business units......... 253 116 (18)
Originations and purchases of mortgage loans.......... (19,455) (12,086) (10,136)
Proceeds on sales of mortgage loans................... 18,157 11,613 10,719
Provision for financing losses........................ 669 449 177
Change in other operating assets and liabilities
Accounts receivable................................ (178) (331) (1,991)
Inventories........................................ (757) (1,214) (1,656)
Accounts payable................................... 1,530 980 1,267
Deferred taxes and income taxes payable............ (562) 1,892 968
Other liabilities.................................. 227 31 2,573
Other................................................. 394 (899) (2,523)
--------- --------- ---------
Net cash provided by operating activities................... 18,720 16,549 11,126
--------- --------- ---------
Cash flows from investing activities
Expenditures for property................................. (9,949) (8,786) (6,023)
Special inter-company payment from EDS (Note 2)........... 500 -- --
Investments in other marketable securities --
acquisitions............................................ (27,431) (17,794) (14,236)
Investments in other marketable securities --
liquidations............................................ 24,966 17,254 13,583
Finance receivables -- acquisitions....................... (155,477) (163,033) (156,580)
Finance receivables -- liquidations....................... 120,253 134,265 136,151
Proceeds from sales of finance receivables................ 36,657 25,389 20,248
Operating leases -- acquisitions.......................... (18,494) (15,125) (14,938)
Operating leases -- liquidations.......................... 10,507 6,268 4,698
Other..................................................... 778 (495) 888
--------- --------- ---------
Net cash used in investing activities....................... (17,690) (22,057) (16,209)
--------- --------- ---------
Cash flows from financing activities
Net increase in loans payable............................. 660 6,227 3,900
Increase in long-term debt................................ 15,933 11,242 12,351
Decrease in long-term debt................................ (12,810) (9,580) (14,111)
Proceeds from the sale of minority interest in
DIRECTV(R).............................................. 138 -- --
Repurchases of common and preference stocks............... (251) (1,681) --
Proceeds from issuing common stocks....................... 480 453 1,017
Cash dividends paid to stockholders....................... (1,530) (1,328) (1,112)
--------- --------- ---------
Net cash provided by financing activities................... 2,620 5,333 2,045
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (185) 146 (14)
--------- --------- ---------
Net cash provided by (used in) continuing operations........ 3,465 (29) (3,052)
Net cash provided by (used in) discontinued operations...... 103 193 (24)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 3,568 164 (3,076)
Cash and cash equivalents at beginning of the year.......... 10,495 10,331 13,407
--------- --------- ---------
Cash and cash equivalents at end of the year................ $ 14,063 $ 10,495 $ 10,331
========= ========= =========
Reference should be made to the notes to consolidated financial statements.
II-6
21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of General
Motors Corporation (hereinafter referred to as the Corporation) and domestic and
foreign subsidiaries that are more than 50% owned (Note 2), principally General
Motors Acceptance Corporation and Subsidiaries (GMAC) and Hughes Electronics
Corporation and Subsidiaries (Hughes) (collectively referred to as General
Motors or GM). General Motors' share of earnings or losses of associates, in
which at least 20% of the voting securities is owned, is included in the
consolidated operating results using the equity method of accounting (Note 3).
GM encourages reference to the GMAC Annual Report on Form 10-K for the period
ended December 31, 1996, filed with the Securities and Exchange Commission, and
the Hughes consolidated financial statements included as Exhibit 99 to the GM
Annual Report on Form 10-K for the period ended December 31, 1996.
Certain amounts for 1995 and 1994 have been reclassified to conform with
the 1996 classifications.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Due to the inherent
uncertainty involved in making estimates, actual results reported in future
periods may be based upon amounts that differ from those estimates.
REVENUE RECOGNITION
Sales are generally recorded when products are shipped or when services are
rendered to independent dealers or other third parties. Provisions for normal
dealer sales incentives, returns and allowances, and GM Card rebates are made at
the time of vehicle sale. Costs related to special sales incentive programs are
recognized as reductions to sales when determinable.
The Emerging Issues Task Force (EITF) of the Financial Accounting Standards
Board reached a consensus in November 1995 on Issue No. 95-1, Revenue
Recognition on Sales with a Guaranteed Minimum Resale Value, and concluded that
a manufacturer must account for the sale of equipment as an operating lease if
it guarantees the resale value of the equipment to the purchaser. The
Corporation modified its revenue recognition policy on sales to daily rental car
companies, effective January 1, 1995, to conform to the consensus. Adoption of
this consensus resulted in an unfavorable cumulative effect of $52 million
after-tax, or $0.07 per share, attributable to $1 2/3 par value common stock.
Sales under long-term contracts, primarily in the defense business, are
generally recorded using the percentage-of-completion (cost-to-cost) method of
accounting. Sales under certain long-term commercial contracts are recorded
using the units-of-delivery method. Profits expected to be realized on contracts
are based on estimates of total sales value and costs at completion. These
estimates are reviewed and revised periodically throughout the lives of the
contracts and adjustments to profits resulting from such revisions are recorded
in the accounting period in which the revisions are made. Estimated losses on
contracts are recorded in the period in which they are identified.
Income on finance receivables in which the face amount includes the finance
charge (principally retail financing) is recorded over the terms of the
receivables using the interest method. Interest on finance receivables in which
the face amount represents the principal (including retail, wholesale, leasing
and lease financing, and term loans to dealers) is recorded using the simple
interest method. Certain loan origination costs are deferred and amortized to
financing revenue over the lives of the related loans using the interest method.
II-7
22
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONCLUDED)
Income from operating lease assets is recognized as scheduled payments
become due. Certain operating lease origination costs are deferred and amortized
to financing revenue over the lives of the related operating leases using the
straight-line method.
Insurance premiums are earned on a basis related to coverage provided over
the terms of the policies. Commission costs and premium taxes incurred in
acquiring new business are deferred and amortized over the terms of the related
policies on the same basis as premiums are earned. The liability for losses
represents estimates from reported losses and also includes a provision for
unreported losses, based on past experience, net of the estimated salvage and
subrogation recoverable.
PRODUCT-RELATED EXPENSES
Advertising and sales promotion, research and development, and other
product-related costs are charged to expense as incurred; provisions for
estimated expenses related to product warranty are made at the time the products
are sold. Advertising expense amounted to $3.4 billion in 1996, $3.1 billion in
1995, and $2.8 billion in 1994. Research and development expense was $8.9
billion in 1996, $8.2 billion in 1995, and $6.9 billion in 1994.
DEPRECIATION AND AMORTIZATION
Depreciation is provided based on estimated useful lives of groups of
property generally using accelerated methods, which accumulate depreciation of
approximately two-thirds of the depreciable cost during the first half of the
estimated useful lives.
Leasehold improvements are amortized over the period of the lease or the
life of the property, whichever is shorter, with the amortization applied
directly to the asset account. Depreciation on capitalized leases with a term of
five years or less is provided using the straight-line method; leases with a
term in excess of five years are depreciated using the foregoing accelerated
methods.
Depreciation of vehicles and other equipment on operating leases or in
General Motors' use is provided generally on a straight-line basis. The
difference between the net book value and the proceeds of sale or salvage on
items disposed of is accounted for as a charge against or credit to the
provision for depreciation.
Expenditures for special tools are amortized over their estimated useful
lives, primarily using the units of production method. Amortization is applied
directly to the asset account. Replacement of special tools for reasons other
than changes in products is charged directly to cost of sales.
Depreciation and amortization expenses were as follows (in millions):
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
Depreciation................................................ $ 8,825 $ 7,746 $6,547
Amortization of special tools............................... 2,856 3,212 2,901
Amortization of intangible assets (Note 10)................. 159 255 197
------- ------- ------
Total..................................................... $11,840 $11,213 $9,645
======= ======= ======
II-8
23
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Exchange and translation (losses) gains on an after-tax basis included in
consolidated net income in 1996, 1995, and 1994 amounted to $(380) million,
$(381) million, and $207 million, respectively.
CASH AND CASH EQUIVALENTS
Cash equivalents are defined as short-term, highly liquid investments with
original maturities of 90 days or less.
Cash paid for interest and income taxes was as follows (in millions):
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
---- ---- ----
Interest.................................................... $5,792 $5,927 $5,056
Income taxes................................................ $2,338 $ 447 $1,510
With respect to noncash transactions, approximately 3 million Series C
Preference shares were converted into 45 million Class E shares in 1996 (Notes 2
and 19) and 173 million shares of Class E common stock were contributed to the
U.S. pension plans in 1995 (Notes 2 and 16). Also, General Motors entered into
capital lease agreements totaling $132 million, $267 million, and $25 million,
in 1996, 1995, and 1994, respectively.
ALLOWANCE FOR FINANCING LOSSES
An allowance for financing losses is generally established during the
period in which receivables are acquired and is maintained in amounts considered
by management to be appropriate in relation to receivables outstanding. Losses
arising from the sale of repossessed collateral are charged to the allowance for
financing losses. Where repossession has not been effected, losses are charged
off as soon as it is determined that the collateral cannot be repossessed,
generally not more than 150 days after default.
REPOSSESSED PROPERTY AND IMPAIRED LOANS
Losses arising from repossession of the collateral supporting doubtful
accounts and property supporting defaulted operating leases are recognized upon
repossession. Repossessed assets are recorded at the lower of historical cost or
estimated realizable value in other assets and the related adjustments to the
valuation allowance are included in operating expense.
Nonretail finance receivables are reduced to the estimated fair value of
collateral when determined to be impaired or uncollectible.
CONTRACTS IN PROCESS
Contracts in process are stated at costs incurred plus estimated profit,
less amounts billed to customers and advances and progress payments applied.
Engineering, tooling, manufacturing, and applicable overhead costs, including
administrative, research and development, and selling expenses are charged to
costs and expenses when incurred. Contracts in process also include estimates
relating to claims, requests for equitable adjustments and amounts withheld
pending negotiation or settlement with customers. Under certain contracts with
the U.S. Government, progress payments are received based on costs incurred on
the respective contracts. Title to the inventories related to such contracts
(included in contracts in process) vests with the U.S. Government.
II-9
24
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF LONG-LIVED ASSETS
Effective January 1, 1996, General Motors adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. In accordance with this
standard, General Motors periodically evaluates the carrying value of long-lived
assets to be held and used, including goodwill and other intangible assets, when
events and circumstances warrant such a review. The carrying value of a
long-lived asset is considered impaired when the anticipated undiscounted cash
flow from such asset is separately identifiable and is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved. Losses on long-lived assets to be
disposed of are determined in a similar manner, except that fair market values
are reduced for the cost to dispose. The adoption of this new accounting
standard did not have a material effect on General Motors' consolidated
operating results or financial position.
DERIVATIVE INSTRUMENTS
General Motors is party to a variety of foreign exchange, interest rate,
and commodity forward contracts and options entered into in connection with the
management of its exposure to fluctuations in foreign exchange rates, interest
rates, and certain commodities prices. These financial exposures are managed in
accordance with corporate policies and procedures.
Foreign exchange forward and option contracts are accounted for as hedges
to the extent they are designated, and are effective as, hedges of firm foreign
currency commitments. Additionally, certain foreign exchange option contracts
receive hedge accounting treatment to the extent such contracts hedge certain
anticipated foreign currency transactions. Other such foreign exchange contracts
and options are marked to market on a current basis.
Interest rate swaps that are designated, and effective as, hedges of
underlying debt obligations are not marked to market, but are used to adjust
interest expense recognized over the lives of the underlying debt agreements.
Gains and losses from terminated contracts are deferred and amortized over the
remaining period of the original contract. Open interest rate swaps are reviewed
regularly to ensure that they remain effective as hedges of interest rate
exposure. Written options (including swaptions, interest rate caps and collars,
and swaps with embedded options) and other swaps that do not qualify for hedge
accounting are marked to market on a current basis.
General Motors also enters into commodity forward and option contracts.
Since General Motors has the discretion to settle these transactions either in
cash or by taking physical delivery, these contracts are not considered
financial instruments for accounting purposes. Commodity forward contracts and
options are accounted for as hedges to the extent they are designated, and are
effective as, hedges of firm or anticipated commodity purchase contracts. Other
commodity forward contracts and options are marked to market on a current basis.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, General Motors adopted SFAS No. 112, Employers'
Accounting for Postemployment Benefits. SFAS No. 112 requires accrual of the
costs of benefits provided to former or inactive employees after employment, but
before retirement. The unfavorable cumulative effect of adopting SFAS No. 112,
determined on a discounted basis, was $1.2 billion ($758 million after-tax), or
$751 million ($1.05 per share) attributable to $1 2/3 par value common stock and
$7 million ($0.08 per share) attributable to
II-10
25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
POSTEMPLOYMENT BENEFITS (CONCLUDED)
GM Class H common stock. The noncash charge was primarily related to General
Motors' extended-disability benefit program in the U.S., which under SFAS No.
112, is accrued on a service-driven basis.
ENVIRONMENTAL LIABILITIES
General Motors recognizes environmental liabilities when a loss is probable
and can be reasonably estimated. Such liabilities are generally not subject to
insurance coverage. The cost of each environmental liability is estimated by
engineering, financial, and legal specialists within General Motors based on
current law. Such estimates are based primarily upon the estimated cost of
investigation and remediation required and the likelihood that other potentially
responsible parties (PRPs) will be able to fulfill their commitments at the
sites where General Motors may be jointly and severally liable. At sites being
addressed under the U.S. Comprehensive Environmental Response, Compensation and
Liability Act or similar state laws (the Superfund Sites), General Motors
typically recognizes a loss once it has been named as a PRP and has determined
that some loss is probable and estimable. The Superfund Sites are primarily
multi-PRP sites not owned or operated by General Motors. For General Motors'
operating plants, an estimated liability is typically recognized either upon
completion of an environmental assessment or when General Motors proposes an
agreement with the appropriate regulatory agency to take action at a site. For
closed or closing plants owned by General Motors and properties being sold, an
estimated liability is typically recognized at the time the closure decision is
made or sale is recorded and is based on an environmental assessment of the
plant property.
General Motors' estimates for environmental obligations are dependent
primarily on the nature and extent of historical information and physical data
relating to a contaminated site, the complexity of the site, uncertainty as to
what remedy and technology will be required, the outcome of discussions with
regulatory agencies and other PRPs at multi-party sites, the number and
financial viability of other PRPs, and the timing of expenditures; accordingly,
such estimates could change materially as General Motors periodically evaluates
and revises such estimates based on expenditures against established reserves
and the availability of additional information.
STOCK INCENTIVE PLANS
Effective January 1, 1996, General Motors adopted SFAS No. 123, Accounting
for Stock-Based Compensation, and as permitted by this standard, will continue
to apply the recognition and measurement principles of Accounting Principles
Board (APB) Opinion No. 25 to its stock options and other stock-based employee
compensation awards. General Motors has determined that the differences between
SFAS No. 123 and APB Opinion No. 25, when applied to its options and awards, are
not significant in relation to reported net income and earnings per share.
LABOR FORCE
General Motors, on a worldwide basis, has a concentration of its labor
supply in employees working under union collective bargaining agreements, which
represent approximately 86% of its hourly workforce and 8% of its salaried
workforce. Of these represented employees, approximately 86% of hourly and 37%
of salaried employees are working under agreements that will expire in 1999.
Although new national collective bargaining agreements were completed with the
United Auto Workers and Canadian Auto Workers during 1996, several local union
agreements have expired and currently are under negotiation. Certain of General
Motors suppliers also have represented work forces. Work stoppages by
represented employees could disrupt the assembly of vehicles.
II-11
26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2. EDS SPLIT-OFF
On June 7, 1996 General Motors split-off Electronic Data Systems
Corporation (EDS) to General Motors Class E stockholders on a tax-free basis for
U.S. federal income tax purposes. Under the terms of the split-off, each share
of General Motors former Class E common stock was exchanged for one share of EDS
common stock. In addition, General Motors and EDS entered into a new 10-year
agreement, under which EDS will continue to be General Motors' principal
provider of information technology services and EDS made a special inter-company
payment of $500 million to General Motors.
The financial data related to EDS prior to the June 7, 1996 split-off from
General Motors are classified as discontinued operations. The financial results
of EDS, including assets and liabilities, subsequent to the split-off are not
included in General Motors' consolidated financial statements.
EDS systems and other contracts revenues from outside customers included in
income from discontinued operations totaled $4.3 billion, $8.5 billion, and $6.4
billion for the years ended December 31, 1996, 1995, and 1994, respectively.
Income from discontinued operations of $10 million, $900 million, and $793
million for the years ended December 31, 1996, 1995, and 1994, is reported net
of income tax expense of $14 million, $528 million, and $462 million,
respectively.
Prior to the split-off, General Motors approved certain EDS actions to
maintain and improve operating efficiencies and accelerate its move to
"user-centered" computing. As a result, income from discontinued operations for
1996 includes a one-time charge of $328 million after-taxes related to these
actions.
Income from discontinued operations for 1996 also includes split-off
expenses attributable to $1 2/3 par value common stock of $15 million
after-taxes or $0.02 per share of $1 2/3 par value common stock. Income from
discontinued operations for 1995 and 1994 includes $39 million, $0.05 per share
of $1 2/3 par value common stock, and $29 million, $0.04 per share of $1 2/3 par
value common stock, respectively, of expense associated with purchase accounting
adjustments made at the time of General Motors' purchase of EDS.
The net assets of EDS were as follows (in millions):
DECEMBER 31,
1995
------------
Current assets.............................................. $ 4,382
Property and equipment -- net............................... 3,319
Operating and other assets.................................. 3,208
Current liabilities......................................... (3,261)
Deferred income taxes....................................... (740)
Notes payable............................................... (1,853)
-------
Net assets of discontinued operations.................. $ 5,055
=======
General Motors no longer owns the outstanding shares of EDS and,
accordingly, General Motors' consolidated balance sheet reflects decreased
stockholders' equity and liabilities as well as decreased assets. The split-off
resulted in an overall reduction in General Motors' consolidated net worth of
$4.5 billion at June 7, 1996, including the effect of the $500 million special
inter-company payment from EDS.
II-12
27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3. OTHER INCOME AND OTHER DEDUCTIONS
Other income and other deductions included the following (in millions):
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
Other income
Nonfinancing interest..................................... $1,679 $1,586 $1,389
Insurance premiums........................................ 947 867 874
Claims, commissions, and grants........................... 670 604 467
Equity in net earnings of associates...................... 129 281 232
Income from sales of receivables programs................. 625 744 690
Mortgage servicing and processing fees.................... 489 375 209
Gain on sale of interest in DIRECTV(R)(1)................. 120 -- --
Gain on sale of Avis, Inc. preferred stock(2)............. 105 -- --
Other..................................................... 1,290 485 459
------ ------ ------
Total other income..................................... $6,054 $4,942 $4,320
====== ====== ======
Other deductions
Insurance losses and loss adjustment expenses............. $ 622 $ 621 $ 750
Provision for financing losses............................ 669 449 177
Loss on sale of facilities(3)............................. 253 -- --
Loss on sale of NCRS' net assets(4)....................... -- 148 --
Other..................................................... 539 460 533
------ ------ ------
Total other deductions................................. $2,083 $1,678 $1,460
====== ====== ======
- -------------------------
(1) During 1996, the sale of a 2.5% interest in DIRECTV to AT&T resulted in a
gain of $120 million ($72 million after-tax or $0.07 per share of $1 2/3 par
value common stock and $0.18 per share of Class H common stock).
(2) The sale of GM's preferred stock interest in Avis, Inc. resulted in a gain
of $105 million ($65 million after taxes or $0.09 per share of $1 2/3 par
value common stock).
(3) In 1996, GM-NAO/Delphi sold four Delphi component facilities and GM-NAO's
Oshawa die-management business, which resulted in a pre-tax loss of $253
million ($157 million after-tax or $0.21 per share of $1 2/3 par value
common stock).
(4) The Corporation sold National Car Rental System's (NCRS) net assets, which
resulted in $163 million of net income or $0.22 per share of $1 2/3 par
value common stock. The 1995 net income reflects $310 million of tax
benefits related to the restructuring for NCRS in 1992. The tax benefits
were not previously recorded due to the uncertainty of ultimate realization.
NOTE 4. MARKETABLE AND OTHER SECURITIES
Effective January 1, 1994, General Motors adopted SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities, which resulted in a $241
million after-tax increase in stockholders' equity. Under SFAS No. 115, debt and
equity securities with readily determinable fair values are classified as
trading, available-for-sale or held-to-maturity.
Marketable securities held by General Motors are classified as
available-for-sale, except for certain mortgage related securities of GMAC,
which were classified as trading securities. The aggregate excess of fair value
over cost, net of related income taxes, for available-for-sale securities is
included as a separate
II-13
28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4. MARKETABLE AND OTHER SECURITIES (CONCLUDED)
component of stockholders' equity. The excess of fair value over cost for
trading securities is included in income on a current basis. General Motors
determines cost on the specific identification basis.
Investments in marketable securities were as follows (in millions):
December 31, 1996
-----------------------------------------
Fair Unrealized Unrealized
Cost Value Gains Losses
Type of Security ---- ----- ---------- ----------
Bonds, notes, and other securities
United States government and governmental agencies and
authorities........................................ $1,702 $1,705 $ 5 $ (2)
States, municipalities, and political subdivisions.... 1,573 1,648 85 (10)
Mortgage-backed securities............................ 62 64 2 --
Other................................................. 3,410 3,441 40 (9)
------ ------ ---- ----
Total debt securities available for sale................ 6,747 6,858 132 (21)
Mortgage-backed securities held for trading
purposes........................................... 697 697 -- --
------ ------ ---- ----
Total debt securities................................... 7,444 7,555 132 (21)
Equity securities....................................... 384 799 430 (15)
------ ------ ---- ----
Total investment in securities..................... $7,828 $8,354 $562 $(36)
====== ====== ==== ====
December 31, 1995
-----------------------------------------
Fair Unrealized Unrealized
Cost Value Gains Losses
Type of Security ---- ----- ---------- ----------
Bonds, notes, and other securities
United States government and governmental agencies and
authorities........................................ $ 529 $ 541 $ 12 $ --
States, municipalities, and political subdivisions.... 1,721 1,825 113 (9)
Mortgage-backed securities............................ 77 79 3 (1)
Other................................................. 1,990 2,043 54 (1)
------ ------ ---- ----
Total debt securities available for sale................ 4,317 4,488 182 (11)
Mortgage-backed securities held for trading
purposes........................................... 485 485 -- --
------ ------ ---- ----
Total debt securities................................... 4,802 4,973 182 (11)
Equity securities....................................... 336 752 428 (12)
------ ------ ---- ----
Total investment in securities..................... $5,138 $5,725 $610 $(23)
====== ====== ==== ====
Debt securities totaling $1.8 billion mature within one year, $2.8 billion
mature after one through five years, $1.4 billion mature in after five years
through 10 years, and $1.5 billion mature after 10 years.
Proceeds from sales and maturities of marketable securities totaled $5.7
billion in 1996, $6.2 billion in 1995, and $2.4 billion in 1994. The gross gains
and (losses) related to sales of marketable securities were $236 million and
$(33) million, $118 million and $(29) million, and $96 million and $(43) million
in 1996, 1995, and 1994, respectively.
Other securities classified as cash equivalents were $13.5 billion and $9.8
billion at December 31, 1996 and 1995, respectively, and consisted primarily of
commercial paper, repurchase agreements, and certificates of deposit.
II-14
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5. FINANCE RECEIVABLES -- NET
Finance receivables-net included the following (in millions):
DECEMBER 31,
------------------
1996 1995
---- ----
U.S.
Retail.................................................... $26,867 $26,980
Wholesale................................................. 13,826 16,190
Leasing and lease financing............................... 1,139 1,327
Term loans to dealers and others.......................... 3,314 3,656
------- -------
Total U.S.............................................. 45,146 48,153
------- -------
Canada, Mexico and International
Retail.................................................... 8,586 8,651
Wholesale................................................. 5,725 5,506
Leasing and lease financing............................... 2,007 1,733
Term loans to dealers and others.......................... 555 493
------- -------
Total Canada, Mexico and International................. 16,873 16,383
------- -------
Total finance receivables......................... 62,019 64,536
Less -- Unearned income..................................... (3,547) (3,922)
-- Allowance for financing losses....................... (922) (808)
------- -------
Total finance receivables -- net.................. $57,550 $59,806
======= =======
The aggregate amount of total finance receivables maturing in each of the
five years following December 31, 1996 is as follows: 1997 - $35.6 billion; 1998
- - $11.2 billion; 1999 - $8.9 billion; 2000 - $4.3 billion; 2001 - $1.6 billion;
and 2002 and thereafter - $448 million.
GMAC participates in various sales of receivables programs and sold retail
finance receivables through special purpose subsidiaries with principal
aggregating $2.2 billion in 1996 and $3.6 billion in 1995. These subsidiaries
generally retain a subordinated investment of no greater than 7.5% of the total
receivables pool and market the remaining portion. These subordinated
investments absorb losses related to sold receivables to the extent that such
losses are greater than the excess cash flows from those receivables and cash
reserves related to the sale transaction. Pre-tax gains relating to such sales
recorded in other income (excluding limited recourse loss provisions that
generally have been provided at the time the contracts were originally acquired)
amounted to $35 million in 1996, $38 million in 1995, and $31 million in 1994.
GMAC continues to service these receivables for a fee and earns other related
ongoing income. GMAC's retail finance receivable servicing portfolio amounted to
$4.3 billion and $6.6 billion at December 31, 1996 and 1995, respectively.
GMAC also sold wholesale receivables that it continues to service for a
fee. The wholesale receivables servicing portfolio totaled $5.4 billion and $4.7
billion at December 31, 1996 and 1995, respectively. Additionally, GMAC is
committed to sell eligible wholesale receivables, on a revolving basis, arising
in certain dealer accounts.
II-15
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6. INVENTORIES
Inventories included the following (in millions):
DECEMBER 31,
------------------
1996 1995
---- ----
Productive material, work in process, and supplies.......... $ 6,590 $ 6,570
Finished product, service parts, etc........................ 5,308 4,778
------- -------
Total inventories (less allowances)....................... $11,898 $11,348
======= =======
Increase in LIFO inventories if valued at FIFO.............. $ 2,346 $ 2,424
Inventories are stated generally at cost, which is not in excess of market.
The cost of substantially all U.S. inventories other than the inventories of
Saturn Corporation (Saturn) and Hughes is determined by the last-in, first-out
(LIFO) method. The cost of non-U.S., Saturn, and Hughes inventories is
determined generally by either the first-in, first-out (FIFO) or average cost
methods.
NOTE 7. INCOME TAXES
The provision for income taxes was estimated as follows (in millions):
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
Income taxes estimated to be payable (refundable) currently
U.S. federal.............................................. $ (357) $(1,000) $ 266
Foreign................................................... 1,607 1,314 862
U.S. state and local...................................... 197 16 37
------ ------- ------
Total payable currently................................ 1,447 330 1,165
------ ------- ------
Deferred income tax (benefit) expense -- net
U.S. federal.............................................. 477 2,007 560
Foreign................................................... (147) (88) 455
U.S. state and local...................................... (15) 136 108
------ ------- ------
Total deferred......................................... 315 2,055 1,123
------ ------- ------
Investment tax credits...................................... (39) (69) (56)
------ ------- ------
Total income taxes................................ $1,723 $ 2,316 $2,232
====== ======= ======
Deferred income tax assets and liabilities for 1996 and 1995 reflect the
impact of temporary differences between amounts of assets and liabilities for
financial reporting purposes and the bases of such assets and liabilities as
measured by tax laws. The net deferred tax asset in the U.S. was $17.5 billion
and $18.4 billion at December 31, 1996 and 1995, respectively.
II-16
31
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7. INCOME TAXES (CONTINUED)
Temporary differences and carryforwards that gave rise to deferred tax
assets and liabilities included the following (in millions):
DECEMBER 31,
------------------------------------------------
1996 1995
---------------------- ----------------------
DEFERRED TAX DEFERRED TAX
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
Postretirement benefits other than pensions............ $16,392 $ -- $15,812 $ --
Minimum pension liability adjustment................... 2,036 -- 2,927 --
Employee benefit plans................................. 1,789 6,575 2,029 6,563
Policy and warranty reserves........................... 2,293 -- 2,085 --
Sales and product reserves............................. 1,505 12 1,549 143
Plant closings and restructuring reserves.............. 549 -- 962 --
Profits on long-term contracts......................... 371 142 384 204
Alternative minimum tax credit carryforwards........... 625 -- 730 --
Depreciation........................................... 486 4,682 595 4,775
Capitalized research and experimentation............... 370 -- 571 --
U.S. state net operating loss carryforwards............ 494 -- 478 --
Financing losses....................................... 323 -- 298 --
Tax credit carryforwards............................... 396 -- 537 --
Lease transactions..................................... -- 2,415 -- 2,255
Tax on unremitted profits.............................. -- 576 -- 468
Other U.S.............................................. 5,932 2,802 5,930 2,962
Miscellaneous foreign.................................. 1,525 492 1,141 318
------- ------- ------- -------
Subtotal............................................. 35,086 17,696 36,028 17,688
Valuation allowances................................... (1,076) -- (1,102) --
------- ------- ------- -------
Total deferred taxes.............................. $34,010 $17,696 $34,926 $17,688
======= ======= ======= =======
Realization of the net deferred tax assets is dependent on future reversals
of existing taxable temporary differences and adequate future taxable income,
exclusive of reversing temporary differences and carryforwards. Although
realization is not assured, management believes that it is more likely than not
that the net deferred tax assets will be realized. The amount of the net
deferred tax assets considered realizable; however, could be reduced in the near
term if actual future taxable income is lower than estimated, or if there are
differences in the timing or amount of future reversals of existing taxable
temporary differences. The valuation allowances (decreased) increased by $(26)
million and $139 million in 1996 and 1995, respectively.
Annual tax provisions include amounts considered sufficient to pay
assessments that may result from examination of prior year tax returns; however,
the amount ultimately paid upon resolution of issues raised may differ
materially from the amount accrued. The alternative minimum tax credit can be
carried forward indefinitely. The U.S. state net operating loss carryforwards
will expire in the years 1997 - 2010 if not utilized; however, a substantial
portion will not expire until after the year 2000. The tax credit carryforwards
will expire in the years 2000 - 2010 if not utilized.
Provisions are made for estimated U.S. and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance of
the Corporation's share of subsidiaries' undistributed earnings not deemed to be
permanently invested. Taxes have not been provided on foreign subsidiaries'
earnings, which are deemed essentially permanently reinvested, of approximately
$8.7 billion at December 31, 1996 and $7.3 billion at December 31, 1995.
Quantification of the deferred tax liability, if any, associated with
permanently reinvested earnings is not practicable.
II-17
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7. INCOME TAXES (CONCLUDED)
Income from continuing operations before income taxes included the
following (in millions):
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
---- ---- ----
U.S. income................................................. $1,747 $3,621 $2,218
Foreign income.............................................. 4,929 4,728 4,880
------ ------ ------
Total..................................................... $6,676 $8,349 $7,098
====== ====== ======
A reconciliation of the provision for income taxes compared with the
amounts at the U.S. federal statutory rate was as follows (in millions):
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
---- ---- ----
Tax at U.S. federal statutory income tax rate............... $2,336 $2,922 $2,484
U.S. net operating loss carryback........................... (4) (190) --
U.S. state and local income taxes........................... 122 113 110
Investment tax credits amortized............................ (39) (69) (56)
U.S. tax effect of foreign earnings and dividends........... 40 292 127
Foreign rates other than 35%................................ (285) (220) (473)
Taxes on unremitted earnings of subsidiaries................ 49 139 123
Effect of equity in net earnings of associates.............. (45) (98) (81)
Sale of NCRS' net assets.................................... -- (258) --
Tax effect of the 1995 contribution of Class E common stock
to the U.S. hourly pension plan........................... (245) -- --
Research and experimentation credits........................ (165) (74) --
Other adjustments........................................... (41) (241) (2)
------ ------ ------
Consolidated income tax................................... $1,723 $2,316 $2,232
====== ====== ======
NOTE 8. EQUIPMENT ON OPERATING LEASES AND LEASE COMMITMENTS
The value of General Motors' net equipment on operating leases is based on
estimated residual values of the leased equipment, which are calculated on the
lease inception dates. Realization of the residual values is dependent on
General Motors' future ability to market the equipment under then prevailing
market conditions. Although realization is not assured, management believes it
is more likely than not that the estimated residual values will be realized.
The lease payments to be received related to equipment on operating leases
maturing in each of the five years following December 31, 1996 are as follows:
1997-$5.8 billion; 1998-$3.6 billion; 1999-$1.4 billion; 2000-$251 million; and
2001-$112 million.
General Motors had the following minimum commitments under noncancelable
operating leases having terms in excess of one year primarily for real property:
1997-$715 million; 1998-$596 million; 1999-$596 million; 2000-$584 million;
2001-$479 million; and $2,029 million in 2002 and thereafter. Certain of the
leases contain escalation clauses and renewal or purchase options. Rental
expenses under operating leases were $853 million in 1996, $769 million in 1995,
and $816 million in 1994.
II-18
33
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9. REAL ESTATE, PLANTS, AND EQUIPMENT
Real estate, plants, and equipment included the following (in millions):
ESTIMATED DECEMBER 31,
USEFUL ------------------
LIVES (YEARS) 1996 1995
------------- ---- ----
Land........................................................ -- $ 720 $ 647
Land improvements........................................... 20-40 1,888 1,874
Leasehold improvements -- less amortization................. 8-10 297 269
Buildings................................................... 29-45 13,433 13,204
Machinery and equipment..................................... 3-27 46,629 45,635
Furniture and office equipment.............................. 5-20 1,144 1,073
Capitalized leases.......................................... 5-40 1,441 1,403
Construction in progress.................................... -- 4,218 3,310
------- -------
Total real estate, plants, and equipment............... $69,770 $67,415
======= =======
NOTE 10. INTANGIBLE ASSETS -- NET
Intangible assets -- net included the following (in millions):
DECEMBER 31,
------------------
1996 1995
---- ----
Pensions (Note 16).......................................... $ 8,969 $ 6,501
Intangible assets relating to acquisition of Hughes......... 2,723 2,846
Goodwill relating to all other acquisitions................. 999 926
------- -------
Total intangible assets -- net......................... $12,691 $10,273
======= =======
Intangible assets arising from the acquisition of Hughes relate to patents
and related technology and other intangible assets that were originally recorded
in 1985 and are principally amortized over 40 years. Goodwill resulting from
other acquisitions is amortized over periods not exceeding 40 years.
II-19
34
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 11. NOTES AND LOANS PAYABLE
Notes and loans payable were as follows (in millions):
DECEMBER 31,
WEIGHTED AVERAGE ------------------
INTEREST RATE(1) 1996 1995
---------------- ---- ----
Notes and loans
Payable within one year
Current portion of long-term debt..................... 6.8% $12,469 $12,868
Commercial paper(2)................................... 5.8% 22,678 21,914
All other(2).......................................... 5.5% 12,079 11,618
Payable beyond one year
1997.................................................. -- -- 11,797
1998.................................................. 6.6% 10,318 6,443
1999.................................................. 6.8% 7,860 4,545
2000.................................................. 7.7% 5,048 3,516
2001.................................................. 6.8% 4,400 1,784
2002 and after........................................ 7.5% 11,414 7,858
Unamortized discount....................................... (966) (1,121)
------- -------
Total notes and loans payable.................... $85,300 $81,222
======= =======
- -------------------------
(1) The weighted average interest rate for 1996 includes the impact of interest
rate swap agreements.
(2) The weighted average interest rate for commercial paper and all other
short-term borrowings was 5.9% and 6.6%, respectively, at December 31, 1995.
After consideration of foreign currency swaps, the above 1996 maturities,
payable beyond one year, include $6.6 billion in currencies other than the U.S.
Dollar, primarily the Canadian Dollar ($2.1 billion), the German Mark ($1.5
billion), the British Pound ($1.1 billion) and the Australian Dollar ($1
billion).
At December 31, 1996 and 1995, notes and loans payable include $70 billion
and $67 billion of obligations with fixed interest rates and $15 billion and $14
billion of obligations with variable interest rates (predominantly based on the
London Interbank Offering Rate or LIBOR), after considering the impact of
interest rate swap agreements.
To achieve its desired balance, within prescribed limits, between fixed and
variable rate debt, General Motors has entered into interest rate swap, cap,
collar, option, and swaption agreements. The notional amounts of such agreements
as of December 31, 1996 were approximately $13.2 billion ($6 billion pay
variable and $7.2 billion pay fixed), $3.9 billion, $50 million, $6 billion, and
$891 million, respectively. The notional amounts of such agreements as of
December 31, 1995 were approximately $7.1 billion ($3.6 billion pay variable and
$3.5 billion pay fixed), $340 million, $50 million, $nil, and $270 million,
respectively.
General Motors and its subsidiaries maintain substantial bank lines of
credit with various banks that totaled $53.7 billion at December 31, 1996, of
which $32.4 billion represented short-term credit facilities and $21.3 billion
represented long-term credit facilities. At December 31, 1995, bank lines of
credit totaled $50.9 billion, of which $30.1 billion represented short-term
credit facilities and $20.8 billion represented long-term credit facilities. The
unused short-term and long-term portions of the credit lines totaled $21.9
billion and $19.2 billion at December 31, 1996, compared with $20.6 billion and
$18.8 billion at December 31, 1995. Certain bank lines of credit contain
covenants with which the Corporation and applicable subsidiaries were in
compliance at December 31, 1996.
Certain bank lines of credit are supported by bank commitment fees and
compensating balances. Compensating balances, which are not subject to
withdrawal restrictions, are maintained at a level required to
II-20
35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 11. NOTES AND LOANS PAYABLE (CONCLUDED)
provide the same income that a fee would generate. Total commitment and
facilities fees incurred by General Motors amounted to $36 million in 1996, $44
million in 1995, and $59 million in 1994. Total compensating balances maintained
by General Motors in lieu of commitment fees averaged $25 million and $12
million in 1996 and 1995, respectively.
Total interest cost incurred in 1996, 1995, and 1994 amounted to $5.7
billion, $5.2 billion, and $5.4 billion, respectively, of which $49 million, $50
million, and $33 million related to certain real estate, plants, and equipment
that were capitalized in those years.
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
General Motors is a party to financial instruments with off-balance-sheet
risk. These financial instruments are used in the normal course of business to
manage the Corporation's exposure to fluctuations in interest rates and foreign
exchange rates, and to meet the financing needs of its customers.
The primary classes of derivatives used by General Motors are foreign
exchange forward contracts and options, interest rate swaps and options, and
forward contracts to purchase or sell mortgages or mortgage-backed securities.
Those instruments involve, to varying degrees, market risk, as the instruments
are subject to rate and price fluctuations, and elements of credit risk in the
event a counterparty should default. Credit risk is managed through the approval
and periodic monitoring of financially sound counterparties.
Derivative transactions are entered to hedge underlying business exposures.
Market risk in these instruments is offset by opposite movements in the
underlying exposure. Cash receipts or payments on these contracts normally occur
at maturity, or for interest rate swap agreements, at periodic contractually
defined intervals.
FOREIGN EXCHANGE FORWARD CONTRACTS AND OPTIONS
General Motors is an international corporation with operations in over 50
countries and has foreign currency exposures at these operations related to
buying, selling, and financing in currencies other than the local currency.
General Motors' most significant foreign currency exposures relate to Canada,
Mexico, Western European countries (primarily Germany, United Kingdom, Spain,
Italy, Belgium and France), Australia, Japan, and Brazil. The magnitude of these
exposures significantly varies over time depending upon the strength of local
automotive markets and sourcing decisions.
General Motors enters into agreements by which it seeks to manage certain
of its foreign exchange exposures in accordance with established policy
guidelines. These agreements primarily hedge cash flows such as debt, firm
commitments and anticipated transactions involving vehicles, components, fixed
assets, and subsidiary dividends. As a general practice, General Motors has not
hedged the foreign exchange exposure related to either the translation of
overseas earnings into U.S. dollars, or the translation of overseas equity
positions back to U.S. dollars. General Motors uses foreign exchange forward
contracts as well as purchased and written foreign exchange options. Foreign
exchange forward contracts are legal agreements between two parties to purchase
or to sell a foreign currency, for a price specified at the contract date, with
delivery and settlement in the future. Cross-currency swaps are included in this
category and relate to interest rate swaps in which the underlying notional
principal amounts are in different currencies.
At December 31, 1996 and 1995, General Motors held foreign exchange forward
contracts of $8.3 billion and $10.9 billion (including cross-currency swaps of
$2.4 billion and $1.3 billion), respectively. At December 31, 1996 and 1995,
General Motors had entered into foreign exchange options of $3.5 billion and
$3.8 billion, respectively.
II-21
36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FOREIGN EXCHANGE FORWARD CONTRACTS AND OPTIONS (CONCLUDED)
Deferred hedging gains on outstanding foreign exchange forward contracts
hedging firm commitments to purchase inventory or fixed assets totaled $14
million and $1 million at December 31, 1996 and 1995, respectively. Deferred
hedging losses on outstanding foreign exchange option contracts hedging firm and
anticipated transactions to purchase inventory or fixed assets totaled $15
million at December 31, 1996. Such deferred amounts on outstanding foreign
exchange forward and option contracts will be included in the cost of such
assets when purchased, and subsequently recognized in operations as part of the
basis of these assets. In the event the contract is terminated early or the
anticipated transaction is no longer likely to occur, the derivative is then
marked to market. Foreign exchange forward contracts, which hedge foreign
exchange exposures of anticipated inventory or fixed asset transactions, are
marked to market and recognized with other gains or losses on foreign exchange
transactions in the consolidated statement of income. General Motors' firm
commitments typically extend for periods of up to three years.
INTEREST RATE SWAPS AND OPTIONS
General Motors' financing and cash management activities subject it to
market risk from exposure to changes in interest rates. General Motors has
entered into various financial instrument transactions to maintain the desired
level of exposure to the risk of interest rate fluctuations and to minimize
interest expense. To achieve this objective, General Motors will at times use
written options in the management of these exposures.
In a limited number of cases, interest rate swaps are matched to the
anticipated roll-over of investments, wholesale assets or debt, and are executed
over terms of up to five years on a portfolio basis to achieve specific interest
rate management objectives. Swaps are also matched to operating lease payments
where interest rate exposure exists. The differential paid or received on such
swaps is recorded as an adjustment to expense or income over the term of the
underlying agreement or matched portfolio.
Interest rate swaps are contractual agreements between General Motors and
another party to exchange fixed and floating interest rate payments periodically
over the life of the agreements without the exchange of underlying principal
amounts. Interest rate options, including swaptions and interest rate caps and
floors may result in the future exchange of interest payments if market interest
rates reach certain levels. At December 31, 1996 and 1995, the total notional
amount of such agreements with off-balance-sheet risk was $30.8 billion and
$15.9 billion, respectively.
Interest rate swaps used to hedge an underlying debt obligation are not
marked to market, but are used to adjust interest expense recognized over the
life of the underlying debt agreement. Gains and losses on terminated interest
rate swaps are deferred and recognized as a yield adjustment on the underlying
debt. Unamortized net gains (losses) on interest rate swaps totaled
approximately $33 million and $(22) million at December 31, 1996 and 1995,
respectively. Written options, including those embedded in interest rate swaps,
written interest rate caps and written swaptions, and interest rate swaps that
do not meet settlement accounting criteria are marked to market with related
gains and losses recognized in income on a current basis.
MORTGAGE CONTRACTS
GMAC has also entered into contracts to purchase and sell mortgages at
specific future dates and has entered into certain exchange traded futures and
option contracts to reduce exposure to interest rate risk. At December 31, 1996
and 1995, commitments to sell mortgage loans totaled $1.5 billion and $2.2
billion, respectively and commitments to purchase or originate mortgage loans
totaled $2.6 billion and $2.9 billion, respectively. GMAC's exchange traded
futures and option contracts, which are used to hedge mortgage loans held for
sale, had notional values of $2.4 billion and $100 million at December 31, 1996
and 1995, respectively.
II-22
37
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONCLUDED)
MORTGAGE CONTRACTS (CONCLUDED)
Gains and losses on derivatives, including exchange traded futures and option
contracts, used to hedge interest rate risk associated with rate locked funding
commitments and mortgage loans held for sale, are deferred and considered in the
reporting of the underlying mortgages on a lower of cost or market basis.
The notional values of derivatives used to hedge price and interest rate
risk associated with mortgage related securities totaled $4.8 billion and $66
million at December 31, 1996 and 1995, respectively. Gains and losses associated
with these instruments are recognized in the current period on a mark-to-market
basis. Derivatives used to hedge mortgage servicing rights had notional values
of $11 billion and $5 billion at December 31, 1996 and 1995, respectively. Gains
and losses on such contracts are recorded as an adjustment to amortization
expense.
GMAC has also entered into interest rate swaps in an effort to stabilize
short-term borrowing costs and to maintain a minimum return on certain mortgage
loans held for investment. Amounts received or paid under such interest rate
swaps are recorded as an adjustment to interest expense. At December 31, 1996
and 1995, the notional values of such instruments totaled $327 million and $133
million, respectively.
CREDIT RISK
The forward contracts, swaps, options, and lines of credit previously
discussed contain an element of risk that the counterparties may be unable to
meet the terms of the agreements. However, General Motors minimizes such risk
exposure for forward contracts, swaps and options by limiting the counterparties
to major international banks and financial institutions who meet established
credit guidelines and by limiting the amount of its risk exposure with any one
bank or financial institution. Management also reduces its credit risk for
unused lines of credit by applying the same credit policies in making
commitments as it does for extending loans. Management does not expect to incur
any losses as a result of counterparty default. General Motors generally does
not require or place collateral for these financial instruments, except for the
lines of credit it extends.
General Motors has business activities with customers, dealers, and
associates around the world. The Corporation's receivables from, and guarantees
to, such parties are well diversified, and when warranted, are secured by
collateral. Consequently, in management's opinion, no significant concentration
of credit risk exists for General Motors.
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments and SFAS No. 119, Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments, General Motors
has provided the following fair value estimates and information about valuation
methodologies. The estimated fair value amounts have been determined using
available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value; therefore, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid in a current
market exchange. The effect of using different market assumptions and/or
estimation methodologies may be material to the estimated fair value amounts.
Fair value information presented herein is based on information available
at December 31, 1996 and 1995. Although management is not aware of any factors
that would significantly affect the estimated fair value amounts, such amounts
have not been updated since those dates and; therefore, the current estimates of
fair value at dates subsequent to December 31, 1996 and 1995 may differ
significantly from these amounts. The
II-23
38
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
estimated fair value of financial instruments held by General Motors, for which
it is practicable to estimate that value, are set forth below:
Book and fair values of financial instruments were as follows (in
millions):
DECEMBER 31,
--------------------------------------------
1996 1995
-------------------- --------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Assets
Cash and marketable securities.................... $ 22,262 $ 22,262 $ 16,018 $ 16,018
Finance receivables -- net........................ 57,545 57,584 59,789 60,171
Accounts and notes receivable -- net.............. 6,485 6,485 6,936 6,936
Other assets...................................... 7,191 7,294 5,782 5,809
Liabilities
Accounts payable.................................. (14,221) (14,221) (12,685) (12,685)
Notes and loans payable
Payable within one year........................ (47,024) (47,080) (46,056) (46,134)
Payable beyond one year........................ (38,276) (41,113) (35,166) (39,095)
Other liabilities................................... (624) (635) (623) (640)
The prior table excludes the book value and fair value of financial
instrument derivatives which were as follows (in millions):
FAIR VALUE OF OPEN CONTRACTS(1) AT
DECEMBER 31,
----------------------------------------------
1996 1995
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
POSITION POSITION POSITION POSITION
-------- --------- -------- ---------
Foreign exchange forward contracts(2)(3)................... $190 $(410) $284 $(163)
Foreign exchange options................................... 38 (11) 28 (29)
Interest rate swaps........................................ 107 (152) 181 (133)
Interest rate options...................................... 1 (12) -- (42)
Mortgage contracts......................................... 40 (34) 46 (43)
- -------------------------
(1) The related asset (liability) recorded on the balance sheet for foreign
exchange forward contracts, foreign exchange options, interest rate swaps,
and interest rate options totaled $(24) million, $42 million, $(57) million,
and $(11) million, respectively, at December 31, 1996 and $69 million, $(1)
million, $(21) million, and $(46) million, respectively, at December 31,
1995. The related asset recorded on the balance sheet for mortgage contracts
was $12 million and $5 million at December 31, 1996 and 1995, respectively.
(2) Foreign exchange forward contracts include certain derivatives with both
foreign exchange and interest rate exposures which had a fair value of $(94)
million and $75 million at December 31, 1996 and 1995, respectively.
(3) The loss in fair value on the open foreign exchange forward contracts in
1996 was largely offset by a gain in the fair value of the related
underlying debt instruments.
II-24
39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
CASH AND MARKETABLE SECURITIES
The fair value of cash equivalents and marketable securities is determined
principally based on quoted market prices.
FINANCE RECEIVABLES
The fair value is estimated by discounting the future cash flows using
applicable spreads to approximate current rates applicable to each category of
finance receivables. The carrying value of wholesale receivables and other
receivables whose interest rates adjust on a short-term basis with applicable
market indices (generally the prime rate) are assumed to approximate fair value
either due to their short maturities or due to the interest rate adjustment
feature.
ACCOUNTS AND NOTES RECEIVABLE AND ACCOUNTS PAYABLE
For receivables and payables with short maturities the book values
approximate market values.
OTHER ASSETS AND OTHER LIABILITIES
Other assets reported at December 31, 1996 and 1995 include various
financial instruments (e.g., long-term receivables and certain investments)
having a fair value based on discounted cash flows, market quotations, and other
appropriate valuation techniques. The fair values of retained subordinated
interests in trusts and excess servicing assets (net of deferred costs) are
derived by discounting expected cash flows using current market rates. Estimated
values of Industrial Development Bonds, included in other liabilities and
deferred credits, are based on quoted market prices for the same or similar
issues.
NOTES AND LOANS PAYABLE
The fair value of the debt payable within one year is determined by using
quoted market prices, if available, or calculating the estimated value of each
bank loan, note, or debenture in the portfolio at the applicable rate in effect.
Commercial paper, master notes, and demand notes have an original term of less
than 90 days and; therefore, the carrying amount of these liabilities is
considered fair value. Debt payable beyond one year has an estimated fair value
based on quoted market prices for the same or similar issues or based on the
current rates offered to General Motors for debt of similar remaining
maturities.
FOREIGN EXCHANGE FORWARD CONTRACTS AND OPTIONS
The fair value of foreign exchange forward contracts is determined by using
current exchange rates. The fair value of foreign exchange options is estimated
using pricing models with indicative quotes obtained for the market variables.
INTEREST RATE SWAPS AND OPTIONS
The fair value of interest rate swaps, including contracts with
optionality, is estimated using pricing models based upon current market
interest rates. Exchange traded futures are valued at quoted market prices.
II-25
40
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED)
MORTGAGE CONTRACTS
The fair value of such contracts is estimated based upon the amount that
would be received or paid to terminate the contracts based on market prices of
similar financial instruments and current rates for mortgage loans.
UNUSED LINES OF CREDIT
Because loans extended under these commitments are at market interest
rates, there is no significant fair value position related to the outstanding
commitments.
NOTE 14. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
General Motors maintains hourly and salaried benefit plans that provide
postretirement medical, dental, vision, and life insurance to most U.S. retirees
and eligible dependents. These benefits are funded as incurred from the general
assets of General Motors. SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, requires that the cost of such benefits be
recognized in the consolidated financial statements during the period employees
provide service to General Motors.
Certain of the Corporation's non-U.S. subsidiaries have postretirement
plans, although most participants are covered by government sponsored or
administered programs. The postretirement cost of such programs generally is not
significant to General Motors.
The components of non-pension postretirement benefit cost were as follows
(in millions):
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
---- ---- ----
Benefits earned during the year............................. $ 668 $ 617 $ 955
Interest accrued on benefits earned in prior years.......... 2,980 3,120 3,114
Termination, curtailment and settlement (gains) losses...... (3) 26 (233)
Amortization of net actuarial (gains) losses................ 43 (7) 407
Amortization of prior service costs due to plan changes..... (116) (116) (121)
------ ------ ------
Total non-pension postretirement benefit cost.......... $3,572 $3,640 $4,122
====== ====== ======
The status of the plans at December 31 was as follows (in millions):
1996 1995
---- ----
Accumulated postretirement benefit obligation (APBO)
Current retirees.......................................... $23,498 $23,155
Fully eligible active plan participants................... 6,427 5,296
Other active plan participants............................ 11,462 12,411
------- -------
APBO........................................................ 41,387 40,862
Unamortized prior service costs due to plan changes......... 679 795
Unamortized net amount resulting from changes in plan
experience and
actuarial assumptions..................................... 1,124 (61)
------- -------
Net postretirement benefit obligation.................. $43,190 $41,596
======= =======
II-26
41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 14. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONCLUDED)
The principal assumptions used were as follows:
1996 1995 1994
---- ---- ----
Weighted average discount rate.............................. 7.8% 7.5% 8.8%
Weighted average rate of increase in future compensation
levels related to
pay-related life insurance................................ 4.4% 4.3% 4.2%
Base weighted average health care cost trend rate(1)........ 6.5% 6.5% 8.7%
Ultimate sustained weighted average health care cost trend
rate in 2002(2)........................................... 5.0% 5.0% 5.5%
- -------------------------
(1) Current year trend rate assumed at beginning of year was adjusted to actual
to determine year-end obligations.
(2) Rate remains at 6.5% through 1999 and then decreases on a linear basis
through 2002, to the ultimate weighted average trend rate of 5.0%.
A one percentage point increase in the assumed health care trend rate would
have increased the APBO by $4.3 billion at December 31, 1996 and increased the
aggregate service and interest cost components of non-pension postretirement
benefit expense for 1996 by $450 million. A one percentage point increase in the
weighted average discount rate would result in a $4.4 billion decrease in the
APBO at December 31, 1996.
General Motors has disclosed in the consolidated financial statements
certain amounts associated with estimated future postretirement benefits other
than pensions and characterized such amounts as "accumulated postretirement
benefit obligations," "liabilities," or "obligations." Notwithstanding the
recording of such amounts and the use of these terms, General Motors does not
admit or otherwise acknowledge that such amounts or existing postretirement
benefit plans of General Motors (other than pensions) represent legally
enforceable liabilities of General Motors.
NOTE 15. OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits included the following (in
millions):
DECEMBER 31,
---------------------
1996 1995
---- ----
Warranties, dealer and customer allowances, claims,
discounts, etc............................................ $13,702 $12,581
Customer deposits........................................... 6,658 7,325
Payrolls and employee benefits (excludes postemployment).... 4,568 4,138
Unpaid insurance losses, loss adjustment expenses and
unearned insurance premiums............................... 3,020 2,922
Plant closings (excludes environmental)..................... 1,397 2,612
Environmental cleanup....................................... 646 692
Postemployment benefits..................................... 2,075 2,219
Governmental and other contract related..................... 1,060 970
Taxes, other than income taxes.............................. 1,334 1,363
Deferred credits............................................ 1,502 1,505
Interest.................................................... 2,180 2,277
Industrial Development Bonds................................ 624 623
Other....................................................... 6,441 5,788
------- -------
Total other liabilities and deferred credits........... $45,207 $45,015
======= =======
II-27
42
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 16. PENSIONS
General Motors has a number of defined benefit pension plans covering
substantially all employees. Plans covering U.S. and Canadian represented
employees generally provide benefits of negotiated, stated amounts for each year
of service as well as significant supplemental benefits for employees who retire
with 30 years of service before normal retirement age. The benefits provided by
the plans covering U.S. and Canadian salaried employees and employees in certain
foreign locations, are generally based on years of service and salary history.
General Motors also has certain nonqualified pension plans covering executives
that are based on targeted wage replacement percentages and are unfunded.
The measurement dates used for the principal U.S. plans of the Corporation
and Hughes were December 31 and December 1, respectively. For non-U.S. plans,
the measurement dates were December 1 for Canadian plans and October 1 for other
foreign plans.
Plan assets are primarily invested in U.S. Government obligations, equity
and fixed income securities, commingled pension trust funds, insurance
contracts, the Corporation's $1 2/3 par value common stock, and EDS common stock
(valued as of the 1996 measurement date at $1.2 billion and $5.3 billion,
respectively). In March 1995, under the terms of an agreement between the
Corporation and the Pension Benefit Guarantee Corporation (the PBGC), the
Corporation contributed to the General Motors Hourly-Rate Employees Pension Plan
(Hourly Plan) 173.2 million shares of Class E common stock valued at $6.3
billion on such date. Subsequent to the split-off of EDS, the Class E stock held
by the Hourly Plan was exchanged for EDS common stock (Note 2). Subject to the
terms of the agreement with the PBGC, the Corporation will defer the use of
funding credits that would otherwise result from certain cash and stock
contributions. Consequently, the Corporation will continue to make regular cash
contributions to the Hourly Plan over the next several years. The agreement with
the PBGC released EDS from liability, if any, under Title IV of the Employees
Retirement Income Security Act (ERISA) for the Corporation's U.S. Pension Plans.
In addition, in connection with the contribution of the shares of Class E common
stock, the U.S. Department of Labor granted an exemption with respect to, among
other things, limits otherwise applicable under ERISA on the amount of Class E
common stock that could be legally held by the Hourly Plan.
General Motors' funding policy with respect to its qualified plans is to
contribute annually not less than the minimum required by applicable law and
regulation. General Motors made pension contributions to the U.S. plans of $800
million in 1996, $10.4 billion in 1995, and $7.7 billion in 1994.
Pension expense included the following (in millions):
NON-U.S.
U.S. PLANS PLANS
---------- --------
YEAR ENDED DECEMBER 31, 1996
Benefits earned during the year $ 1,208 $ 185
Interest on projected benefit obligation.................. 4,777 653
Return on assets
Actual gain............................................ (8,035) (929)
Less deferred gain..................................... 1,752 442
Net amortization.......................................... 1,436 139
-------- -----
Net periodic pension cost................................. 1,138 490
Termination, curtailment, and settlement benefits......... 59 60
Other..................................................... 10 98
-------- -----
Net pension expense.................................. $ 1,207 $ 648
======== =====
II-28
43
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 16. PENSIONS (CONTINUED)
NON-U.S.
U.S. PLANS PLANS
---------- --------
YEAR ENDED DECEMBER 31, 1995
Benefits earned during the year........................... $ 927 $ 162
Interest on projected obligation.......................... 4,851 651
Return on assets
Actual gain............................................ (12,047) (626)
Less deferred gain..................................... 6,584 195
Net amortization.......................................... 1,053 118
-------- -----
Net periodic pension cost................................. 1,368 500
Termination, curtailment, and settlement benefits......... 51 25
Other..................................................... 9 50
-------- -----
Net pension expense.................................. $ 1,428 $ 575
======== =====
YEAR ENDED DECEMBER 31, 1994
Benefits earned during the year........................... $ 1,131 $ 204
Interest on projected benefit obligation.................. 4,406 596
Return on assets
Actual gain............................................ (1,151) (93)
Plus deferred loss..................................... (3,270) (277)
Net amortization.......................................... 1,311 173
-------- -----
Net periodic pension cost................................. 2,427 603
Termination, curtailment, and settlement benefits........... 400 61
Other....................................................... 13 42
-------- -----
Net pension expense.................................. $ 2,840 $ 706
======== =====
The funded status of General Motors' plans at December 31, were as follows
(in millions):
1996 1995
-------------------- --------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED ACCUM. EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- -------- -------- --------
U.S. PLANS
Actuarial present value of:
Vested benefits..................................... $24,137 $ 36,723 $24,071 $ 34,327
Nonvested benefits.................................. 1,866 7,552 1,761 7,601
------- -------- ------- --------
Accumulated benefit obligation........................ 26,003 44,275 25,832 41,928
Effect of projected benefits.......................... 1,992 231 2,331 238
------- -------- ------- --------
Total projected benefit obligation (PBO) based on
service to date..................................... 27,995 44,506 28,163 42,166
Plan assets at fair value............................. 31,123 40,172 28,855 38,581
------- -------- ------- --------
PBO (in excess of) less than plan assets.............. 3,128 (4,334) 692 (3,585)
Unamortized net amount resulting from changes in plan
experience and actuarial assumptions................ 2,989 5,138 5,736 7,269
Unamortized prior service cost........................ 1,385 7,835 1,268 5,167
Unamortized net obligation (asset) at date of
adoption............................................ (644) 415 (834) 520
Adjustment for unfunded pension liabilities........... -- (13,157) -- (12,717)
------- -------- ------- --------
Net prepaid pension asset (liability)............ $ 6,858 $ (4,103) $ 6,862 $ (3,346)
======= ======== ======= ========
II-29
44
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 16. PENSIONS (CONCLUDED)
1996 1995
-------------------- --------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED ACCUM. EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- -------- -------- --------
NON-U.S. PLANS
Actuarial present value of:
Vested benefits..................................... $ 2,323 $ 6,112 $ 2,014 $ 5,465
Nonvested benefits.................................. 75 204 65 155
------- -------- ------- --------
Accumulated benefit obligation........................ 2,398 6,316 2,079 5,620
Effect of projected benefits.......................... 295 517 302 516
------- -------- ------- --------
Total PBO based on service to date.................... 2,693 6,833 2,381 6,136
Plan assets at fair value............................. 3,065 2,850 2,626 2,407
------- -------- ------- --------
PBO (in excess of) less than plan assets.............. 372 (3,983) 245 (3,729)
Unamortized net amount resulting from changes in plan
experience and actuarial assumptions................ 548 905 579 807
Unamortized prior service cost........................ 194 784 173 912
Unamortized net obligation (asset) at date of
adoption............................................ (231) 226 (174) 200
Adjustment for unfunded pension liabilities........... -- (1,410) -- (1,411)
------- -------- ------- --------
Net prepaid pension asset (liability)............ $ 883 $ (3,478) $ 823 $ (3,221)
======= ======== ======= ========
The following assumptions were used to determine the pension expense and
the actuarial value of the PBO:
1996 1995
----------------- -----------------
U.S. NON-U.S. U.S. NON-U.S.
PLANS PLANS PLANS PLANS
----- -------- ----- --------
Weighted average discount rate............................. 7.5% 7.3% 7.0% 8.0%
Rate of increase in future compensation levels*............ 5.0% 4.2% 5.0% 4.3%
Expected long-term rate of return on plan assets........... 10.0% 9.8% 10.0% 9.9%
- -------------------------
* Benefits under the hourly plans are generally not based on wages; therefore,
no benefit escalation beyond existing negotiated or anticipated increases was
included.
The assumptions for non-U.S. plans were developed on a basis consistent with
that for U.S. plans, adjusted to reflect prevailing economic conditions and
interest rate environments.
II-30
45
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 17. PLANT CLOSINGS AND RESTRUCTURING RESERVES
General Motors previously established plant closings reserves to realign
plant capacity in its North American Operations and a restructuring reserve at
Hughes to provide for a reduction in worldwide employment, a major facilities
consolidation, and a reevaluation of certain non-strategic businesses. The plant
closings reserve principally includes amounts related to postemployment benefits
for employees (mainly pursuant to union or other contractual agreements), such
as employee job security and supplemental unemployment compensation benefits, at
closed plants and two plants scheduled for future closure. The plant closings
reserve also includes costs associated with the disposal of assets at the plants
scheduled for closure. The postemployment benefits portion of the plant closings
reserve was $1.0 billion and $1.9 billion at December 31, 1996 and 1995,
respectively, which is subject to change in the near-term (although not
anticipated) due to changes in assumptions and the period over which such costs
are expected to be incurred.
The following table summarizes the activity in the plant closings
(excluding environmental) and Hughes restructuring reserves for the period from
January 1, 1994 to December 31, 1996 (in millions):
BALANCE AT JANUARY 1, 1994.................................. $4,152
1994 charges against reserves............................. (723)
Discount of people related liabilities.................... (402)
Additions to the reserve by Hughes........................ 35
Reclassification from environmental clean-up liability.... 42
------
BALANCE AT DECEMBER 31, 1994................................ 3,104
1995 charges against reserves............................. (707)
Adjustment to discount for effects of accretion and change
in interest rates...................................... 215
------
BALANCE AT DECEMBER 31, 1995................................ 2,612
1996 charges against reserves............................. (497)
Adjustment to discount for effects of accretion and change
in interest rates...................................... 61
Plant closings reserve adjustments........................ (779)
------
BALANCE AT DECEMBER 31, 1996................................ $1,397
======
In 1996, General Motors recorded favorable plant closings reserve
adjustments totaling $789 million, including $10 million for environmental
matters. Of this amount, $409 million reflected GM's decision to utilize its
Wilmington, Delaware, facility for the assembly of a new generation Saturn
vehicle, and $380 million was primarily due to revised estimates of
postemployment benefit costs to be incurred in connection with plant closings,
in light of changes in redeployment and other assumptions, including those
resulting from the 1996 settlements with the United Auto Workers and the
Canadian Auto Workers. Separate from the plant closings reserve, General Motors
recorded a plant closings charge of $62 million to provide for asset write-downs
of $34 million, postemployment benefit costs of $15 million, and other costs of
$13 million to be incurred in connection with the elimination of a production
line in mid-1997 at a North American facility.
In 1994, the plant closings reserve was decreased to reflect a $402 million
discount for only the postemployment benefits portion of the reserve due to the
Corporation's use of discounting in its method of adoption of SFAS No. 112. In
1996 and 1995, the plant closings reserve was increased by $61 million and $215
million, respectively, for the net effects of accretion and changes in the
interest rate used to discount the postemployment benefits portion of the
reserve. In 1994, the Hughes restructuring reserve was increased by $35 million
primarily due to a change in the estimated loss on the disposition of a
subsidiary.
At December 31, 1996, the combined total of the plant closings and
restructuring reserves (excluding environmental), including $1,355 million for
plant closings in North America and $42 million for the Hughes restructuring,
was primarily comprised of cash items, but also included certain noncash items
such as asset write-downs. Total future discounted cash expenditures for plant
closings is estimated to be $1,279 million.
II-31
46
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 17. PLANT CLOSINGS AND RESTRUCTURING RESERVES (CONCLUDED)
The future costs of postemployment benefits (approximately three-quarters of the
future cash expenditures) will be expended during the period between the closing
of the plants and the time the affected employees are redeployed, retire, or
otherwise terminate their employment. The majority of such spending will occur
over the next five years. The other cash payments for the plant closings reserve
primarily relate to facility costs and will be expended in varying amounts over
the next four years. Cash outflows are influenced by, among other items,
efficient and effective management of the work force and the timing of plant
closings. Approximately $41 million of Hughes' restructuring reserve balance,
primarily relating to facilities consolidation, will require future cash
outflows, the predominant portion of which will occur during the next year.
General Motors and Hughes periodically evaluate the adequacy of reserve
balances and estimated future expenditures, including assumptions used and the
period over which such costs are expected to be incurred.
NOTE 18. CONTINGENT MATTERS
In September 1996, Hughes and PanAmSat Corporation entered into an
agreement to merge their respective satellite services operations into a new
publicly-held company. Hughes would contribute its Galaxy(R) satellite services
business in exchange for a 71.5% interest in the new company. Current PanAmSat
stockholders would receive a 28.5% interest in the new company and $1.5 billion
in cash. The transaction, which is contingent upon receiving certain regulatory
approvals, is expected to close during the second quarter of 1997.
Hughes has maintained a suit against the U.S. Government since September
1973, regarding the Government's infringement and use of a Hughes patent (the
"Williams Patent") covering "Velocity Control and Orientation of a Spin
Stabilized Body," principally satellites. On June 17, 1994, the U.S. Court of
Claims awarded Hughes damages of $114 million. Because Hughes believed that the
record supported a higher royalty rate, it appealed that decision. The U.S.
Government, contending that the award was too high, also appealed. On June 19,
1996, the Court of Appeals for the Federal Circuit affirmed the decision of the
Court of Claims which awarded Hughes $114 million in damages, together with
interest. The U.S. Government petitioned the Court of Appeals for the Federal
Circuit for a rehearing. That petition was denied in October of 1996. The U.S.
Government has filed a petition with the U.S. Supreme Court seeking certiorari.
Hughes is unable to estimate the duration of any such possible appeal. In the
opinion of management of Hughes, there is a reasonable possibility that this
matter could be resolved in the near-term. While no amount has been recorded in
the financial statements of Hughes to reflect the $114 million award, a
resolution of this matter could result in a gain that would be material to the
earnings of General Motors attributable to Class H common stock.
General Motors is subject to potential liability under
government-regulations and various claims and legal actions which are pending or
may be asserted against them. Some of the pending actions purport to be class
actions. The aggregate ultimate liability of General Motors under these
government regulations and under these claims and actions, was not determinable
at December 31, 1996. 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 operations or financial position.
II-32
47
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 19. STOCKHOLDERS' EQUITY
The following table presents changes in stockholders' equity for the period
from January 1, 1994 to December 31, 1996 (in millions):
PREFERENCE $1 2/3 PAR VALUE CLASS E CLASS H TOTAL
STOCKS COMMON STOCK COMMON STOCK COMMON STOCK CAPITAL STOCK
---------- ---------------- ------------ ------------ -------------
(1)
BALANCE AT JANUARY 1, 1994................ $ 4 $1,200 $ 26 $ 8 $1,238
Series A conversion..................... (2) 29 -- -- 27
Shares issued during the year........... -- 28 1 -- 29
--- ------ ---- --- ------
BALANCE AT DECEMBER 31, 1994.............. 2 1,257 27 8 1,294
Shares reacquired under tender offer.... (1) -- -- -- (1)
Shares reacquired on the open market.... -- (16) -- -- (16)
Shares issued during the year........... -- 14 -- -- 14
Shares issued in conjunction with U.S.
Hourly-Rate Employees Pension Plan
contribution.......................... -- -- 17 -- 17
Reclassification of shares formerly
subject to repurchase from HHMI....... -- -- -- 2 2
--- ------ ---- --- ------
BALANCE AT DECEMBER 31, 1995.............. 1 1,255 44 10 1,310
Shares reacquired on the open market.... -- (8) -- -- (8)
Shares issued during the year........... -- 14 -- -- 14
Series C conversion..................... -- -- 5 -- 5
EDS split-off........................... -- -- (49) -- (49)
--- ------ ---- --- ------
BALANCE AT DECEMBER 31, 1996.............. $ 1 $1,261 $ -- $10 $1,272
=== ====== ==== === ======
NET
RETAINED MINIMUM ACCUMULATED UNREALIZED
EARNINGS PENSION FOREIGN GAINS TOTAL
CAPITAL (ACCUMULATED LIABILITY CURRENCY (LOSSES) ON STOCKHOLDERS'
SURPLUS DEFICIT) ADJUSTMENT TRANSLATION INVESTMENTS EQUITY
------- ------------ ---------- ----------- ----------- -------------
(2) (3) (4)
BALANCE AT JANUARY 1, 1994.................. $12,003 $(2,004) $(5,311) $ (494) $165 $ 5,597
Amounts in excess of par value of:
Series A conversion..................... (27) -- -- -- -- --
Shares issued during the year........... 1,173 -- -- -- -- 1,202
Net income................................ -- 4,901 -- -- -- 4,901
Cash dividends(5)......................... -- (1,112) -- (1,112)
Change during the year.................... -- -- 1,763 394 (162) 1,995
Cumulative effect of SFAS No. 115......... -- -- -- -- 241 241
------- ------- ------- ------- ---- -------
BALANCE AT DECEMBER 31, 1994................ 13,149 1,785 (3,548) (100) 244 12,824
Amounts in excess of par value of:
Shares reacquired under tender offer.... (1,132) -- -- -- -- (1,133)
Shares reacquired on the open market.... (379) -- -- -- -- (395)
Shares issued during the year........... 543 -- -- -- -- 557
Shares issued in connection with U.S.
Hourly-Rate Employees Pension Plan
contribution.......................... 6,242 -- -- -- -- 6,259
Reclassification of shares formerly
subject to repurchase from HHMI....... 448 -- -- -- -- 450
Net income................................ -- 6,881 -- -- -- 6,881
Cash dividends(5)......................... -- (1,328) -- -- -- (1,328)
Less redemption price of preference stock
in excess of stated value............... -- (153) -- -- -- (153)
Change during the year.................... -- -- (1,188) 323 249 (616)
------- ------- ------- ------- ---- -------
BALANCE AT DECEMBER 31, 1995................ 18,871 7,185 (4,736) 223 493 23,346
Amounts in excess of par value of:
Shares reacquired on the open market.... (243) -- -- -- -- (251)
Shares issued during the year........... 519 -- -- -- -- 533
Series C conversion..................... (7) -- -- -- -- (2)
EDS split-off........................... 49 (4,481) -- -- -- (4,481)
Net income................................ -- 4,963 -- -- -- 4,963
Cash dividends(5)......................... -- (1,530) -- -- -- (1,530)
Change during the year.................... -- -- 1,246 (336) (70) 840
------- ------- ------- ------- ---- -------
BALANCE AT DECEMBER 31, 1996................ $19,189 $ 6,137 $(3,490) $ (113) $423 $23,418
======= ======= ======= ======= ==== =======
- -------------------------
Notes follow on the next page.
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48
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 19. STOCKHOLDERS' EQUITY (CONTINUED)
Notes (in millions except par value, stated value, and per share amounts):
(1) The following describes the Corporation's preference stocks: Preference
Stock, $0.10 par value (authorized 100 shares): Series B 9 1/8% Depositary
Shares, stated value $25 per share, redeemable at Corporation option on or
after January 1, 1999; issued at December 31, 1996, 20 shares equivalent to
5 shares of nonconvertible Series B 9 1/8% Preference Stock, stated value
$100 per share. Series C Depositary Shares, liquidation preference $50 per
share. Series D 7.92% Depositary Shares, stated value $25 per share,
redeemable at Corporation option on or after August 1, 1999; issued at
December 31, 1996, 6 shares equivalent to 2 shares of Series D 7.92%
Preference Stock. Series G 9.12% Depositary Shares, stated value $25 per
share, redeemable at Corporation option on or after January 1, 2001; issued
at December 31, 1996, 10 shares, equivalent to 3 shares of Series G 9.12%
Preference Stock.
(2) Capital Surplus attributable to $1 2/3 par value common stock was $16,335,
$6,190, and $6,225 at the end of 1996, 1995, and 1994, respectively. Capital
Surplus attributable to Class E was $8,418 and $2,088 at the end of 1995 and
1994, respectively. Capital Surplus attributable to Class H was $1,979,
$1,832, and $1,269 at the end of 1996, 1995, and 1994, respectively. Capital
Surplus attributable to Preference Stocks was $875, $2,431, and $3,567 at
the end of 1996, 1995, and 1994, respectively.
(3) Retained Earnings (Accumulated Deficit) attributable to $1 2/3 par value
common stock were $4,871, $3,854, and $(779) at the end of 1996, 1995, and
1994, respectively. Retained Earnings attributable to Class E were $2,254
and $1,664 at the end of 1995 and 1994, respectively. Retained Earnings
attributable to Class H were $1,266, $1,077, and $900 at the end of 1996,
1995, and 1994, respectively.
(4) Net of deferred income taxes (benefit) of $(278), $225, and $265 at the end
of 1996, 1995, and 1994, respectively.
(5) Cash dividends per share of $1 2/3 par value common stock were $1.60, $1.10,
and $0.80 for 1996, 1995, and 1994, respectively. Cash dividends per share
of Class E were $0.30, $0.52, and $0.48 for 1996, 1995, and 1994,
respectively. Cash dividends per share of Class H were $0.96, $0.92, and
$0.80 for 1996, 1995, and 1994, respectively.
- -------------------------
Holders of $1 2/3 par value and Class H common stocks are entitled to one
and one-half vote per share, respectively, on all matters submitted to the
stockholders for a vote. The liquidation rights of common stockholders are based
on per share liquidation units of the $1 2/3 par value and Class H common stocks
and are subject to certain adjustments if outstanding common stock is
subdivided, by stock split or otherwise, or if shares of one class of common
stock are issued as a dividend to holders of another class of common stock.
Each share of $1 2/3 par value and Class H common stocks is entitled to a
liquidation unit of the same as the vote per share. Holders of Class H common
stock have no direct rights in the equity or assets of Hughes, but rather have
rights in the equity and assets of General Motors (which includes 100% of the
stock of Hughes).
The Corporation's Restated Certificate of Incorporation, as amended,
provides generally that in the event the Corporation should sell, liquidate, or
otherwise dispose of substantially all of Hughes Aircraft Company, or the other
businesses of Hughes, all outstanding shares of Class H common stock will
automatically be converted into the Corporation's $1 2/3 par value common stock
at an exchange rate that would provide Class H common stockholders with that
number of shares of $1 2/3 par value common stock that would have a value equal
to 120% of the value of their Class H common stock, as of a specific notice or
announcement date provided for in the Restated Certificate of Incorporation. A
recapitalization of the type described in the prior sentence would occur if any
of the triggering events took place unless the holders of GM common stock
(including the holders of $1 2/3 par value common stock and holders of the Class
H common stock voting separately as individual classes) vote to approve an
alternative proposal from GM's Board of Directors, as occurred in relation to
GM's former Class E common stock in connection with the split-off of EDS in
1996, and as GM has indicated its Board of Directors plans to propose to the GM
Class H and $1 2/3 stockholders later this year in connection with the potential
spin-off of the Hughes defense business (also see Note 23).
Upon Board approval, GM may exchange $1 2/3 par value common stock for
Class H common stock, if the Board has declared and paid certain minimum cash
dividends during each of the five years preceding the exchange. Based on the
dividends paid on the Class H common stock in 1992 through 1996, the dividend
condition described above would be satisfied in 1997.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 19. STOCKHOLDERS' EQUITY (CONCLUDED)
During the 1996 first quarter, approximately 45 million shares of Class E
common stock were issued upon conversion of approximately 3 million shares of
Series C Preference Stock (represented by depositary shares). The remaining
6,784 shares of Series C Preference Stock were redeemed on February 22, 1996 for
$4 million of cash, or $524.20 per share of Series C Preference Stock ($52.42
per depositary share).
In May 1995, the Corporation concluded a tender offer, which began in April
1995, under which it purchased for $1.3 billion of cash (i) 24 million
depositary shares, each representing one-fourth of a share of its Series B
9 1/8% Preference Stock, at a purchase price of $27.50 per depositary share,
(ii) 10 million depositary shares, each representing one-fourth of a share of
its Series D 7.92% Preference Stock, at a purchase price of $26.375 per
depositary share, and (iii) 13 million depositary shares, each representing one-
fourth of a share of its Series G 9.12% Preference Stock, at a purchase price of
$28.25 per depositary share. The repurchase had an unfavorable impact of $0.22
per share of $1 2/3 par value common stock. The unfavorable impact was comprised
of tender offer expenses of $14 million after-tax, or $0.02 per share, that were
charged against income and the purchase price in excess of the carrying amount
of the preference shares amounting to $153 million, or $0.20 per share, that was
not charged against income but reduced earnings attributable to $1 2/3 par value
common stock.
The Corporation held an option to call 15 million shares of Class H common
stock subject to put options issued to the Howard Hughes Medical Institute
(HHMI). In March 1995, the put and call rights expired unexercised. As a result,
$2 million was reclassified to Class H common stock and $448 million was
reclassified to capital surplus.
In June 1994, the Corporation converted its outstanding shares of its
Series A Conversion Preference Stock (Preference Equity Redemption Cumulative
Stock or PERCS) into 18 million shares of $1 2/3 par value common stock.
NOTE 20. EARNINGS PER SHARE ATTRIBUTABLE TO AND DIVIDENDS ON COMMON STOCKS
Earnings per share attributable to common stocks have been determined based
on the relative amounts available for the payment of dividends to holders of
$1 2/3 par value and Class H common stocks (Note 23) and the former Class E
common stock (Note 2). The allocation of earnings attributable to such common
stocks and the calculation of the related amounts per share were computed by
considering the weighted average number of common shares outstanding. Beginning
in 1996, common stock equivalents were not considered as they are not material.
The Available Separate Consolidated Net Income (ASCNI) of Hughes represents
the quarterly separate consolidated net income of Hughes, excluding the effects
of purchase accounting adjustments arising at the time of the Corporation's
acquisition of Hughes, multiplied by a fraction, the numerator of which is a
number equal to the weighted average number of shares of Class H common stock
outstanding during the period (99 million during the fourth quarter of 1996) and
the denominator of which was 400 million during the fourth quarter of 1996.
Comparable numerators for the fourth quarters of 1995 and 1994 were 97 million
and 93 million. Comparable denominators were 400 million in the fourth quarters
of 1995 and 1994.
The denominator used in determining the ASCNI of Hughes may be adjusted as
deemed appropriate by the GM Board of Directors to reflect subdivisions or
combinations of the Class H common stock and to reflect certain transfers of
capital to or from Hughes. The GM Board's discretion to make such adjustments is
limited by criteria set forth in the Corporation's Restated Certificate of
Incorporation. In this regard, the GM Board has generally caused the denominator
to decrease as shares are purchased by Hughes and to increase as such shares are
used, at Hughes expense, for Hughes employee benefit plans or acquisitions.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20. EARNINGS PER SHARE ATTRIBUTABLE TO AND DIVIDENDS ON COMMON STOCKS
(CONCLUDED)
Dividends on the $1 2/3 par value common stock are declared out of the
earnings of General Motors, excluding the ASCNI of Hughes and EDS, during such
time that EDS was an indirect wholly-owned subsidiary of the Corporation.
Dividends on the Class H common stock are declared out of the ASCNI of Hughes,
earned since the acquisition of Hughes by the Corporation.
Dividends may be paid on common stocks only when, as and if declared by the
GM Board in its sole discretion. The GM Board's policy with respect to $1 2/3
par value common stock is to distribute dividends based on the outlook and the
indicated capital needs of the business. The current policy of the GM Board with
respect to the Class H common stock is to pay quarterly cash dividends
approximately equal to 35% of the ASCNI of Hughes, for the prior year.
During the period that EDS was an indirect wholly-owned subsidiary of the
Corporation the ASCNI of EDS was determined quarterly in amounts equal to the
separate consolidated net income of EDS for each respective quarter, excluding
the effects of purchase accounting adjustments relating to the Corporation's
acquisition of EDS for each such period, multiplied by a fraction, the numerator
of which represented the weighted average number of shares of Class E common
stock outstanding during the period (439 million for the fourth quarter of 1995)
and the denominator of which was 484 million for the fourth quarter of 1995. The
denominator of the fraction was adjusted from time-to-time as deemed appropriate
by the GM Board to reflect subdivisions or combinations of the Class E common
stock and to reflect certain transfers of capital to or from EDS. The weighted
average number of shares of Class E common stock outstanding for 1996 reflects
shares outstanding through June 30, 1996. Dividends on the Class E common stock
were declared only out of the ASCNI of EDS earned during such time that EDS was
an indirect wholly-owned subsidiary of the Corporation.
NOTE 21. STOCK INCENTIVE PLANS
General Motors' stock incentive plans consist of the General Motors Amended
1987 Stock Incentive Plan (the "GMSIP") and the Hughes Electronics Corporation
Incentive Plan (the "Hughes Plan"). The GMSIP is administered by the Executive
Compensation Committee of the Board. The Hughes Plan is administered by the
Executive Compensation Committee of the Board of Directors of Hughes Electronics
Corporation.
Under the GMSIP, 40 million shares of $1 2/3 par value and 6 million shares
of Class H common stocks may be granted from June 1, 1992 through May 31, 1997
of which 10 million and 3 million shares, respectively, were available for
grants at December 31, 1996. Options granted under the GMSIP generally are
exercisable one-half after one year and one-half after two years from the dates
of grant. Stock option grants to certain executives vest ratably over three
years following the grant date. Option prices are 100% of fair market value on
the dates of grant and the options generally expire 10 years from the dates of
grant, subject to earlier termination under certain conditions.
Under the Hughes Plan, Hughes may grant shares, rights, or options to
acquire up to 20 million shares of Class H common stock through May 31, 1997, of
which 2 million shares were available for grant at December 31, 1996. Option
prices are 100% of fair market value on the dates of grant and the options
generally expire 10 years from the dates of grant, subject to earlier
termination under certain conditions.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 21. STOCK INCENTIVE PLANS (CONCLUDED)
Changes in the status of outstanding options were as follows:
GMSIP HUGHES PLAN
$1 2/3 PAR VALUE COMMON CLASS H COMMON
------------------------------ ------------------------------
WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE
UNDER OPTION EXERCISE PRICE UNDER OPTION EXERCISE PRICE
------------ -------------- ------------ --------------
Options outstanding at January 1, 1994..... 22,761,057 $39.05 6,366,008 $25.19
Granted.................................... 6,159,395 $58.61 1,612,640 $36.75
Exercised.................................. 3,305,513 $39.23 712,107 $24.48
Terminated................................. 340,161 $50.53 202,220 $34.22
---------- ------ --------- ------
Options outstanding at December 31, 1994... 25,274,778 $43.64 7,064,321 $27.64
---------- ------ --------- ------
Granted.................................... 6,600,115 $43.22 1,537,350 $39.94
Exercised.................................. 2,248,627 $37.12 1,929,393 $24.81
Terminated................................. 346,140 $45.12 14,425 $34.17
---------- ------ --------- ------
Options outstanding at December 31, 1995... 29,280,126 $44.03 6,657,853 $31.29
---------- ------ --------- ------
Granted.................................... 7,087,590 $52.27 1,501,900 $61.31
Exercised.................................. 6,207,072 $39.16 864,889 $28.58
Terminated................................. 202,697 $51.75 128,075 $42.94
---------- ------ --------- ------
Options outstanding at December 31, 1996... 29,957,947 $46.94 7,166,789 $37.70
---------- ------ --------- ------
Options exercisable at December 31, 1996... 19,699,257 $45.67 4,965,289 $30.40
========== ====== ========= ======
The following table summarizes information about GMSIP and Hughes Plan
stock options outstanding at December 31, 1996:
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE (YRS.) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ----------------------- -------------- ----------- --------------
GMSIP $1 2/3 PAR VALUE COMMON
$30.00 to $39.99 ............ 5,817,515 5.6 $35.75 5,736,440 $35.71
40.00 to 49.99 ............ 11,406,312 5.9 43.29 8,225,542 43.30
50.00 to 60.00 ............ 12,734,120 8.2 55.32 5,737,275 59.01
---------- --- ------ ---------- ------
$30.00 to $60.00 ............ 29,957,947 6.8 $46.94 19,699,257 $45.67
========== === ====== ========== ======
HUGHES PLAN CLASS H COMMON
$15.00 to $24.99 ............ 829,669 4.6 $20.74 829,669 $20.74
25.00 to 34.99 ............ 2,179,755 5.5 27.36 2,179,755 27.36
35.00 to 44.99 ............ 2,692,090 7.9 38.45 1,955,865 37.89
45.00 to 54.99 ............ -- -- -- -- --
55.00 to 65.00 ............ 1,465,275 9.3 61.31 -- --
---------- --- ------ ---------- ------
$15.00 to $65.00 ............ 7,166,789 7.1 $37.70 4,965,289 $30.40
========== === ====== ========== ======
NOTE 22. SEGMENT REPORTING
INDUSTRY SEGMENTS
While the major portion of General Motors' operations is derived from the
automotive products industry segment, General Motors also has a financing and
insurance industry segment and produces products and
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 22. SEGMENT REPORTING (CONTINUED)
provides services in other industry segments. The automotive products segment
consists of the design, manufacture, assembly, and sale of automobiles, trucks
and related parts and accessories. The financing and insurance operations,
primarily GMAC, assist in the merchandising of General Motors' products as well
as other products. GMAC offers financial services and certain types of insurance
to dealers and customers. In addition, GMAC is engaged in mortgage banking
services. The other products segment consists of satellite construction,
ownership and operation, communications services, ground equipment,
direct-to-home satellite television entertainment services, missile systems,
command and control systems, torpedoes and sonar systems, electro-optical
systems, airborne radar and communication systems, military training and
simulation systems, air traffic control systems, information systems, and
guidance and control systems; as well as the design, development, and
manufacture of locomotives.
Substantially all of the products in the automotive segment are marketed
through retail dealers and through distributors and jobbers in North America and
through distributors and dealers overseas.
Information concerning continuing operations by industry segment as of and
for each of the three years ended December 31, was as follows (in millions):
FINANCING &
AUTOMOTIVE INSURANCE OTHER
PRODUCTS OPERATIONS(1) PRODUCTS TOTAL
---------- ------------- -------- -----
1996
Net sales and revenues(2).................. $133,168 $12,674 $12,173 $158,015
-------- ------- ------- --------
Operating profit........................... $ 4,477 N/A(3) $ 682 $ 5,159
-------- ------- ------- --------
Identifiable assets at year-end............ $103,517 $98,358 $17,161 $219,036
-------- ------- ------- --------
Depreciation and amortization expenses..... $ 6,664 $ 4,695 $ 481 $ 11,840
-------- ------- ------- --------
Capital expenditures....................... $ 9,010 $ 343 $ 596(4) $ 9,949
======== ======= ======= ========
1995
Net sales and revenues(2).................. $132,159 $11,664 $11,507 $155,330
-------- ------- ------- --------
Operating profit........................... $ 6,101 N/A(3) $ 538 $ 6,639
-------- ------- ------- --------
Identifiable assets at year-end............ $ 91,162 $95,545 $17,372 $204,079
-------- ------- ------- --------
Depreciation and amortization expenses..... $ 5,990 $ 4,427 $ 796 $ 11,213
-------- ------- ------- --------
Capital expenditures $ 8,216 $ 133 $ 437(4) $ 8,786
======== ======= ======= ========
1994
Net sales and revenues(2).................. $123,253 $ 9,419 $11,507 $144,179
-------- ------- ------- --------
Operating profit........................... $ 6,116 N/A(3) $ 891 $ 7,007
-------- ------- ------- --------
Identifiable assets at year-end............ $ 88,064 $85,270 $13,879 $187,213
-------- ------- ------- --------
Depreciation and amortization expenses..... $ 5,655 $ 3,302 $ 688 $ 9,645
-------- ------- ------- --------
Capital expenditures....................... $ 5,545 $ 133 $ 345(4) $ 6,023
======== ======= ======= ========
- -------------------------
(1) Financing and insurance operations included the following financial data for
GMAC:
1996 1995 1994
---- ---- ----
Net Income.................................................. $ 1,240 $ 1,031 $ 920
Total Assets................................................ $98,578 $95,648 $86,517
Net Assets.................................................. $ 8,268 $ 8,269 $ 7,894
(2) After elimination of intersegment transactions.
(3) Financing and insurance operations do not report operating profit.
(4) Excludes expenditures related to telecommunications and other equipment
amounting to $188 million, $275 million, and $256 million in 1996, 1995, and
1994, respectively.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 22. SEGMENT REPORTING (CONTINUED)
A reconciliation of net sales and revenues to total net sales and revenues
and of total operating profit to income from continuing operations before income
taxes detailed in the consolidated statements of income and a reconciliation of
identifiable assets to total assets displayed in the consolidated balance sheets
follow (in millions):
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
Net sales and revenues...................................... $158,015 $155,330 $144,179
Other income................................................ 6,054 4,942 4,320
-------- -------- --------
Total net sales and revenues........................... $164,069 $160,272 $148,499
======== ======== ========
Total operating profit...................................... $ 5,159 $ 6,639 $ 7,007
Financing and insurance operations.......................... 2,036 1,783 1,440
Other corporate income and expenses less intersegment
transactions.............................................. (519) (73) (1,349)
-------- -------- --------
Income from continuing operations before income
taxes................................................ $ 6,676 $ 8,349 $ 7,098
======== ======== ========
Identifiable assets......................................... $219,036 $204,079 $187,213
Corporate assets............................................ 4,984 5,688 5,649
Net assets of discontinued operations....................... -- 5,055 4,348
Eliminations................................................ (1,878) (1,159) (2,222)
-------- -------- --------
Total assets........................................... $222,142 $213,663 $194,988
======== ======== ========
GEOGRAPHIC SEGMENTS
Information concerning continuing operations by principal geographic area
was as follows (in millions):
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
UNITED CANADA LATIN ALL
STATES & MEXICO EUROPE AMERICA OTHER TOTAL(1)
1996 ------ -------- ------ ------- ----- --------
Net sales and revenues
Manufactured products............... $ 99,019 $ 8,433 $27,793 $6,860 $3,236 $145,341
Financial services.................. 8,960 1,110 2,156 135 313 12,674
Other income........................ 5,090 138 506 363 (43) 6,054
-------- ------- ------- ------ ------ --------
Subtotal......................... 113,069 9,681 30,455 7,358 3,506 164,069
Interarea........................... 13,357 17,243 1,509 632 28 --
-------- ------- ------- ------ ------ --------
Total............................ $126,426 $26,924 $31,964 $7,990 $3,534 $164,069
======== ======= ======= ====== ====== ========
Income from continuing operations..... $ 1,633 $ 1,043 $ 1,077 $ 901 $ 344 $ 4,953
-------- ------- ------- ------ ------ --------
Total assets.......................... $166,724 $14,888 $32,307 5,924 $5,616 $222,142
-------- ------- ------- ------ ------ --------
Net assets............................ $ 7,354 $ 3,776 $ 7,337 $3,172 $1,943 $ 23,418
======== ======= ======= ====== ====== ========
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 22. SEGMENT REPORTING (CONCLUDED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
UNITED CANADA LATIN ALL
STATES & MEXICO EUROPE AMERICA OTHER TOTAL(1)
------ -------- ------ ------- ----- --------
1995
Net sales and revenues
Manufactured products................... $102,205 $ 6,985 $27,204 $5,918 $1,354 $143,666
Financial services...................... 8,125 986 2,192 119 242 11,664
Other income............................ 3,664 120 639 330 189 4,942
-------- ------- ------- ------ ------ --------
Subtotal............................. 113,994 8,091 30,035 6,367 1,785 160,272
Interarea............................... 12,781 17,998 1,055 621 59 --
-------- ------- ------- ------ ------ --------
Total................................ $126,775 $26,089 $31,090 $6,988 $1,844 $160,272
======== ======= ======= ====== ====== ========
Income from continuing operations before
cumulative effect of accounting
change.................................. $ 2,449 $ 1,102 $ 1,393 $ 701 $ 329 $ 6,033
-------- ------- ------- ------ ------ --------
Income from continuing operations......... $ 2,397 $ 1,102 $ 1,393 $ 701 $ 329 $ 5,981
-------- ------- ------- ------ ------ --------
Total assets(2)........................... $161,606 $14,096 $33,111 $4,862 $4,237 $213,663
-------- ------- ------- ------ ------ --------
Net assets(2)............................. $ 6,451 $ 4,638 $ 8,540 $3,029 $1,550 $ 23,346
-------- ------- ------- ------ ------ --------
1994
Net sales and revenues
Manufactured products..................... $ 96,577 $ 8,218 $23,542 $5,220 $1,203 $134,760
Financial services........................ 6,531 781 1,894 57 156 9,419
Other income.............................. 3,154 178 483 355 150 4,320
-------- ------- ------- ------ ------ --------
Subtotal............................. 106,262 9,177 25,919 5,632 1,509 148,499
Interarea............................... 11,477 13,607 754 90 59 --
-------- ------- ------- ------ ------ --------
Total................................ $117,739 $22,784 $26,673 $5,722 $1,568 $148,499
======== ======= ======= ====== ====== ========
Income from continuing operations before
cumulative effect of accounting
change.................................. $ 1,464 $ 1,143 $ 1,219 $ 795 $ 262 $ 4,866
-------- ------- ------- ------ ------ --------
Income from continuing operations......... $ 750 $ 1,098 $ 1,219 $ 795 $ 262 $ 4,108
-------- ------- ------- ------ ------ --------
Total assets(2)........................... $151,058 $13,762 $28,570 $3,983 $3,254 $194,274
-------- ------- ------- ------ ------ --------
Net assets(2)............................. $ (1,178) $ 4,724 $ 6,719 $2,178 $1,066 $ 12,824
-------- ------- ------- ------ ------ --------
- -------------------------
(1) After elimination of interarea transactions.
(2) Includes the net assets of discontinued operations of $5.1 billion and $4.3
billion at December 31, 1995 and 1994, respectively.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
NOTE 23. SUBSEQUENT EVENTS
On January 16, 1997, the Corporation announced a series of planned
transactions that would impact the defense electronics, automotive electronics,
and telecommunications and space businesses of Hughes. The transactions would
include:
- The tax-free spin-off of 100% of the Hughes defense business, to holders
of GM's $1 2/3 par value and Class H common stocks;
- The tax-free merger of the Hughes defense business with Raytheon Company
(Raytheon) immediately following the spin-off, after which there would be
outstanding two classes of Raytheon/Hughes defense common stock;
- The transfer of Delco Electronics (Delco), the automotive electronics
subsidiary of Hughes, from Hughes to GM's Delphi Automotive Systems and a
reallocation of the derivative interest in the earnings of Delco
currently held by Class H common stockholders to holders of $1 2/3 par
value common stock; and
- The recapitalization of Class H common stock into a tracking stock linked
solely to the telecommunications and space business of Hughes. GM would
continue to own 100% of Hughes, which would hold and operate its existing
telecommunications and space business.
The distribution of stock in the Hughes defense business to holders of GM
Class H and $1 2/3 par value common stock would be in a ratio that would be
determined by GM's Board of Directors to be fair to both classes of stockholders
and would reflect: (1) a pro rata spin-off of the Hughes defense business to
holders of GM Class H and $1 2/3 par value common stock; (2) a partial
reallocation of the Hughes defense business from holders of GM $1 2/3 par value
common stock to holders of Class H common stock in exchange for the derivative
interest in the earnings of Delco currently held by the Class H stockholders;
and (3) other effects of and factors relating to the planned transactions. Such
a distribution ratio will be set by GM's Board of Directors at a time closer to
GM's distribution of the solicitation statement/prospectus pursuant to which GM
stockholders will be asked to approve the transactions.
The planned transactions are subject to approval by holders of GM $1 2/3
par value and Class H common stock. In addition, the merger of the Hughes
defense business with Raytheon, which is contingent upon the spin-off of the
Hughes defense business, is subject to approval by the stockholders of Raytheon.
The planned transactions also are subject to a variety of regulatory approvals
and actions, including anti-trust clearance and receipt of rulings by the
Internal Revenue Service that the spin-off of the Hughes defense business would
be tax-free to GM and its stockholders.
The spin-off is not being proposed in a manner that would result in the
recapitalization of Class H common stock into $1 2/3 par value common stock at a
120% exchange ratio, as currently provided for under certain circumstances in
the Corporation's Restated Certificate of Incorporation.
No assurances can be given that the above transactions will be completed;
however, management of the Corporation and the Corporation's Board of Directors
expect to solicit stockholder approval during the third quarter of 1997, after
certain conditions are satisfied.
Separately, on January 27, 1997, the GM Board of Directors approved a $2.5
billion repurchase program for $1 2/3 par value common stock, which was expected
to be completed principally through open-market purchases within 12 months of
the announcement date. This would represent a repurchase of slightly more than
5% of the shares of $1 2/3 par value common stock outstanding on the date of the
announcement, based on the New York Stock Exchange's closing price on the last
business day prior to the announcement.
* * * * * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
SELECTED QUARTERLY DATA (UNAUDITED)
1996 QUARTERS
------------------------------------------------
1ST(1)(2) 2ND 3RD(3) 4TH(1)(4)
--------- --- ------ ---------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Net sales and revenues................................. $39,240 $44,772 $39,109 $40,948
======= ======= ======= =======
Income from continuing operations before income
taxes................................................ $ 1,233 $ 3,193 $ 1,529 $ 721
Income taxes (benefit)................................. 433 1,097 258 (65)(5)
------- ------- ------- -------
Income from continuing operations.................... 800 2,096 1,271 786
Income (loss) from discontinued operations............. 219 (209) -- --
------- ------- ------- -------
Net income........................................ 1,019 1,887 1,271 786
Dividends on preference stocks......................... 20 20 21 20
------- ------- ------- -------
Earnings on common stocks......................... $ 999 $ 1,867 $ 1,250 $ 766
======= ======= ======= =======
Earnings attributable to common stocks
$1 2/3 par value from continuing operations.......... $ 704 $ 2,001 $ 1,188 $ 696
Income (loss) from discontinued operations........... 10 (15) -- --
------- ------- ------- -------
Net earnings attributable to $1 2/3 par value..... $ 714 $ 1,986 $ 1,188 $ 696
======= ======= ======= =======
Income (loss) from discontinued operations
attributable to Class E........................... $ 209 $ (194) $ -- $ --
======= ======= ======= =======
Net earnings attributable to Class H................. $ 76 $ 75 $ 62 $ 70
======= ======= ======= =======
Average number of shares of common stocks outstanding
(in millions)
$1 2/3 par value..................................... 755 756 756 756
Class E.............................................. 463 479 -- --
Class H.............................................. 97 98 99 99
Earnings per share attributable to common stocks
$1 2/3 par value from continuing operations.......... $ 0.93 $ 2.65 $ 1.57 $ 0.92
Income (loss) from discontinued operations........... 0.01 (0.02) -- --
------- ------- ------- -------
Net earnings attributable to $1 2/3 par value..... $ 0.94 $ 2.63 $ 1.57 $ 0.92
======= ======= ======= =======
Income (loss) from discontinued operations
attributable to Class E........................... $ 0.45 $(0.41) $ -- $ --
======= ======= ======= =======
Net earnings attributable to Class H................. $ 0.78 $ 0.77 $ 0.63 $ 0.70
======= ======= ======= =======
Cash dividends per share of common stocks
$1 2/3 par value..................................... $ 0.40 $ 0.40 $ 0.40 $ 0.40
Class E.............................................. $ 0.15 $ 0.15 $ -- $ --
Class H.............................................. $ 0.24 $ 0.24 $ 0.24 $ 0.24
Price range of common stocks
$1 2/3 par value(6): High............................ $54.75 $58.13 $54.50 $59.38
Low $46.88 $51.50 $45.75 $47.75
Class E(6):..........................................
High $58.00 $58.63 $ -- $ --
Low.............................. $50.00 $52.25 $ -- $ --
Class H(6):..........................................
High $63.38 $68.25 $61.38 $59.25
Low.............................. $45.00 $57.50 $53.13 $49.50
- -------------------------
See notes on page II-43.
II-42
57
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION -- CONTINUED
- -------------------------
(1) Work stoppages in the United States and Canada, during the first and fourth
quarters of 1996, reduced calendar-year pre-tax income by approximately $1.9
billion ($1.2 billion after taxes or $1.56 per share of $1 2/3 par value
common stock), after considering partial recovery of production losses from
the work stoppages. The pre-tax impact in the 1996 fourth quarter totaled
$1.1 billion ($700 million after taxes or $0.91 per share of $1 2/3 par
value common stock).
(2) The 1996 first quarter income includes a pre-tax gain of $120 million ($72
million after taxes or $0.07 per share of $1 2/3 par value common stock and
$0.18 per share of Class H common stock), on the sale of 2.5% of DIRECTV(R)
to AT&T.
(3) During the 1996 third quarter, GM-NAO/Delphi recorded a pre-tax plant
closings reserve adjustment of $409 million ($253 million after taxes or
$0.34 per share of $1 2/3 par value common stock), associated with GM's
decision to utilize its Wilmington, Delaware facility for the assembly of
the new generation Saturn vehicle.
(4) Fourth quarter 1996 results also included the following special items:
(a) A pre-tax plant closings reserve adjustment of $318 million ($197
million after taxes or $0.26 per share of $1 2/3 par value common
stock), which primarily resulted from revised estimates of costs to
be incurred in connection with plant closings, in light of changes
in redeployment and other assumptions, including those resulting
from the 1996 settlements with the UAW and CAW.
(b) A pre-tax loss of $253 million ($157 million after taxes or $0.21
per share of $1 2/3 par value common stock), in connection with the
sale of four Delphi component facilities, located in Flint and
Livonia, Mich., and Oshawa and Windsor, Canada, and GM-NAO's Oshawa
die-management business.
(c) A pre-tax gain of $105 million ($65 million after taxes or $0.09 per
share of $1 2/3 par value common stock), on the sale of GM's
preferred stock interest in Avis, Inc.
(d) Retiree benefit increases associated with the new UAW labor
agreement include lump-sum payments that resulted in a pre-tax
charge of approximately $270 million ($167 million after taxes or
$0.22 per share of $1 2/3 par value common stock).
(5) The income tax benefit in the fourth quarter of 1996 was primarily due to
research and experimentation credits in the United States, as well as
certain international tax benefits and tax benefits relating to the
resolution of certain tax contingencies at Hughes.
(6) The principal market is the New York Stock Exchange and prices are based on
the Composite Tape. $1 2/3 par value common stock is also listed on the
Chicago, Pacific, and Philadelphia stock exchanges. As of December 31, 1996,
there were 592,515 holders of record of $1 2/3 par value common stock and
247,782 holders of record of Class H common stock.
II-43
58
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION -- CONTINUED
SELECTED QUARTERLY DATA (UNAUDITED) -- CONCLUDED
1995 QUARTERS
------------------------------------------------------
1ST 2ND 3RD 4TH
--- --- --- ---
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Net sales and revenues.................................. $ 41,400 $ 42,205 $ 35,316 $ 41,351
========= ========= ========= =========
Income from continuing operations before income taxes... $ 3,171 $ 2,902 $ 420 $ 1,856(1)
Income taxes............................................ 1,214 820 23(2) 259(1)
--------- --------- --------- ---------
Income from continuing operations before cumulative
effect of accounting change......................... 1,957 2,082 397 1,597
Income from discontinued operations..................... 197 188 246 269
Cumulative effect of accounting change.................. (52)(3) -- -- --
--------- --------- --------- ---------
Net income.......................................... 2,102 2,270 643 1,866
Dividends on preference stocks.......................... 72 199(4) 42 51
--------- --------- --------- ---------
Earnings on common stocks........................... $ 2,030 $ 2,071 $ 601 $ 1,815
========= ========= ========= =========
Earnings attributable to common stocks
$1 2/3 par value from continuing operations before
cumulative
effect of accounting change......................... $ 1,821 $ 1,814 $ 294 $ 1,475
Income (loss) from discontinued operations............ 75 (18) 23 25
Cumulative effect of accounting change................ (52) -- -- --
--------- --------- --------- ---------
Net earnings attributable to $1 2/3 par value....... $ 1,844 $ 1,796 $ 317 $ 1,500
========= ========= ========= =========
Income from discontinued operations attributable to
Class E............................................. $ 122 $ 206 $ 223 $ 244
========= ========= ========= =========
Net earnings attributable to Class H.................... $ 64 $ 69 $ 61 $ 71
========= ========= ========= =========
Average number of shares of common stocks outstanding
(in millions)
$1 2/3 par value...................................... 753 746 748 752
Class E............................................... 300 439(5) 439 439
Class H............................................... 94 95 96 97
Earnings per share attributable to common stocks
$1 2/3 par value from continuing operations before
cumulative
effect of accounting change......................... $2.41 $2.41 $0.39 $1.95
Income (loss) from discontinued operations............ 0.10 (0.02) 0.03 0.03
Cumulative effect of accounting change................ (0.07)(3) -- -- --
--------- --------- --------- ---------
Net earnings attributable to $1 2/3 par value....... $2.44 $2.39 $0.42 $1.98
========= ========= ========= =========
Income from discontinued operations attributable to
Class E............................................... $0.42 $0.47 $0.51 $0.56
========= ========= ========= =========
Net earnings attributable to Class H.................... $0.67 $0.72 $0.64 $0.74
========= ========= ========= =========
Cash dividends per share of common stocks
$1 2/3 par value...................................... $0.20 $0.30 $0.30 $0.30
Class E............................................... $0.13 $0.13 $0.13 $0.13
Class H............................................... $0.23 $0.23 $0.23 $0.23
Price range of common stocks
$1 2/3 par value: High................................ $45.63 $49.00 $51.88 $53.13
Low................................... $37.25 $42.38 $45.38 $43.38
Class E: High................................... $41.38 $45.25 $47.50 $52.63
Low................................... $36.88 $38.38 $41.50 $43.88
Class H: High................................... $41.75 $41.63 $42.75 $50.00
Low................................... $33.25 $37.75 $39.13 $39.50
- -------------------------
(1) Income taxes and interest expense in the fourth quarter reflect benefits
related to the resolution of worldwide prior year income tax issues. Income
taxes also reflect the benefit of a U.S. net operating loss carryback -- for
tax purposes only -- to years with higher tax rates.
(2) The effective income tax rate in the third quarter reflects tax benefits
from the mix of foreign income and foreign income taxes.
(3) In November 1995, the Corporation adopted, retroactive to January 1, 1995,
the provisions of the EITF consensus on Issue No. 95-1. The unfavorable
cumulative effect of this accounting change was $52 million or $0.07 per
share of $1 2/3 par value common stock. Previously reported first quarter
results were restated to reflect the effects of adoption. The effect on
other 1995 quarters was not material.
(4) Includes a $153 million tender offer premium associated with the repurchase
of a portion of the Series B, D, and G preference stocks.
(5) Reflects Class E common stock contribution to the U.S. Hourly Pension Plan.
II-44
59
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION -- CONTINUED
SELECTED FINANCIAL DATA (UNAUDITED)
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Net sales and revenues................................. $164,069 $160,272 $148,499
Income from continuing operations before income
taxes................................................ $ 6,676(1) $ 8,349 $ 7,098
Percentage of net sales and revenues................... 4.1% 5.2% 4.8%
======== ======== ========
Income from continuing operations before cumulative
effect of accounting changes......................... $ 4,953(1) $ 6,033 $ 4,866
Income from discontinued operations.................... 10 900 793
Cumulative effect of accounting changes................ -- (52)(2) (758)(4)
-------- -------- --------
Net income........................................ $ 4,963 $ 6,881 $ 4,901
======== ======== ========
Earnings on common stocks.............................. $ 4,882 $ 6,517 $ 4,580
======== ======== ========
Rate of return on average common stockholders'
equity............................................... 22.5% 54.2%(3) 79.9%(3)
======== ======== ========
$1 2/3 par value common stock
Earnings from continuing operations attributable
to................................................ $ 4,589(1) $ 5,352(2) $ 3,545(4)
Income (loss) from discontinued operations
attributable to................................... (5) 105 349
Cash dividends....................................... 1,209 824 593
-------- -------- --------
Net earnings retained............................. $ 3,375 $ 4,633 $ 3,301
======== ======== ========
Earnings per share from continuing operations........ $ 6.07(1) $7.07(2) $4.69(4)
Income (loss) per share from discontinued
operations........................................ (0.01) 0.14 0.46
Cash dividends per share............................. 1.60 1.10 0.80
-------- -------- --------
Net earnings retained per share................... $ 4.46 $6.11 $4.35
======== ======== ========
Class E common stock
Income from discontinued operations attributable
to................................................ $ 15 $ 795 $ 444
Cash dividends....................................... 145 205 125
-------- -------- --------
Net income retained (loss accumulated)............ $ (130) $ 590 $ 319
======== ======== ========
Income per share..................................... $ 0.04 $1.96 $1.71
Cash dividends per share............................. 0.30 0.52 0.48
-------- -------- --------
Net income retained (loss accumulated) per
share........................................... $(0.26) $1.44 $1.23
======== ======== ========
Class H common stock
Earnings attributable to............................. $ 283 $ 265 $ 242(4)
Cash dividends....................................... 94 88 74
-------- -------- --------
Net earnings retained............................. $ 189 $ 177 $ 168
======== ======== ========
Earnings per share................................... $ 2.88 $2.77 $2.62(4)
Cash dividends per share............................. 0.96 0.92 0.80
-------- -------- --------
Net earnings retained per share................... $ 1.92 $1.85 $1.82
======== ======== ========
- -------------------------
See notes on page II-47.
II-45
60
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION -- CONTINUED
SELECTED FINANCIAL DATA (UNAUDITED) -- CONTINUED
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992
---- ----
(DOLLARS IN MILLIONS EXCEPT
PER SHARE AMOUNTS)
Net sales and revenues...................................... $132,991 $127,378
Income (loss) from continuing operations before income
taxes..................................................... $ 1,479 $ (4,299)
Percentage of net sales and revenues........................ 1.1% (3.4)%
======== ========
Income (loss) from continuing operations before cumulative
effect of accounting changes.............................. $ 1,777 $ (3,222)
Income from discontinued operations......................... 689 601
Cumulative effect of accounting changes..................... -- (20,877)(5)
-------- --------
Net income (loss)......................................... $ 2,466 $(23,498)
======== ========
Earnings (loss) on common stocks............................ $ 2,109 $(23,805)
Rate of return on average common stockholders' equity....... 104.2%(3) (169.3)%
======== ========
$1 2/3 par value common stock
Earnings (loss) from continuing operations attributable
to..................................................... $ 1,216 $(24,263)(5)
Income from discontinued operations attributable to....... 322 322
Cash dividends............................................ 566 945
-------- --------
Net earnings retained (loss accumulated)............... $ 972 $(24,886)
======== ========
Earnings (loss) per share from continuing operations...... $1.68 $(38.76)(5)
Income per share from discontinued operations............. 0.45 0.48
Cash dividends per share.................................. 0.80 1.40
-------- --------
Net earnings retained (loss accumulated) per share..... $1.33 $(39.68)
======== ========
Class E common stock
Income from discontinued operations attributable to....... $ 367 $ 278
Cash dividends............................................ 97 76
-------- --------
Net income retained.................................... $ 270 $ 202
======== ========
Income per share.......................................... $1.51 $ 1.33
Cash dividends per share.................................. 0.40 0.36
-------- --------
Net income retained per share.......................... $1.11 $ 0.97
======== ========
Class H common stock
Earnings (loss) attributable to........................... $ 204 $ (142)(5)
Cash dividends............................................ 64 53
-------- --------
Net earnings retained (loss accumulated)............... $ 140 $ (195)
======== ========
Earnings (loss) per share................................. $2.30 $ (2.29)(5)
Cash dividends per share.................................. 0.72 0.72
-------- --------
Net earnings retained (loss accumulated) per share..... $1.58 $ (3.01)
======== ========
- -------------------------
See notes on page II-47.
II-46
61
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION -- CONCLUDED
SELECTED FINANCIAL DATA (UNAUDITED) -- CONCLUDED
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Average number of shares of common stocks outstanding (in
millions)
$1 2/3 par value.......................................... 756 750 741
Class E................................................... 470 405 260
Class H................................................... 98 96 92
Cash dividends on common stocks as a % of net income........ 29.2% 16.2% 16.2%
Expenditures for property................................... $ 9,949 $ 8,786 $ 6,023
Cash and marketable securities.............................. $ 22,262 $ 16,018 $ 15,331
Working capital(6).......................................... $ 1,699 $ 5,726 $ (627)
Current ratio(6)............................................ 1.04 1.14 0.98
Total assets................................................ $222,142 $213,663 $191,145
Long-term debt and capitalized leases(6).................... $ 5,390 $ 4,280 $ 5,198
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
------------------------
1993 1992
---- ----
(DOLLARS IN MILLIONS)
Average number of shares of common stocks outstanding (in
millions)
$1 2/3 par value.......................................... 710 670
Class E................................................... 243 209
Class H................................................... 89 75
Cash dividends on capital stocks as a % of net income....... 29.5% N/A
Expenditures for property................................... $ 5,655 $ 5,951
Cash and marketable securities.............................. $ 17,369 $ 14,533
Working capital(6).......................................... $ 1,937 $ 10,264
Current ratio(6)............................................ 1.08 1.32
Total assets................................................ $182,388 $184,287
Long-term debt and capitalized leases(6).................... $ 5,861 $ 6,495
- -------------------------
(1) Work stoppages in the United States and Canada, during the first and fourth
quarters of 1996, reduced 1996 pre-tax income by approximately $1.9 billion
($1.2 billion after taxes or $1.56 per share of $1 2/3 par value common
stock), after considering partial recovery of production losses from the
work stoppages.
(2) In November 1995, the Corporation adopted, retroactive to January 1, 1995,
the provisions of the EITF consensus on Issue No. 95-1. The unfavorable
effect of this accounting change was $52 million or $0.07 per share of
$1 2/3 par value common stock.
(3) The returns in 1995, 1994 and 1993 reflect the adoption of SFAS No. 106 and
its impact on lowering average common stockholders' equity.
(4) General Motors adopted SFAS No. 112, Employers' Accounting for
Postemployment Benefits, effective January 1, 1994. The unfavorable
cumulative effect of adopting SFAS No. 112 was $751 million or $1.05 per
share of $1 2/3 par value common stock and $7 million or $0.08 per share of
Class H common stock.
(5) General Motors adopted SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, effective January 1, 1992. The
unfavorable cumulative effect of adopting SFAS No. 106 was $20.7 billion or
$33.38 per share of $1 2/3 par value common stock and $150 million or $2.08
per share of Class H common stock. Also effective January 1, 1992, Hughes
changed its revenue recognition policy for certain commercial businesses,
which resulted in an unfavorable effect on 1992 earnings of $33 million or
$0.05 per share of $1 2/3 par value common stock and $7 million or $0.10 per
share of Class H common stock.
(6) Calculated with financing and insurance operations on an equity basis.
II-47
62
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations (MD&A) should be read in conjunction with the Hughes
Electronics Corporation (Hughes) consolidated financial statements and MD&A for
the period ended December 31, 1996, included as Exhibit 99 to this Annual Report
on Form 10-K, and the GMAC Annual Report on Form 10-K for the period ended
December 31, 1996, filed separately with the Securities and Exchange Commission.
GM-NAO/DELPHI FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Net sales and revenues
Vehicles and service parts.............................. $ 93,381 $ 95,936 $ 91,768
Components.............................................. 26,002 26,426 26,097
Intrasector eliminations................................ (18,381) (19,109) (19,732)
-------- -------- --------
Total net sales and revenues......................... 101,002 103,253 98,133
-------- -------- --------
Pre-tax income............................................ 1,206 3,346 1,589
Income taxes.............................................. 44 962 268
Earnings of nonconsolidated affiliates.................... 84 64 61
Cumulative effect of accounting changes................... -- (52)(1) (705)(2)
-------- -------- --------
Net income........................................... $ 1,246 $ 2,396 $ 677
======== ======== ========
Net profit margin (3)................................ 1.2% 2.3% 0.7%
Depreciation and amortization expenses.................... $ 4,916 $ 4,664 $ 4,324
Capital expenditures...................................... $ 6,158 $ 6,013 $ 3,976
Worldwide employment at December 31 (in thousands)........ 424 434 431
- -------------------------
(1) In November 1995, the provisions of Issue No. 95-1 of the Emerging Issues
Task Force of the Financial Accounting Standards Board (EITF), Revenue
Recognition on Sales with a Guaranteed Minimum Resale Value, were
retroactively adopted to January 1, 1995 and resulted in an unfavorable
impact of $52 million.
(2) Effective January 1, 1994, Statement of Financial Accounting Standards
(SFAS) No. 112, Employers' Accounting for Postemployment Benefits, was
adopted and resulted in an unfavorable impact of $705 million.
(3) Net profit margin represents net income as a percentage of total net sales
and revenues.
VEHICLE UNIT DELIVERIES OF CARS AND TRUCKS -- GM-NAO
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- --------------------------- ---------------------------
GM AS GM AS GM AS
A % OF A % OF A % OF
INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY
-------- -- -------- -------- -- -------- -------- -- --------
United States
Cars..................... 8,528 2,786 32.7% 8,636 2,956 34.2% 8,991 3,079 34.3%
Trucks................... 6,931 2,007 29.0% 6,484 1,939 29.9% 6,422 1,984 30.9%
------ ----- ------ ----- ------ -----
Total U.S.(1)......... 15,459 4,793 31.0% 15,120 4,895 32.4% 15,413 5,063 32.8%
Canada..................... 1,203 381 31.6% 1,165 385 33.0% 1,258 410 32.6%
Mexico..................... 332 89 26.9% 232 48 20.7% 620 114 18.3%
------ ----- ------ ----- ------ -----
Total North America... 16,994 5,263 31.0% 16,517 5,328 32.3% 17,291 5,587 32.3%
====== ===== ====== ===== ====== =====
WHOLESALE SALES -- GM-NAO
Cars..................... 2,913 3,352 3,353
Trucks................... 2,239 2,208 2,184
----- ----- -----
Total................. 5,152 5,560 5,537
===== ===== =====
- -------------------------
(1) Industry deliveries include foreign brands of 4.2 million units or 27.1% in
1996, 4.1 million units or 26.8% in 1995, and 4.1 million units or 26.8% in
1994.
II-48
63
GM-NAO/DELPHI FINANCIAL REVIEW
The 1996 net income of GM-NAO/Delphi, which represents the combined results
for General Motors' North American Operations (GM-NAO) and Delphi Automotive
Systems (Delphi), totaled $1.2 billion or 1.2% of net sales and revenues,
compared with $2.4 billion and $677 million in 1995 and 1994, respectively. The
decrease in 1996 net income was almost fully accounted for by lower wholesale
sales caused by three major work stoppages. Other factors impacting 1996 results
were the record number of new vehicle launches, and increased advertising and
other consumer influence expenses related to the new vehicle launches, partially
offset by savings associated with continued implementation of worldwide
purchasing and lean manufacturing strategies. The increase in 1995 net income
was primarily due to revenue growth, global sourcing savings, and reduced
manufacturing costs.
GM-NAO/Delphi's 1996 net income included certain special items that had a
net unfavorable impact of approximately $900 million after-tax. The 1996 special
items included the unfavorable impact of the three work stoppages in the U.S.
and Canada (approximately $1.1 billion after-tax), the sale of four Delphi
plants and GM-NAO's Oshawa die-management business ($157 million after-tax), and
retiree lump sum benefit payments ($163 million after-tax). The effect of the
unfavorable special items was partially offset by favorable net plant closings
reserve adjustments ($450 million after-tax) and a gain on the sale of GM's
preferred stock interest in Avis, Inc. ($65 million after-tax). Additional
information regarding the GM-NAO plant closings reserve is contained in Note 17
to the GM consolidated financial statements.
Net sales and revenues for 1996 were $101 billion, which represented a
decrease of $2.3 billion compared with 1995. The decrease in net sales and
revenues was largely due to a decrease in the number of wholesale units sold
caused by the work stoppages, partially offset by an increase of approximately
6% in Delphi's non GM-NAO vehicle component sales. Net sales and revenues for
1995 were $103.3 billion, which represented an increase of $5.1 billion compared
with 1994. The increase in 1995 net sales and revenues primarily resulted from
favorable pricing, an increase of 23,000 wholesale units sold, and an increase
of approximately 9% in Delphi's non GM-NAO vehicle component sales. The
favorable items were partially offset by a year-over-year shift in vehicle sales
from the large/luxury segments to the small/compact segments.
During 1996, GM-NAO's market share increase in Mexico resulted from
favorable customer reaction to new products. However, in the United States and
Canada, market share decreased primarily due to the work stoppages and the new
vehicle launches, which restricted availability of certain models.
Pre-tax income for 1996 decreased by $2.1 billion to $1.2 billion, compared
with $3.3 billion and $1.6 billion for 1995 and 1994, respectively. The decrease
in 1996 pre-tax income was primarily due to the impact of the special items
described previously and the record number of new vehicle launches, partially
offset by the favorable results of continued efforts to reduce costs and improve
efficiency. The increase in 1995 pre-tax income, compared with 1994, reflected
material and manufacturing efficiencies and lower interest expense, which were
partially offset by increased depreciation and amortization expenses associated
with new equipment and special tools.
The effective income tax rate for 1996 was 3.6%, compared with 28.8% and
16.9% for 1995 and 1994, respectively. The lower 1996 tax rate resulted from
research and experimentation credits in the United States, a favorable
resolution of items related to GM's 1995 tax return, and a favorable tax
position in Mexico. The 1995 tax rate reflected a U.S. net operating loss -- for
tax purposes only -- which was carried back to prior years that were subject to
higher income tax rates, while the 1994 tax rate reflected favorable tax
positions in Canada and Mexico.
II-49
64
GMIO FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Net sales and revenues...................................... $35,251 $32,112 $28,087
------- ------- -------
Pre-tax income.............................................. 1,787 1,601 2,232
Income taxes................................................ 307 162 818
Earnings of nonconsolidated affiliates...................... 52 205 161
------- ------- -------
Net income
GM Europe (GME)........................................ 778 796 695
Other International.................................... 754 848 880
------- ------- -------
Total net income.................................. $ 1,532 $ 1,644 $ 1,575
======= ======= =======
Net profit margin(1).............................. 4.3% 5.1% 5.6%
Depreciation and amortization expenses...................... $ 1,486 $ 1,364 $ 1,202
Capital expenditures........................................ $ 2,669 $ 2,086 $ 1,388
Worldwide employment at December 31 (in thousands).......... 111 103 102
- -------------------------
(1) Net profit margin represents total net income as a percentage of net sales
and revenues.
VEHICLE UNIT DELIVERIES OF CARS AND TRUCKS -- GMIO
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- --------------------------- ---------------------------
GM AS GM AS GM AS
A % OF A % OF A % OF
INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY
-------- -- -------- -------- -- -------- -------- -- --------
(UNITS IN THOUSANDS)
INTERNATIONAL
Europe
Germany................... 3,752 582 15.5% 3,575 581 16.2% 3,470 553 15.9%
United Kingdom............ 2,281 326 14.3% 2,195 334 15.2% 2,139 347 16.2%
Other West Europe......... 8,414 787 9.4% 7,850 751 9.6% 7,831 752 9.6%
------ ----- ------ ----- ------ -----
Total West Europe...... 14,447 1,695 11.7% 13,620 1,666 12.2% 13,440 1,652 12.3%
Central/East Europe....... 2,583 103 4.0% 2,023 59 2.9% 1,764 53 3.0%
------ ----- ------ ----- ------ -----
Total Europe........... 17,030 1,798 10.6% 15,643 1,725 11.0% 15,204 1,705 11.2%
------ ----- ------ ----- ------ -----
Latin America, Africa, and
the Middle East (LAAMO)
Brazil.................... 1,729 384 22.2% 1,728 348 20.2% 1,398 269 19.3%
Venezuela................. 68 16 23.6% 89 28 31.6% 75 22 30.0%
Other Latin America....... 1,031 142 13.8% 999 127 12.7% 1,174 125 10.6%
------ ----- ------ ----- ------ -----
Total Latin America.... 2,828 542 19.2% 2,816 503 17.9% 2,647 416 15.7%
Africa.................... 680 85 12.5% 638 87 13.7% 500 63 12.5%
Middle East............... 628 64 10.2% 560 58 10.4% 607 63 10.4%
------ ----- ------ ----- ------ -----
Total LAAMO............ 4,136 691 16.7% 4,014 648 16.2% 3,754 542 14.4%
------ ----- ------ ----- ------ -----
Asia and Pacific
Australia................. 650 131 20.1% 642 129 20.2% 616 122 19.8%
Other Asia and Pacific.... 12,903 498 3.9% 12,554 490 3.9% 11,854 425 3.6%
------ ----- ------ ----- ------ -----
Total Asia and
Pacific.............. 13,553 629 4.6% 13,196 619 4.7% 12,470 547 4.4%
------ ----- ------ ----- ------ -----
Total International.... 34,719 3,118 9.0% 32,853 2,992 9.1% 31,428 2,794 8.9%
====== ===== ====== ===== ====== =====
WHOLESALE SALES -- GMIO
Cars...................... 2,331 2,233 2,127
Trucks.................... 780 774 664
----- ----- -----
Total.................. 3,111 3,007 2,791
===== ===== =====
II-50
65
GMIO FINANCIAL REVIEW
General Motors' International Operations (GMIO) 1996 net income was $1.5
billion or 4.3% of net sales and revenues, compared with $1.6 billion in both
1995 and 1994. The decrease in 1996 net income was primarily due to a higher
income tax rate.
Net sales and revenues for 1996 reached $35.3 billion, up 9.8% from 1995,
while 1995 net sales and revenues of $32.1 billion were 14.3% higher than 1994.
The increase in net sales and revenues in 1996 and 1995 reflected increased
wholesale sales volumes in Europe, Latin America, and the Asian and Pacific
region. GMIO's vehicle deliveries for calendar year 1996 totaled 3.1 million
units and resulted in a 9% market share compared with a 9.1% market share in
1995. Vehicle unit deliveries during 1996 hit an all-time record, marking the
first time GMIO annual deliveries exceeded three million units.
Pre-tax income for 1996 increased to $1.8 billion from $1.6 billion in 1995
and reflected the favorable impact of increased net sales and revenues and
favorable year-over-year currency exchange, partially offset by spending on
growth programs within Asia, Latin America, and Central Europe, and new product
development spending. In 1995, pre-tax income declined by $631 million compared
with 1994. This reduction was largely the result of adverse foreign exchange
rate movements, material and labor cost pressures in Latin America, and start-up
and launch costs associated with the introduction of the new Opel/Vauxhall
Vectra in Europe.
In 1996, earnings of nonconsolidated affiliates were down by $153 million
from 1995, primarily due to higher product development and marketing costs at
Saab, the dissolution of the Australian joint venture between Holden and Toyota,
and the unusually high 1995 equity income from nonrecurring asset sales at
Isuzu.
The effective income tax rate for GMIO in 1996 was 17.2%, compared with
10.1% and 36.6% in 1995 and 1994, respectively. The 1996 tax rate primarily
resulted from tax benefits realized in certain countries, partially offset by
decreased withholding taxes accrued on unremitted earnings. The 1995 tax rate
was favorably impacted by nonrecurring tax benefits realized in certain
countries, while the 1994 tax rate was impacted by higher withholding taxes on
accrued unremitted earnings.
In 1996, GME's net income decreased by $18 million to $778 million,
compared with $796 million and $695 million in 1995 and 1994, respectively. The
decrease in 1996 net income was primarily due to a more competitive pricing
environment and reflected increased new product development costs. Net income
for 1996 was also adversely affected by the startup of the Vectra, which had
restricted availability early in the year. The improvement in 1995 net income
resulted from volume gains, material and manufacturing cost reductions, and a
favorable income tax rate, partially offset by unfavorable exchange rate
movements and costs associated with the new Vectra model introduction in the
second half of the year.
The remainder of GMIO's operations reported 1996 net income of $754
million, which represented a decrease of $94 million compared with 1995. The
decline in 1996 resulted from a higher tax rate, lower equity earnings from
nonconsolidated affiliates, and increased spending on growth programs in both
Asia and Latin America. The decline in net income in 1995 compared with 1994
reflected the impact of the government initiated "Popular Car" program in
Brazil, which had a negative impact on sales mix; adverse exchange rate
movements; material and labor cost pressures in Latin America; and continued
growth-related expenditures in the Asia and Pacific region. These factors were
partially offset by a favorable income tax rate, improved volumes, and income
gains from nonconsolidated affiliates.
Finally in 1996, GMIO reinforced its long-term commitment to leadership in
the international automotive business with capital expenditures of approximately
$2.7 billion, an increase of $565 million and approximately $1.3 billion
compared with 1995 and 1994, respectively.
II-51
66
GMAC FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Financing revenue
Retail and lease financing................................ $ 3,822 $ 3,292 $ 2,955
Operating leases.......................................... 7,215 6,285 4,856
Wholesale and term loans.................................. 1,607 2,087 1,608
------- ------- -------
Total financing revenue................................ 12,644 11,664 9,419
Interest and discount....................................... 4,938 4,936 4,231
Depreciation on operating leases............................ 4,627 4,305 3,234
------- ------- -------
Net financing revenue 3,079 2,423 1,954
Other income and insurance premiums earned 3,330 3,199 2,726
Expenses.................................................... (4,332) (3,839) (3,240)
------- ------- -------
Pre-tax income.............................................. 2,077 1,783 1,440
Income taxes................................................ 837 752 513
Cumulative effect of accounting change(1)................... -- -- (7)
------- ------- -------
Net income............................................. $ 1,240 $ 1,031 $ 920
======= ======= =======
Net income from financing operations(2)..................... $ 1,048 $ 868 $ 802
Net income from insurance operations........................ 192 163 118
------- ------- -------
Net income............................................. $ 1,240 $ 1,031 $ 920
======= ======= =======
Average earning assets...................................... $92,534 $88,230 $79,483
Return on average equity(3)................................. 14.8% 12.5% 11.6%
Worldwide employment at December 31 (in thousands).......... 18 17 17
- -------------------------
(1) Effective January 1, 1994, GMAC adopted SFAS No. 112, which resulted in an
unfavorable impact of $7 million.
(2) Includes GMAC Mortgage Group (GMACMG).
(3) Return on average equity represents net income after the cumulative effect
of accounting change as a percentage of average stockholder's equity
outstanding for each month in the period.
II-52
67
GMAC FINANCIAL REVIEW
GMAC's 1996 consolidated net income increased 20.3% over 1995 compared with
a 12.1% improvement recognized in 1995. All business sectors contributed to the
1996 earnings gain. Net income from financing operations totaled $1 billion,
which was 20.7% above 1995. The increase in 1996 net income from financing
operations primarily resulted from continued improvements in net financing
revenue and higher average earning asset levels in North America, principally in
the retail finance receivables and operating lease portfolios, and earnings
growth at GMACMG. The 8.2% increase in 1995 net income from financing operations
over 1994 resulted primarily from improved net financing revenue and higher
average earning asset levels.
Insurance operations contributed $192 million to 1996 net income, compared
with $163 million and $118 million in 1995 and 1994, respectively. The 1996 and
1995 year-over-year increases reflected improvements in underwriting results and
higher realized capital gains.
During 1996, GMAC financed 28.4% of new GM vehicle retail deliveries in the
United States, up from 26.4% and 26.2% in 1995 and 1994, respectively. The 1996
improvement primarily resulted from higher volumes generated during the first
nine months of the year under special rate financing and leasing incentive
programs sponsored by GM. This improvement, along with the modest 1995 increase
in market share, was achieved amid continued competitive pressures in the
automotive financing marketplace.
GMAC's financing revenue totaled $12.6 billion in 1996, compared with $11.7
billion and $9.4 billion in 1995 and 1994, respectively. The increase in 1996
total financing revenue resulted from higher revenues from the portfolios of
operating leases and retail finance receivables, partially offset by a decline
in wholesale revenue. The gain in operating lease revenue was principally driven
by an increase in average lease assets in North America, which resulted from
continued growth of the portfolio. The higher 1996 retail financing revenues
were primarily due to a $3.9 billion increase in average U.S. outstanding
balances, which resulted from growth of the owned portfolio between mid-1995 and
mid-1996. The reduced wholesale revenue was primarily due to a combination of
lower average outstanding balances caused by establishing additional trusts for
revolving sales of floor plan receivables during August 1995 and April 1996 and
lower short-term interest rate indices upon which inventory financing rates are
based. The 23.8% growth in 1995 total financing revenue represented increased
activities in all financing business lines, predominantly operating leases and
wholesale financing.
GMAC's worldwide cost of borrowing decreased to 6.57% in 1996, compared
with 7.02% and 6.69% in 1995 and 1994, respectively. The cost of borrowings in
the United States was 6.51% in 1996, compared with 6.86% and 6.48% in 1995 and
1994, respectively. The improvements in 1996 were predominantly attributable to
a greater proportion of floating rate borrowings in the United States during a
period in which the general level of short-term interest rates declined (e.g.,
during 1996, the U.S. prime lending rate averaged 56 basis points below 1995).
The lower 1996 borrowing cost factors almost entirely offset the effects of
higher average borrowings, which resulted in only a $2 million increase in
interest and discount expense in 1996 compared with the 1995 amount. The 1995
interest and discount expense was $705 million above the 1994 amount due to
increased borrowing levels and higher interest rates.
Net financing revenue combined with other income and insurance premiums
increased in 1996 by $787 million to $6.4 billion, compared with $5.6 billion
and $4.7 billion in 1995 and 1994, respectively. The 1996 increase was primarily
due to improvement in net interest margins. In addition to the increase in net
interest margins, the 1995 increase was also the result of a rise in other
income that was primarily attributable to significantly higher fee and
investment income from GMACMG activities.
Expenses increased by $493 million and $599 million in 1996 and 1995
primarily due to increases in the provision for financing losses of $220 million
and $272 million, respectively. Consistent with recent trends in the consumer
finance industry, GMAC's delinquencies and losses have increased since 1994,
particularly in the United States used vehicle financing portfolio. Additions to
the loss reserve as well as tightened credit standards and intensified
collection efforts are expected to mitigate GMAC's exposure to further adverse
trends in consumer payment experience. Additionally, GMAC incurred higher costs
for salaries, benefits, and other operating charges incidental to expanding
financing business activities, which contributed to the increased expenses for
both 1996 and 1995.
GMAC's effective income tax rate for 1996 was 40.3%, compared with 42.2% in
1995 and 35.6% in 1994. The favorable change in 1996 was attributable to lower
effective income tax rates for international financing operations. The 1995
increase over 1994 reflected higher U.S. and foreign taxes assessed on foreign
source income.
II-53
68
HUGHES FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
Net sales
Outside customers......................................... $10,661 $ 9,529 $ 9,109
GM and affiliates......................................... 5,083 5,185 4,953
------- ------- -------
Total net sales........................................ 15,744 14,714 14,062
Other income -- net......................................... 174 58 37
------- ------- -------
Total revenues......................................... 15,918 14,772 14,099
------- ------- -------
Pre-tax income.............................................. 1,635 1,594 1,528
Income taxes................................................ 606 646 573
Cumulative effect of accounting change...................... -- -- (30)
------- ------- -------
Net income............................................. $ 1,029 $ 948 $ 925(1)
======= ======= =======
Earnings Used for Computation of Available Separate
Consolidated Net Income(2)........................... $ 1,151 $ 1,108 $ 1,049(1)
======= ======= =======
Net earnings attributable to Class H common stock on a per
share basis............................................... $ 2.88 $ 2.77 $ 2.62(1)
Cash dividends per share of Class H common stock............ $ 0.96 $ 0.92 $ 0.80
Depreciation and amortization expenses(2)................... $ 560 $ 488 $ 470
Capital expenditures(3)..................................... $ 840 $ 820 $ 746
Worldwide employment at December 31 (in thousands).......... 86 84 79
- -------------------------
(1) Effective January 1, 1994, SFAS No. 112 was adopted, which resulted in an
unfavorable impact of $30 million or $0.08 per share of Class H common
stock.
(2) Excludes amortization and adjustment of GM purchase accounting adjustments
of $122 million, $160 million, and $124 million, for 1996, 1995, and 1994,
respectively, related to GM's acquisition of Hughes Aircraft Company.
(3) Includes expenditures related to telecommunications and other equipment
amounting to $188 million, $275 million, and $256 million in 1996, 1995, and
1994, respectively.
SEGMENT HIGHLIGHTS
Telecommunications and Space
Revenues.................................................. $4,115 $3,093 $2,596
Net sales................................................. $3,992 $3,076 $2,634
Operating profit(1)....................................... $ 260 $ 189 $ 271
Operating profit margin(2)................................ 6.5% 6.2% 10.3%
Automotive Electronics
Revenues.................................................. $5,351 $5,561 $5,222
Net sales................................................. $5,311 $5,480 $5,171
Operating profit(1)....................................... $ 654 $ 869 $ 795
Operating profit margin(2)................................ 12.3% 15.9% 15.4%
Aerospace and Defense Systems
Revenues.................................................. $6,338 $5,945 $6,024
Net sales................................................. $6,332 $5,900 $6,007
Operating profit(1)....................................... $ 695 $ 688 $ 664
Operating profit margin(2)................................ 11.0% 11.7% 11.0%
- -------------------------
(1) Operating profit represents net sales less total costs and expenses other
than interest expense and amortization of purchase accounting adjustments
related to GM's acquisition of Hughes Aircraft Company.
(2) Operating profit margin represents operating profit as a percentage of net
sales.
II-54
69
HUGHES FINANCIAL REVIEW
Hughes reported net income of $1 billion in 1996, compared with $948
million and $925 million in 1995 and 1994, respectively. Excluding amortization
and adjustment of purchase accounting adjustments relating to GM's acquisition
of Hughes Aircraft Company, Hughes' earnings used for computation of available
separate consolidated net income was $1.15 billion in 1996, compared with $1.11
billion in 1995 and $1.05 billion in 1994. Contributing to the 1996 increase in
net income was higher operating profit in the Telecommunications and Space
segment, reduced losses at Hughes-Avicom International, Inc., a lower effective
tax rate, and the $72 million after-tax gain recognized in the first quarter
from the sale of a 2.5% equity interest in DIRECTV(R) to AT&T. Partially
offsetting these increases was the impact on the Automotive Electronics segment
operating profit of lower GM production volumes attributable primarily to the
three major work stoppages. The increase in 1995 net income was due primarily to
increased revenues and on-going cost reduction efforts, partially offset by the
planned increase in expenses associated with the operation and expansion of
DIRECTV.
Total revenues increased to $15.9 billion in 1996, compared with $14.8
billion in 1995 and $14.1 billion in 1994. This revenue growth was propelled by
the Telecommunications and Space segment where revenues for 1996 increased to
$4.1 billion, compared with $3.1 billion and $2.6 billion in 1995 and 1994,
respectively. The increases in 1996 and 1995 revenues reflected DIRECTV
subscriber growth combined with increased sales of commercial satellites and
cellular communications equipment, and increased video distribution revenues
from Galaxy(R) satellite transponders. Automotive Electronics segment revenues
for 1996 were $5.4 billion, compared with $5.6 billion and $5.2 billion in 1995
and 1994, respectively. The 1996 decrease reflected the impact of the work
stoppages at various GM production locations during the year and the price
reductions from competitive pricing in connection with GM's global sourcing
initiative. The increase in Automotive Electronics segment revenues in 1995
resulted from an increase in Hughes-supplied electronic content in GM vehicles
produced in North America and continued growth of sales to international and non
GM-NAO customers. Aerospace and Defense Systems segment revenues for 1996
increased to $6.3 billion, compared with $5.9 billion and $6 billion in 1995 and
1994, respectively. The 1996 increase in revenues was due primarily to the
acquisition of Hughes Defense Communications (formerly Magnavox Electronic
Systems Company) in December 1995.
Operating profit, excluding amortization of purchase accounting adjustments
related to GM's acquisition of Hughes Aircraft Company, was $1.6 billion in
1996, compared with $1.7 billion and $1.6 billion in 1995 and 1994,
respectively. Operating profit margin on the same basis was 10.1%, 11.3%, and
11.6% in 1996, 1995, and 1994, respectively. The decline in 1996 operating
profit and operating profit margin was due mainly to the unfavorable impact of
lower GM production volumes on the Automotive Electronics segment as a result of
the aforementioned work stoppages. The 1995 decrease in operating profit margin
was primarily a result of increased operating expenses associated with the
continued expansion of DIRECTV, partially offset by higher margins in the
Automotive Electronics and Aerospace and Defense Systems segments resulting from
cost-reduction programs.
Hughes' effective income tax rate was 37.1% in 1996, compared with 40.5%
and 37.5% in 1995 and 1994, respectively. The decrease in the effective income
tax rate in 1996 was due primarily to the favorable resolution of certain tax
contingencies while the effective income tax rate in 1994 was favorably impacted
by the recognition of capital loss carryforward benefits.
On January 16, 1997, GM and Hughes announced a series of planned
transactions designed to address strategic challenges and unlock stockholder
value in the three Hughes business segments. See the Hughes Transactions section
on pages II-58 and II-59 for additional information regarding the planned
transactions.
II-55
70
To facilitate analysis, the following sections present financial statements
for the Corporation's manufacturing, wholesale marketing, defense and
electronics operations with the financing and insurance operations (primarily
GMAC) reflected on an equity basis. This is the same basis and format used in
years prior to the Corporation's adoption of SFAS No. 94, Consolidation of All
Majority-Owned Subsidiaries.
CONSOLIDATED STATEMENTS OF INCOME WITH FINANCING AND INSURANCE OPERATIONS ON AN
EQUITY BASIS
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Net sales and revenues(1)................................... $145,427 $143,754 $134,888
-------- -------- --------
Costs and expenses
Cost of sales and other operating charges, exclusive of
items listed below..................................... 123,966 121,312 113,655
Selling, general, and administrative expenses............. 11,827 10,195 9,385
Depreciation and amortization expenses.................... 7,145 6,787 6,343
Plant closings reserve adjustments........................ (727) -- --
-------- -------- --------
Total costs and expenses............................. 142,211 138,294 129,383
-------- -------- --------
Operating income............................................ 3,216 5,460 5,505
Other income less income deductions......................... 2,112 1,168 1,213
Interest expense............................................ 859 344 1,265
-------- -------- --------
Income from continuing operations before income taxes....... 4,469 6,284 5,453
Income taxes................................................ 885 1,563 1,719
-------- -------- --------
Income from continuing operations before earnings of
nonconsolidated affiliates and cumulative effect of
accounting changes........................................ 3,584 4,721 3,734
Earnings of nonconsolidated affiliates...................... 1,369 1,312 1,125
-------- -------- --------
Income from continuing operations before cumulative
effective of accounting changes........................... 4,953 6,033 4,859
Income from discontinued operations......................... 10 900 793
Cumulative effect of accounting changes(2).................. -- (52) (751)
-------- -------- --------
Net income........................................... $ 4,963 $ 6,881 $ 4,901
======== ======== ========
Net profit margin(3)................................. 3.4% 4.2% 3.6%
- -------------------------
(1) Includes sales to nonconsolidated affiliates of $954 million, $855 million,
and $856 million in 1996, 1995, and 1994, respectively.
(2) Effective January 1, 1995, GM adopted EITF Issue No. 95-1 and effective
January 1, 1994, GM adopted SFAS No. 112. Not included in 1994 is the
unfavorable cumulative effect on GMAC earnings of $7 million of adopting
SFAS No. 112 because the cumulative effect is included in earnings of
nonconsolidated affiliates.
(3) Net profit margin represents income from continuing operations before
cumulative effect of accounting changes as a percentage of net sales and
revenues.
RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
In 1996, GM's income from continuing operations before cumulative effect of
accounting changes totaled $5 billion or $6.07 per share of $1 2/3 par value
common stock, compared with $6 billion or $7.14 per share of $1 2/3 par value
common stock and $4.9 billion or $5.74 per share of $1 2/3 par value common
stock in 1995 and 1994, respectively. GM's 1996 income from continuing
operations before cumulative effect of accounting changes included certain
special items that had a net unfavorable impact of approximately $900 million
after-tax (See GM-NAO/Delphi Financial Review).
GM completed the split-off of Electronic Data Systems Corporation (EDS) on
June 7, 1996, and accordingly, the financial results related to EDS through the
split-off date have been reported as discontinued
II-56
71
RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
(CONTINUED)
operations. GM's 1996 net income, including the income from discontinued
operations through the June 7, 1996 split-off, totaled $5 billion or $6.06 per
share of $1 2/3 par value common stock, compared with $6.9 billion or $7.21 per
share of $1 2/3 par value common stock and $4.9 billion or $5.15 per share of
$1 2/3 par value common stock for 1995 and 1994, respectively.
Highlights of financial performance by GM's major business sectors were as
follows (in millions):
1996 1995 1994
---- ---- ----
GM-NAO/Delphi............................................... $1,246 $2,396 $ 677
GMIO........................................................ 1,532 1,644 1,575
GMAC........................................................ 1,240 1,031 920
Hughes...................................................... 1,151 1,108 1,049
Other....................................................... (216) (198) (113)
------ ------ ------
Income from continuing operations...................... $4,953 $5,981 $4,108
Discontinued operations (EDS) 10 900 793
------ ------ ------
Net income............................................. $4,963 $6,881 $4,901
====== ====== ======
Reference should be made to the GM-NAO/Delphi, GMIO, GMAC, and Hughes
Financial Reviews that are presented on pages II-48 through II-55 and
incorporated by reference to supplement the information presented herein.
In 1996, net sales and revenues increased $1.6 billion to $145.4 billion,
compared with $143.8 billion and $134.9 billion in 1995 and 1994, respectively.
The 1996 increase resulted from increased net sales for GMIO and Hughes,
partially offset by lower wholesale sales in North America. The increase in 1995
compared with 1994 was primarily due to increased wholesale vehicle sales, lower
sales incentives and an improved mix of retail and fleet sales in North America,
increased wholesale vehicle sales outside of North America, and the continued
expansion of Hughes.
The gross margin was 14.8% for 1996, compared with 15.6% and 15.7% in 1995
and 1994, respectively. The 1996 decrease in the gross margin primarily resulted
from lower wholesale sales, increased safety and emissions costs, and spending
for new product launches and new product development. The slight decrease in the
1995 gross margin primarily resulted from labor cost pressures in Latin America;
foreign exchange rate movements in Europe, Brazil, and Venezuela; vehicle launch
costs in Europe; and increased corporate-wide engineering expenses to support
new product development. The higher costs in 1996 and 1995 were partially offset
by savings for GM-NAO, Delphi, and GMIO in connection with GM's strategy of
utilizing common parts and processes, while implementing lean operations.
Selling, general, and administrative expenses increased in both 1996 and
1995 primarily due to efforts to grow the business in all of the GM business
sectors, which included increased advertising and other consumer influence
spending in connection with new vehicle launch support and marketing programs in
North America in 1996.
Depreciation and amortization expenses increased in both 1996 and 1995 in
connection with expenditures for production and quality improvements worldwide.
Favorable pre-tax plant closings reserve adjustments of $727 million were
recorded in 1996. Additional information regarding the plant closings reserve
adjustments is contained in Note 17 to the GM consolidated financial statements.
Other income less income deductions was $2.1 billion in 1996, compared with
$1.2 billion in both 1995 and 1994. The amount reported for 1996 included a $120
million pre-tax gain associated with the sale of a 2.5% equity interest in
DIRECTV and a $105 million pre-tax gain on the sale of GM's preferred stock
interest in Avis, Inc., while the 1995 amount included a $148 million pre-tax
loss associated with the sale of the net assets of National Car Rental System
(NCRS).
Interest expense totaled $859 million in 1996, compared with $344 million
and $1.3 billion in 1995 and 1994, respectively. The lower 1995 interest expense
resulted from the reversal of interest related to income tax issues resolved in
1995, the reevaluation of the remaining reserve, and lower 1995 accrued interest
on outstanding tax issues.
II-57
72
RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
(CONCLUDED)
In 1996, the effective income tax rate was 19.8%, compared with 24.9% and
31.5% in 1995 and 1994, respectively. The lower 1996 tax rate resulted from the
favorable resolution of items related to GM's 1995 tax return, overall foreign
tax rates that were lower than the U.S. statutory rate, and research and
experimentation credits. The 1995 effective income tax rate resulted from the
resolution of numerous prior year tax issues worldwide, efficient utilization of
a net operating loss carryback, tax benefits associated with the mix of foreign
earnings and foreign income taxes, and tax benefits relating to the sale of the
net assets of NCRS.
EDS SPLIT-OFF
On June 7, 1996, GM split-off EDS to GM Class E stockholders on a tax-free
basis for U.S. federal income tax purposes. Under the terms of the split-off,
each share of GM's former Class E common stock was exchanged for one share of
EDS common stock. In addition, GM and EDS entered into a new 10-year agreement,
under which EDS will continue to be GM's principal provider of information
technology services, and EDS made a special inter-company payment of $500
million to GM.
GM's Board of Directors determined that the ownership of EDS was not
necessary for GM to execute its information technology strategy or to ensure the
security of its computer data and other information. Furthermore, GM's Board of
Directors determined that there were certain actual and potential conflicts
between the business of EDS and the other businesses of GM. The split-off was
completed to address such conflicts in a manner that was beneficial from the
standpoint of all stockholders of GM and to allow the boards and managements of
GM and EDS to increase their focus on their respective business operations. A
majority of the holders of all three classes of GM common stock approved the
split-off.
Additional information regarding the split-off of EDS is contained in Note
2 to the GM consolidated financial statements.
HUGHES TRANSACTIONS
On January 16, 1997, GM and Hughes announced a series of planned
transactions designed to address strategic challenges and unlock stockholder
value in the three Hughes business segments. The transactions would include the
tax-free spin-off of the Hughes defense business to holders of GM's $1 2/3 par
value and Class H common stocks, followed immediately by the tax-free merger of
that business with Raytheon Company (Raytheon). The spin-off is not being
proposed in a manner that would result in the recapitalization of Class H common
stock into $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. At the same time, Delco Electronics,
the automotive electronics subsidiary of Hughes, would be transferred from
Hughes to GM's Delphi Automotive Systems unit. Finally, GM's Class H common
stock would be recapitalized into a tracking stock linked solely to the
telecommunications and space business of Hughes. After the spin-off and tax-free
merger of the Hughes defense business with Raytheon, there would be outstanding
two classes of Raytheon/Hughes defense common stock: Class A common stock,
approximately 103 million shares of which would have been distributed to GM's
$1 2/3 and Class H stockholders in the spin-off, and Class B common stock which
would be exchanged for Raytheon common stock on a one-for-one share basis in the
merger. The common stock of the Hughes defense business that would be
distributed to GM common stockholders would represent approximately 30% of the
stock of the combined company. The distribution of stock in the Hughes defense
business to holders of GM Class H and $1 2/3 par value common stock would be in
a ratio that would be determined by GM's Board of Directors to be fair to both
classes of stockholders and would reflect: (1) a pro rata spin-off of the Hughes
defense business to holders of GM Class H and $1 2/3 par value common stock; (2)
a partial reallocation of the Hughes defense business from holders of GM $1 2/3
par value common stock to holders of Class H common stock in exchange for the
derivative interest in the earnings of Delco currently held by the Class H
stockholders; and (3) other effects of and factors relating to the planned
transactions. Such a distribution ratio will be set by GM's Board of Directors
at a time closer to GM's distribution of the solicitation statement/prospectus
pursuant to which GM stockholders will be asked to approve the transactions.
The spin-off of the Hughes defense business and merger with Raytheon would
have an indicated total value of $9.5 billion to GM and its common stockholders
based on stock prices as of the announcement date. That value would consist of a
combination of approximately $4.7 billion of total debt obligations of the
Hughes
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73
HUGHES TRANSACTIONS (CONCLUDED)
defense business at the time of the merger, and $4.8 billion of indicated value
of Hughes defense stock to be distributed to common stockholders (after giving
affect to the merger based on the market price of Raytheon common stock as of
the announcement date of $47.00). The merger terms provide that the total debt
of the Hughes defense business will be adjusted to reflect variations in the
average market price of Raytheon stock, subject to specified limits, so that the
two components of value will total $9.5 billion so long as such market price is
in a range of between $44.42 and $54.29 per share. Substantially all of such
debt would be incurred immediately prior to the spin-off, with the proceeds used
principally to fund the telecommunications and space business of Hughes.
The integration of Delco with certain parts of Delphi into a distinct
business unit will give GM the flexibility to consider some form of future
partial public ownership of the resulting entity. GM is evaluating its strategic
alternatives in this regard.
GM is evaluating the accounting for these transactions and whether the pro
rata distribution of the Hughes defense business would be recorded at historical
cost, with no gain recognized, or at fair value, with a related gain. Regardless
of whether the planned transactions are recorded at historical cost or fair
value, it is anticipated that there would be a reduction to GM's stockholders'
equity of between $0.6 billion to $1.6 billion, depending on several variables
the largest of which is the level of debt incurred by the Hughes defense
business prior to the spin-off.
Consummation of the transactions described previously is subject to various
contingencies, including regulatory clearances and approval by GM common
stockholders. Additional information regarding these planned transactions is
included in Note 23 to the GM consolidated financial statements. These planned
transactions had no impact on GM's 1996 financial results.
The planned transactions described previously are intended to result in the
achievement of several strategic objectives. The merger of the Hughes defense
business with Raytheon would create a stronger defense electronics company which
would be able to more effectively compete for new business in an industry where
significant consolidation is occurring. At the same time, the integration of
Delco Electronics and Delphi Automotive Systems would combine advanced
electronics capability with components and systems expertise, and would be
expected to result in reduced costs. Hughes Electronics would continue to hold
and operate the telecommunications and space business. This would allow Hughes
management to focus on this business segment and the capital infusion would
allow it to take advantage of growth opportunities in this very competitive
industry. The strategy of this business is to continue to expand its offerings
from being primarily a supplier of hardware to becoming a provider of hardware
and video, voice, and data services worldwide. This strategy requires
significant current and future investment in order to maintain and enhance the
segment's competitive position with respect to existing products and to take
advantage of the growth opportunities presented, as well as the formation of
strategic alliances to compete in the very competitive global marketplace.
Separately, in September 1996, Hughes and PanAmSat Corporation entered into
an agreement to merge their respective satellite services operations into a new
publicly-held company. Hughes would contribute its Galaxy satellite services
business in exchange for a 71.5% interest in the new company. Current PanAmSat
stockholders would receive a 28.5% interest in the new company and $1.5 billion
in cash. For accounting purposes, this transaction would be treated as a partial
sale of the Galaxy business by Hughes and would result in a one-time,
nonrecurring gain. The amount of this gain depends on several variables, but is
expected to be between $400 and $600 million before tax. The transaction, which
is contingent upon receiving certain regulatory approvals, is expected to close
during the second quarter of 1997.
Statements made herein concerning the transactions planned by Hughes and
General Motors, and strategic alternatives and the possibility of future action
in relation thereto constitute forward-looking information. Each of the
transactions described in such statements is subject to numerous conditions and
uncertainties. Accordingly, there can be no assurance that any such transactions
will be consummated, or if consummated, accomplish the strategic objectives of
Hughes or General Motors.
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74
CONSOLIDATED BALANCE SHEETS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY
BASIS
DECEMBER 31,
----------------------
1996 1995
---- ----
(DOLLARS IN MILLIONS)
ASSETS
Cash and cash equivalents................................... $ 13,320 $ 9,047
Other marketable securities................................. 3,642 1,194
-------- --------
Total cash and marketable securities...................... 16,962 10,241
Accounts and notes receivable (less allowances)
Trade..................................................... 4,909 5,595
Nonconsolidated affiliates................................ 927 2,103
Inventories (less allowances)............................... 11,898 11,348
Net assets of discontinued operations....................... -- 5,055
Contracts in process -- net................................. 2,507 2,469
Net equipment on operating leases........................... 3,918 4,393
Deferred income taxes and other............................. 3,141 5,527
-------- --------
Total current assets................................... 44,262 46,731
Equity in net assets of nonconsolidated affiliates.......... 9,855 9,983
Deferred income taxes....................................... 20,075 17,375
Other investments and miscellaneous assets.................. 11,391 12,011
Property -- net............................................. 37,156 34,438
Intangible assets -- net.................................... 12,523 10,106
-------- --------
Total assets........................................... $135,262 $130,644
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 11,527 $ 10,624
Loans payable............................................... 1,214 2,187
Income taxes payable........................................ -- 101
Accrued liabilities and customer deposits................... 29,822 28,093
-------- --------
Total current liabilities.............................. 42,563 41,005
Long-term debt.............................................. 5,192 4,114
Capitalized leases.......................................... 198 166
Postretirement benefits other than pensions................. 40,578 39,001
Pensions.................................................... 5,966 5,594
Other liabilities and deferred income taxes................. 15,742 15,908
Deferred credits............................................ 1,605 1,510
Stockholders' equity........................................ 23,418 23,346
-------- --------
Total liabilities and stockholders' equity............. $135,262 $130,644
======== ========
LIQUIDITY AND CAPITAL RESOURCES WITH FINANCING AND INSURANCE OPERATIONS ON AN
EQUITY BASIS
Total cash and marketable securities at December 31, 1996 were $17 billion,
up from $10.2 billion at December 31, 1995. GM has surpassed its goal to
accumulate $13 billion of cash and marketable securities in order to continue to
fund product development programs throughout the next downturn in the business
cycle.
GM believes it has sufficient resources to meet anticipated future cash
flow requirements. In addition to cash flows from operations, GM and its
subsidiaries maintain substantial bank lines of credit with various banks that
totaled $53.7 billion at December 31, 1996, of which $32.4 billion represented
short-term credit facilities and $21.3 billion represented long-term credit
facilities. At December 31, 1995, bank lines of credit totaled $50.9 billion, of
which $30.1 billion represented short-term credit facilities and $20.8 billion
represented long-term credit facilities. The unused short-term and long-term
portions of the credit lines
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LIQUIDITY AND CAPITAL RESOURCES WITH FINANCING AND INSURANCE OPERATIONS ON AN
EQUITY BASIS (CONCLUDED)
totaled $21.9 billion and $19.2 billion at December 31, 1996, compared with
$20.6 billion and $18.8 billion at December 31, 1995.
Long-term debt was $5.2 billion at December 31, 1996, an increase of $1.1
billion from the prior year. The ratio of long-term debt to the total of
long-term debt and stockholders' equity was 18.1% and 15% at December 31, 1996
and 1995, respectively. The ratio of long-term debt and short-term loans payable
to the total of this debt and stockholders' equity was 21.5% and 21.3% at
December 31, 1996 and 1995, respectively.
Net liquidity, calculated as cash and marketable securities less the total
of loans payable, long-term debt, and capitalized leases, was a record $10.4
billion at December 31, 1996, an increase of $6.6 billion from the prior year.
Book value per share of $1 2/3 par value common stock increased to $27.95 from
$24.37 at December 31, 1996 and 1995, respectively. Book value per share of
Class H common stock increased to $13.97 from $12.20 at December 31, 1996 and
1995, respectively. Book value per share was determined based on the liquidation
rights of the various classes of common stock.
LIQUIDITY AND CAPITAL RESOURCES FOR GMAC
At December 31, 1996, GMAC owned assets and serviced automotive receivables
for others totaling $108 billion compared with $106.6 billion at year end 1995.
Earning assets totaled $95.3 billion and $92 billion at December 31, 1996 and
1995, respectively. The increase in earning assets was primarily attributable to
continued growth of the operating lease portfolio as well as higher outstanding
balances for real estate mortgages.
Cash and cash equivalents totaled $742 million and $1.4 billion at December
31, 1996 and 1995, respectively. The lower holdings reflect a reduced need to
accumulate cash as GMAC's access to the capital markets has continued to
improve.
Consolidated finance receivables, net of unearned income, totaled $59.3
billion at December 31, 1996, a decrease of $1.9 billion from December 31, 1995
that primarily resulted from lower wholesale receivables outstanding.
GMAC's liquidity, as well as its ability to profit from ongoing acquisition
activity, is in large part dependent on its access to capital and the costs
associated with raising funds in different segments of the capital markets. In
this regard, GMAC regularly accesses the short-, medium-, and long-term debt
markets, principally through commercial paper, medium-term notes, and
underwritten issuances. GMAC's borrowings outstanding at December 31, 1996
totaled $78.7 billion compared with $74.9 billion at December 31, 1995. GMAC's
ratio of debt to total stockholder's equity at December 31, 1996 was 9.5:1, up
from 9.1:1 at December 31, 1995. The higher year-to-year debt levels were
principally used to fund increased asset levels and reduce accounts payable.
GMAC has continued to use an asset securitization program as an alternative
funding source and has sold finance receivables that it continues to service for
a fee. The servicing portfolio of sold finance receivables totaled $9.7 billion
and $11.3 billion at December 31, 1996 and 1995, respectively.
GMAC and its subsidiaries maintain substantial bank lines of credit, which
totaled $40.7 billion and $40 billion at December 31, 1996 and 1995,
respectively. The unused portion of these credit lines totaled $30.6 billion at
December 31, 1996, which was $200 million higher than at December 31, 1995.
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76
CONSOLIDATED STATEMENTS OF CASH FLOWS WITH FINANCING AND INSURANCE OPERATIONS ON
AN EQUITY BASIS
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Cash flows from operating activities
Income from continuing operations before cumulative effect
of accounting changes.................................. $ 4,953 $ 6,033 $ 4,859
Adjustments to reconcile income from continuing operations
before cumulative effect of accounting changes to net
cash provided by operating activities
Depreciation and amortization expenses................. 7,145 6,787 6,343
Provision for ongoing postretirement benefits other
than pensions, net of cash payments.................. 1,549 1,659 2,205
Pension expense, net of cash contributions............. 801 (2,932) (5,018)
Plant closings reserve adjustments..................... (727) -- --
Pre-tax loss (gain) on sale of business units.......... 253 116 (18)
Change in other operating assets and liabilities
Accounts receivable.................................. 1,196 (137) (838)
Inventories.......................................... (757) (1,214) (1,656)
Accounts payable..................................... 898 (288) 1,267
Deferred taxes and income taxes payable.............. (303) 1,077 406
Other liabilities.................................... 460 576 1,662
Other.................................................. 1,447 (575) (1,555)
-------- ------- -------
Net cash provided by operating activities................... 16,915 11,102 7,657
-------- ------- -------
Cash flows from investing activities
Expenditures for property................................. (9,606) (8,653) (5,890)
Special inter-company payment from EDS.................... 500 -- --
Investments in other marketable securities -
acquisitions........................................... (14,340) (5,581) (2,511)
Investments in other marketable securities -
liquidations........................................... 11,891 5,496 1,914
Operating leases - acquisitions........................... (4,090) (1,090) (1,851)
Operating leases - liquidations........................... 3,819 506 1,128
Other..................................................... 334 (71) 737
-------- ------- -------
Net cash used in investing activities....................... (11,492) (9,393) (6,473)
-------- ------- -------
Cash flows from financing activities
Net (decrease) increase in loans payable.................. (971) 1,072 (528)
Increase in long-term debt................................ 1,937 646 152
Decrease in long-term debt................................ (871) (1,597) (786)
Proceeds from sale of minority interest in DIRECTV........ 138 -- --
Net increase (decrease) in payable to GMAC................ -- 311 (143)
Repurchases of common and preference stocks............... (251) (1,681) --
Proceeds from issuing common stocks....................... 480 453 1,017
Cash dividends paid to stockholders....................... (1,530) (1,328) (1,112)
-------- ------- -------
Net cash used in financing activities....................... (1,068) (2,124) (1,400)
-------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (185) 146 (16)
-------- ------- -------
Net cash provided by (used in) continuing operations........ 4,170 (269) (232)
Net cash provided by (used in) discontinued operations...... 103 193 (24)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 4,273 (76) (256)
Cash and cash equivalents at beginning of the year.......... 9,047 9,123 9,379
-------- ------- -------
Cash and cash equivalents at end of the year................ $ 13,320 $ 9,047 $ 9,123
======== ======= =======
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77
CASH FLOWS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
Net cash provided by operating activities was $16.9 billion, $11.1 billion,
and $7.7 billion in 1996, 1995, and 1994, respectively. The increase in net cash
provided by operating activities in 1996 resulted from a decrease in accounts
receivable and cash contributions to the worldwide pension funds, higher
depreciation and amortization expenses, and a $1 billion income tax refund
related to the carryback of a 1995 net operating loss, partially offset by an
increase in deferred tax assets. The increase in 1995 was primarily attributable
to higher net income and depreciation and amortization expenses, the sale of
$600 million of accounts receivable, and a decrease in cash contributions to the
worldwide pension funds. Depreciation and amortization expenses increased as a
result of higher property expenditures in each of the last three years. Cash
pension contributions for 1996 and 1995 decreased due to the improved funding of
GM's U.S. hourly pension plan and included the effects of the 1995 non-cash
contribution of GM's former Class E common stock (now EDS common stock), valued
for book purposes at approximately $6.3 billion.
GM has made substantial progress toward realigning plant capacity in North
America, and the improved operating cash flows reflect these actions. Total
future discounted cash expenditures for plant closings is estimated to be $1,279
million. Additional information on the plant closings reserve (excluding
environmental) is summarized in Note 17 to the GM consolidated financial
statements.
Net cash used in investing activities increased to $11.5 billion in 1996,
compared with $9.4 billion and $6.5 billion in 1995 and 1994, respectively. The
increase in 1996 was primarily due to a $2.4 billion net change in investments
in other marketable securities combined with a $953 million increase in property
expenditures, partially offset by a $500 million special inter-company payment
from EDS. The $2.9 billion increase in 1995 over 1994 resulted primarily from
increased property expenditures. Worldwide property expenditures in 1996, of
which 60% were in the U.S. (65% in 1995 and 66% in 1994), 10% in Canada and
Mexico (8% in 1995 and 10% in 1994) and 30% overseas (27% in 1995 and 24% in
1994), have been devoted primarily to improve efficiency and quality, to
increase truck assembly capacity, and to increase GM's global presence. Capital
expenditures for 1997 are estimated to be approximately $9.9 billion with
outstanding commitments of $7 billion at December 31, 1996.
In 1996, net cash used in financing activities decreased to $1.1 billion,
compared with $2.1 billion and $1.4 billion in 1995 and 1994, respectively. The
higher level of cash used in financing activities in 1995 was due to a $1.3
billion repurchase of preference stocks. The increase in net cash used in
financing in 1995 compared with 1994 resulted from the repurchase of preference
stocks, as well as a reduction of $564 million in proceeds from issuing common
stocks and a $1.1 billion increase in total loans payable.
Cash dividends paid to stockholders increased in 1996 and 1995 as GM's
Board of Directors approved dividend increases in the first quarter of each
year. 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. In
January 1997, GM's Board of Directors increased the quarterly dividend on $1 2/3
par value common stock by $0.10 per share to $0.50 per share, a level that GM
believes will be sustainable throughout the automotive business cycle.
With respect to Class H common stock, GM's current policy is to pay
quarterly cash dividends approximately equal to 35% of the available separate
consolidated net income of Hughes, for the prior year. In January 1997, GM's
Board of Directors increased the quarterly dividend on Class H common stock to
$0.25 per share from $0.24 per share. It is anticipated that if the previously
described Hughes transactions are consummated, the General Motors Board of
Directors will adopt a dividend policy relating to the new Class H common stock
which the Board deems to be appropriate in light of the capital needs and growth
opportunities of the Hughes telecommunications and space business and generally
commensurate with that of other companies in the telecommunications and space
business having similar capital needs and growth opportunities.
Also in January 1997, GM's Board of Directors approved a $2.5 billion
repurchase program for $1 2/3 par value common stock, which was expected to be
completed principally through open-market purchases within 12 months of the
announcement date. This would represent a repurchase of slightly more than 5% of
the shares of $1 2/3 par value common stock outstanding on the date of the
announcement based on the New York Stock Exchange's closing price on the last
business day prior to the announcement.
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78
CASH FLOWS FOR GMAC
In 1996, cash provided by operating and financing activities totaled $4.2
billion and $2.6 billion, respectively. Cash used in investing activities,
primarily for expanding the operating lease portfolio, totaled $7.5 billion.
In 1995, cash provided by operating and financing activities totaled $5.9
billion and $6.7 billion, respectively. Cash used in investing activities,
principally for expanding the finance receivables and operating lease
portfolios, totaled $12.5 billion.
In 1994, cash provided by operating and financing activities totaled $4.4
billion and $2.5 billion, respectively. Cash used for investing activities,
primarily for the acquisition of operating lease assets, totaled $9.6 billion.
The 1994 decrease in cash and cash equivalents of $2.7 billion resulted from a
planned reduction in liquidity reserve requirements due to GMAC's improved
access to capital markets.
HEALTH CARE EXPENSE AND OTHER POSTRETIREMENT BENEFITS
As described in Note 14 to the GM consolidated financial statements, SFAS
No. 106 requires the cost of postretirement medical, dental, vision, and life
insurance to retirees and eligible dependents to be recognized in the
consolidated financial statements during the period in which employees provide
services to GM. Costs for medical, dental, vision, and life insurance claims
provided to employees during active service are expensed as incurred
(pay-as-you-go) and are not covered by SFAS No. 106. The components of the SFAS
No. 106 expense, the U.S. health care cost, and cash expenditures for GM's U.S.
operations are set forth below (excluding cash expenditures for Hughes'
non-automotive employees, but including GMAC).
SFAS No. 106 has no effect on cash flow since GM continues its practice of
paying postretirement benefits (other than pensions) when incurred. Nonetheless,
GM is committed to reducing the burden of continuing health care cost increases.
YEAR ENDED DECEMBER 31, 1996
------------------------------------------
SFAS NO. 106 HEALTH PAY-AS-YOU-GO
EXPENSE CARE COST COST*
------------ --------- -------------
(DOLLARS IN MILLIONS)
GM U.S. operations health care
SFAS No. 106 expense................................. $2,999 $2,999 $ --
Retired employees pay-as-you-go...................... -- -- 1,730
Active employees pay-as-you-go....................... -- 1,764 1,764
------ ------ ------
Total health care................................. 2,999 $4,763 $3,494
------ ====== ======
SFAS No. 106 expense
Life insurance....................................... 404
Other subsidiaries - health care and life
insurance......................................... 169
------
Total SFAS No. 106................................ $3,572
======
- -------------------------
* Pay-as-you-go amounts for 1995 were $1.7 billion for retirees, $1.9 billion
for active employees, and $3.6 billion in total.
GM has disclosed in its consolidated financial statements certain amounts
associated with estimated future postretirement benefits other than pensions and
classified such amounts as "accumulated postretirement benefit obligations",
"liabilities", or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, GM does not admit or otherwise acknowledge that such
amounts or existing postretirement benefit plans of GM (other than pensions)
represent legally enforceable liabilities of GM.
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GM CARD
GM sponsors a credit card program, entitled the GM Card program, which was
introduced in the U.S. in September 1992 and subsequently in Canada, Australia,
Brazil, and the United Kingdom. A cardholder's use of the card generates
entitlements to rebates that can be used solely in connection with the
cardholder's purchase or lease of a new GM vehicle.
As the sponsor of the GM Card program, GM does not provide consumer credit.
The program is used as a marketing tool to increase product sales. Independent
banks issue the GM Card and are responsible for evaluating, extending, and
funding credit to the cardholders, and are fully responsible for any credit card
losses with no recourse against GM.
In the U.S., GM Card rebates accumulate at a rate equal to 5% of all
spending for goods or services charged on the GM Card up to a maximum rebate
amount of $500 per year. Beginning with their annual fee date in 1997, the
maximum rebate for Gold Card members will be $500 per year. Additional rebates
may be earned when the GM Card is used to make purchases from non-bank marketing
partners. The rebates, which expire in 7 years, may be applied over and above
all sales allowances in the market at the time of vehicle purchase or lease. GM
is solely responsible to cardholders for rebates. Provisions for GM Card rebates
are recorded as reductions in revenue at the time of vehicle sale. GM has the
right to prospectively modify the plan.
Rebates redeemed worldwide during 1996, 1995, and 1994 were $443 million,
$299 million, and $150 million, respectively. Cardholder rebates available
worldwide for future redemption when the cardholder purchases or leases a new GM
vehicle amounted to $3.2 billion and $2.5 billion (net of deferred program
income) at December 31, 1996 and 1995, respectively. GM anticipates that profits
from incremental sales resulting from the GM Card program, along with deferred
program income, will more than offset future rebate costs associated with the GM
Card.
DERIVATIVE INSTRUMENTS
GM is an international corporation with operations in over 50 countries,
which naturally exposes it to a variety of financial risks. These financial
risks are principally the effects of movements in foreign exchange rates on
transactions not denominated in U.S. dollars, and to a lesser extent, changes in
interest rates on its net cost of borrowings. In addition, GM is hedging its use
of metals in the physical and financial commodities markets. The impact of such
financial exposures on GM's annual income is relatively small compared with the
impact of changes in vehicle sales volumes and operating margins. Gains and
losses on derivatives used to hedge commodities price exposures are deferred and
recorded as a basis adjustment to the underlying inventory purchase. At the time
the inventory is sold, the gain or loss on the derivative is recognized in
income as an adjustment to cost of sales.
Additional information regarding GM's accounting policies for and use of
derivative financial instruments is contained in Notes 1, 11, 12, and 13 to the
GM consolidated financial statements.
SECURITY RATINGS
CURRENT SECURITY RATINGS
-----------------------------
MOODY'S S&P D&P FITCH
------- --- --- -----
GM/GMAC long-term debt....................... A.3 A- A- A-
GM preference stocks......................... Baa1 BBB+ BBB+ BBB+
GMAC commercial paper........................ P-1 A.2 D-1 F-1
Hughes long-term debt........................ A.3 A- -- --
Hughes commercial paper...................... P-2 A.2 -- --
Debt ratings by the various rating agencies reflect each agency's opinion
of the ability of issuers to repay debt obligations punctually. Lower ratings
generally result in higher borrowing costs. A security rating is not a
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SECURITY RATINGS (CONCLUDED)
recommendation to buy, sell, or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating organization. Each rating
should be evaluated independently of any other rating.
GM's 1996 credit ratings remained unchanged from 1995 by its U.S. rating
agencies. Following GM's January 1997 announcement with respect to the Hughes
business segments (see Note 23 to the GM consolidated financial statements),
each of the rating agencies reaffirmed its current rating and outlook for GM
securities. Moody's Investors Service (Moody's), however, put Hughes' ratings on
review for possible downgrade.
In September 1996, Moody's confirmed the long-term credit ratings of GM,
Hughes and certain related affiliates at A.3, seventh highest within the 10
investment grade ratings available from Moody's for long-term debt. Moody's
defines A.3 bonds as having "upper-medium grade" quality. In this action, the
credit rating for the commercial paper of Hughes was confirmed at P-2. Moody's
employs its P-1 rating to indicate that an issuer's ability to repay is superior
relative to other issuers, while the P-2 rating indicates that the issuer has a
strong ability for repayment relative to other issuers. The rating for GM
preference stocks remains at Baa1, which signifies "medium-grade" quality.
In October 1996, Standard and Poor's Ratings Services, a division of
McGraw-Hill Companies, Inc. (S&P), revised its outlook on Hughes from stable to
developing as a result of the uncertainty with respect to GM's investment
strategy related to Hughes. S&P indicated that the developing outlook reflects
the possibility that if a significant change in the relationship between GM and
Hughes were to occur, the credit quality of Hughes could be either favorably or
adversely affected, depending upon the nature of the transaction pursued.
In November 1996 and January 1997, S&P affirmed its long-term debt ratings
of GM, GMAC, and Hughes at A-. The S&P A- credit rating is the seventh highest
within the 10 investment grade ratings available from S&P for long-term debt,
based on a strong capability to pay interest and repay principal, although
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories. Additionally, S&P
affirmed its rating on GM's preference stock at BBB+, eighth highest within the
10 S&P investment grade ratings, and affirmed its A.2 rating on GMAC's and
Hughes' commercial paper. The ratings outlook for GM and GMAC remain stable,
while the outlook for Hughes remains developing.
In addition, substantially all of the short-, medium- and long-term debt
issued by GMAC and the senior debt of GM is rated by Fitch Investors Service,
Inc. (Fitch) and Duff & Phelps Credit Rating Co. (D&P). These ratings were all
reaffirmed by Fitch and D&P in September 1996 and January 1997. The senior debt
of GM and GMAC remains rated A- by both agencies, seventh highest within the 10
investment grade ratings available. Fitch's A- rating is assigned to bonds
considered to be of high credit quality, with the obligor's ability to pay
interest and repay principal considered to be strong. D&P's A- rating indicates
adequate likelihood of timely payment of principal and interest.
GMAC's commercial paper remains rated F-1 by Fitch, the second highest of
four investment grade ratings available, which is assigned to short-term issues
that possess a very strong credit quality based primarily on the existence of
liquidity necessary to meet the obligation in a timely manner. GMAC's commercial
paper remains rated D-1 by D&P, the second highest of five investment grade
ratings available, which signifies a very high certainty of timely payment based
on excellent liquidity factors and good fundamental protection factors.
GM's preference stocks remain rated BBB+ by Fitch and D&P, the eighth
highest of 10 investment grade ratings available. Preference issues assigned
this rating by Fitch are considered reasonably safe but lack the protection of
the "A" to "AAA" categories. This rating signifies that current results should
be watched for possible signs of deterioration. Preference stocks assigned this
rating by D&P have below average protection factors but are still considered
sufficient for prudent investment.
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DEFERRED INCOME TAXES
At December 31, 1996, GM's consolidated balance sheet included a net
deferred tax asset of approximately $17.5 billion related to net future
deductible temporary differences (see Note 7 to the GM consolidated financial
statements) in the United States of which approximately $16.4 billion related to
the obligation for postretirement benefits other than pensions. Realization of
the net deferred tax asset is dependent upon profitable operations in the United
States and future reversals of existing taxable temporary differences. Although
realization is not assured, GM believes that it is more likely than not that
such benefits will be realized through the reduction of future taxable income.
Management has carefully considered various factors in assessing the probability
of realizing these deferred tax benefits including:
- Operating results of GMAC and Hughes, which generated U.S. pre-tax income
of approximately $3.1 billion, $2.7 billion, and $2.3 billion in 1996,
1995, and 1994, respectively.
- The operating results of GM-NAO/Delphi over the most recent three year
period and overall financial forecasts of book and taxable income for the
1997-2001 period. Further improvements are expected by continuing to
balance plant capacity pursuant to the plant closing plan, reducing
material costs through global sourcing, and increasing efficiency through
lean manufacturing.
- The ability to utilize tax planning, such as capitalization of research
and experimentation costs for tax purposes, so that GM does not have, and
does not expect to generate in the near future, any significant U.S.
federal tax net operating loss carryforwards.
- The extended period of time over which the tax benefits can be utilized.
Postretirement benefits become tax deductions over periods up to 50
years.
- The fact that GM has never lost deferred federal tax benefits due to the
expiration of a U.S. net operating loss carryforward.
Dividends received from foreign operations for U.S. federal income tax
purposes totaled approximately $1.2 billion, $182 million, and $1.1 billion in
1996, 1995, and 1994, respectively. In 1995, the reduced level of dividends
resulted from tax planning strategies related to the U.S. net operating loss
carryback position -- for tax purposes only.
PENSIONS
At December 31, 1996, GM's total worldwide net unfunded pension position
decreased to $4.8 billion ($1.2 billion U.S. and $3.6 billion non-U.S.) from
$6.4 billion a year ago ($2.9 billion U.S. and $3.5 billion non-U.S.). Major
factors contributing to the improvement in the U.S. plans were the 50 basis
points increase in the discount rate used to measure the pension obligation at
the end of 1996 compared with 1995, asset returns in excess of the assumed 10%
asset earnings rate, and contributions during the year, partially offset by
benefit increases as a result of the U.S. labor negotiations.
On an economic basis, GM achieved a fully-funded status for its U.S. hourly
and salaried pension plans at December 31, 1995 and continues to maintain a
fully-funded status on this basis. The economic basis of measuring the U.S.
hourly and salaried pension liability differs from the SFAS No. 87 basis
required by generally accepted accounting principles, but GM believes it to be a
better measure of GM's ongoing economic exposure for pension obligations and as
such uses this measure to determine its funding. The economic basis discounts
pension liabilities at the long-term asset earnings rate assumption (currently
10%) rather than at a year-end market rate as required by SFAS No. 87 (currently
7.5%). In periods of low interest rates, as in the current market environment,
the SFAS No. 87 liability will generally exceed the liability calculated on an
economic basis, whereas in periods of high interest rates the economic basis
liability will generally exceed the SFAS No. 87 liability.
During 1996, GM contributed $800 million in cash to its U.S. hourly pension
plans. In March 1995, under terms of an agreement between GM and the Pension
Benefit Guarantee Corporation, GM contributed to the GM Hourly-Rate Employees
Pension Plan 173 million shares of Class E common stock valued at $6.3 billion
on such date. Subsequent to the split-off of EDS, the Class E common stock held
by the plan was
II-67
82
PENSIONS (CONCLUDED)
exchanged for EDS common stock. See Notes 2 and 16 to the GM consolidated
financial statements for additional information on the EDS split-off and
pensions.
ENVIRONMENTAL MATTERS
GM is subject to various laws relating to the protection of the environment
and is in various stages of investigation or remediation for sites where
contamination has been alleged.
As disclosed in Note 15 to the GM consolidated financial statements, the
accrued liability for worldwide environmental cleanup was $646 million and $692
million at December 31, 1996 and 1995, respectively. In future periods, new laws
or regulations, advances in technologies, additional information about the
ultimate remedy selected at new and existing sites, and GM's share of the cost
of such remedies could significantly change GM's estimates.
Note 1 to the GM consolidated financial statements describes GM's
methodology for estimating environmental liabilities. The process of estimating
such liabilities is complex and dependent primarily on the nature and extent of
historical information and physical data relating to a contaminated site, the
complexity of the site, the uncertainty as to what remedy and technology will be
required, the outcome of discussions with regulatory agencies and other
potentially responsible parties (PRPs) at multi-party sites, and the number and
financial viability of other PRPs.
In 1996, 1995, and 1994, GM expensed $94 million, $134 million, and $106
million, respectively, for environmental cleanup. In addition, worldwide capital
expenditures, as discussed previously, included $122 million, $133 million, and
$131 million in 1996, 1995, and 1994, respectively, for various environmental
matters.
EMPLOYMENT AND PAYROLLS
1996 1995 1994
---- ---- ----
WORLDWIDE EMPLOYMENT AT DECEMBER 31, (in thousands)
GM-NAO/Delphi............................................. 424 434 431
GMIO...................................................... 111 103 102
GMAC...................................................... 18 17 17
Hughes.................................................... 86 84 79
Other(1).................................................. 8 11 18
------ ------ ------
Employees associated with continuing operations........ 647 649 647
Discontinued operations (EDS)............................... -- 96 81
------ ------ ------
Total.................................................. 647 745 728
====== ====== ======
Worldwide payrolls -- continuing operations (in billions)... $ 29.8 $ 29.8 $ 28.5
U.S. hourly payrolls (in billions)(2)(3).................... $ 13.3 $ 13.7 $ 13.6
Average labor cost per active hour worked -- U.S.
hourly(2)................................................. $44.19 $43.13 $44.23
- -------------------------
(1) Includes employees of NCRS at December 31, 1994.
(2) Excludes EDS, Hughes' non-automotive employees, Saturn, and NCRS.
(3) Includes employees "at work" (excludes laid-off employees receiving
benefits).
* * * * * *
II-68
83
PART III
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEMS 10 THROUGH 13
Certain information required by Part III (Items 10 through 13) of this
form, other than the information set forth below, has been omitted because the
Registrant intends to file a definitive proxy statement pursuant to Regulation
14A not later than 120 days after the end of its fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of all executive officers of the Registrant at February
28, 1997 and their positions and offices with the Registrant on that date are as
follows:
NAME AND (AGE) POSITIONS AND OFFICES
-------------- ---------------------
John F. Smith, Jr. (58).............................. Chairman of the Board; Chief Executive
Officer; President; Member, Finance Committee
and Chairman, The President's Council
Harry J. Pearce (54)................................. Vice Chairman of the Board; Member, The
President's Council
J. Michael Losh (50)................................. Executive Vice President; Chief Financial
Officer; Member, The President's Council
G. Richard Wagoner, Jr. (44)......................... Executive Vice President; Member, The
President's Council
Louis R. Hughes (48)................................. Executive Vice President; Member, The
President's Council
There are no family relationships, as defined, between any of the above
executive officers, and there is no arrangement or understanding between any of
the above executive officers and any other person pursuant to which he was
selected as an officer. Each of the above executive officers was elected by the
Board of Directors to hold office until the next annual election of officers and
until his successor is elected and qualified or until his earlier resignation or
removal. The Board of Directors elects the officers in conjunction with each
annual meeting of the stockholders.
Mr. John F. Smith, Jr. has been associated with General Motors since 1961.
He was elected Executive Vice President in charge of International Operations in
1988. Effective August 1990, he was elected Vice Chairman of the Board of
Directors. On April 6, 1992, Mr. Smith was elected President and Chief Operating
Officer. Effective November 1992, he was elected Chief Executive Officer and
President. On January 1, 1996, Mr. Smith became Chairman of the Board of
Directors.
Mr. Pearce has been associated with General Motors since 1985. In May 1987,
he was elected Vice President and General Counsel of General Motors. Effective
November 1992, he was elected Executive Vice President of General Motors with
responsibility for the Industry-Government Relations Staff, Environmental
Activities Staff (now Environmental and Energy Staff), Worldwide Economics,
Electronic Data Systems Corporation and GM Hughes Electronics Corporation (now
Hughes Electronics Corporation). In July 1994, he assumed responsibility for
GM's Strategic Decision Center, Corporate Communications, Allison Transmission
Division, Electro-Motive Division (now GM Locomotive Group), Urban and Community
Affairs, Executive Compensation and Corporate Governance, and the Corporate
Services Staff. He remained General Counsel through August 1, 1994. Effective
January 1, 1996, Mr. Pearce was elected a director and became Vice Chairman of
the Board of Directors.
Mr. Losh has been associated with General Motors since 1964. In July 1984,
he was elected Vice President of General Motors and General Manager of Pontiac
Division. He was named General Manager of Oldsmobile Division in June 1989.
Effective May 1992, he was elected Group Executive in charge of North
III-1
84
American Vehicle Sales, Service, and Marketing. In July 1994, he was elected
Executive Vice President and Chief Financial Officer of General Motors.
Mr. Wagoner has been associated with General Motors since 1977. He was
elected Vice President in charge of finance for General Motors Europe in June
1989. In July 1991, he was elected President and Managing Director of General
Motors do Brasil. Effective November 1992, he was elected Executive Vice
President and Chief Financial Officer of General Motors. In July 1994, he was
named President of North American Operations.
Mr. Hughes has been associated with General Motors since 1966. In March
1989, he was elected Chairman and Managing Director of Adam Opel AG. He was
elected President of General Motors Europe and Vice President and Group
Executive of General Motors in April 1992. Effective November 1992, he was
elected Executive Vice President, International Operations of General Motors. In
September 1994, he was named President of International Operations.
III-2
85
PART IV
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
PAGE NO.
--------
(a) 1. All Financial Statements
See Part II
2. Financial Statement Schedule II-Allowances for the Years
Ended December 31, 1996, 1995, and 1994................... IV-4
3. Exhibits (Including Those Incorporated by Reference)
EXHIBIT
NO.
-------
(2)(a) Agreement and Plan of Merger by and between HE Holdings,
Inc. and Raytheon Company dated as of January 16, 1997,
filed as Exhibit 2(a) to the Current Report on Form 8-K of
General Motors Corporation dated January 16, 1997........... N/A
(2)(b) Implementation Agreement by and between General Motors
Corporation and Raytheon Company dated as of January 16,
1997, filed as Exhibit 2(b) to the Current Report on Form
8-K of General Motors Corporation dated January 16, 1997.... N/A
(2)(c) Form of Agreement and Plan of Merger by and between General
Motors Corporation and Corporation (included
as Exhibit A to the Implementation Agreement attached as
Exhibit 2(b) to the Current Report on Form 8-K dated January
16, 1997), filed as Exhibit 2(c) to the Current Report on
Form 8-K of General Motors Corporation dated January 16,
1997........................................................ N/A
(2)(d)* List of Omitted Schedules and Other Attachments, filed as
Exhibit 2(d) to the Current Report on Form 8-K of General
Motors Corporation dated January 16, 1997................... N/A
(3)(a) Restated Certificate of Incorporation, as amended, filed as
Exhibit 3(i) to the Current Report on Form 8-K of General
Motors Corporation dated June 7, 1996, and Amendment to
Article Fourth of the Certificate of Incorporation --
Division III -- Preference Stock, by reason of the
Certificates of Designations filed with the Secretary of
State of the State of Delaware on September 14, 1987 and the
Certificate of Decrease filed with the Secretary of State of
the State of Delaware on September 29, 1987 (pertaining to
the six series of Preference Stock contributed to the
General Motors pension trusts), incorporated by reference to
Exhibit 19 to the Quarterly Report on Form 10-Q of General
Motors Corporation for the quarter ended June 30, 1990 in
the Form SE of General Motors Corporation dated August 6,
1990; as further amended by the Certificate of Designations
filed with the Secretary of State of the State of Delaware
on June 28, 1991 (pertaining to Series A Conversion
Preference Stock), incorporated by reference to Exhibit 4(a)
to Form S-8 Registration Statement No. 33-43744 in the Form
SE of General Motors Corporation dated November 1, 1991; as
further amended by the Certificate of Designations filed
with the Secretary of State of the State of Delaware on
December 9, 1991 (pertaining to Series B 9 1/8% Preference
Stock), incorporated by reference to Exhibit 4(a) to Form
S-3 Registration Statement No. 33-45216 in the Form SE of
General Motors Corporation dated January 27, 1992; as
further amended by the Certificate of Designations filed
with the Secretary of State of the State of Delaware on
February 14, 1992 (pertaining to Series C Convertible
Preference Stock), incorporated by reference to Exhibit
(3)(a) to the Annual Report on Form 10-K of General Motors
Corporation for the year ended December 31, 1991 in the Form
SE of General Motors Corporation dated March 20, 1992; as
further amended by the Certificate of Designations filed
with the Secretary of State of the State of Delaware on July
15, 1992 (pertaining to Series D 7.92%
IV-1
86
EXHIBIT
NO. PAGE NO.
------- --------
Preference Stock), incorporated by reference to Exhibit
3(a)(2) to the Quarterly Report on Form 10-Q of General
Motors Corporation for the quarter ended June 30, 1992 in
the Form SE of General Motors Corporation dated August 10,
1992; and as further amended by the Certificate of
Designations filed with the Secretary of State of the State
of Delaware on December 15, 1992 (pertaining to Series G
9.12% Preference Stock), incorporated by reference to
Exhibit 4(a) to Form S-3 Registration Statement No. 33-49309
in the Form SE of General Motors Corporation dated January
25, 1993.................................................... N/A
(b) By-Laws, as amended, filed as Exhibit 3(ii) to the Current
Report on Form 8-K of General Motors Corporation dated
January 27, 1997............................................ N/A
(4)(a) Form of Indenture relating to the $500,000,000 8 1/8%
Debentures Due April 15, 2016 dated as of April 1, 1986
between General Motors Corporation and Citibank, N.A.,
Trustee, incorporated by reference to Exhibit 4 to Amendment
No. 1 to Form S-3 Registration Statement No. 33-4452 and
resolutions adopted by the Special Committee on April 15,
1986, incorporated by reference to Exhibit 4(a) to the
Current Report on Form 8-K of General Motors Corporation
dated April 24, 1986........................................ N/A
(b) Form of Indenture relating to the $700,000,000 9 5/8% Notes
Due December 1, 2000 and the $1,400,000,000 Medium-Term Note
Program dated as of November 15, 1990 between General Motors
Corporation and Citibank, N.A., Trustee, incorporated by
reference to Exhibit 4(a) to Form S-3 Registration Statement
No. 33-37737................................................ N/A
(c) Form of Indenture relating to the $377,377,000 7.75%
Debentures Due March 15, 2036 dated as of December 7, 1995
between General Motors Corporation and Citibank, N.A.,
Trustee, filed as Exhibit 4(a) to Amendment No. 1 to Form
S-3 Registration Statement No. 33-64229..................... N/A
(d) Instruments defining the rights of holders of nonregistered
debt of the Registrant have been omitted from this exhibit
index because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets of the
Registrant and its subsidiaries. The Registrant agrees to
furnish a copy of any such instrument to the Commission upon
request..................................................... N/A
(10)(a) The General Motors Hourly-Rate Employees Pension Plan,
filed as Exhibit (10)(a) to the Annual Report on Form 10-K
for the year ended December 31, 1994........................ N/A
(b) General Motors Retirement Program for Salaried Employees,
filed as Exhibit (10)(b) to the Annual Report on Form 10-K
for the year ended December 31, 1994........................ N/A
(c)** General Motors Amended 1987 Stock Incentive Plan,
incorporated by reference to Exhibit A to the Proxy
Statement of General Motors Corporation dated April 13,
1992........................................................ N/A
(d)** General Motors Performance Achievement Plan, incorporated by
reference to Exhibit A to the Proxy Statement of General
Motors Corporation dated April 16, 1982..................... N/A
(e)** General Motors 1987 Performance Achievement Plan,
incorporated by reference to Exhibit A to the Proxy
Statement of General Motors Corporation dated April 17,
1987........................................................ N/A
(f)** General Motors 1992 Performance Achievement Plan,
incorporated by reference to Exhibit A to the Proxy
Statement of General Motors Corporation dated April 13,
1992........................................................ N/A
IV-2
87
EXHIBIT
NO. PAGE NO.
------- --------
(11) Computation of Earnings Per Share Attributable to Common
Stocks for the Three Years Ended December 31, 1996.......... IV-7
(12) Computation of Ratios of Earnings to Fixed Charges for the
Three Years Ended December 31, 1996......................... IV-10
(21) Subsidiaries of the Registrant as of December 31, 1996...... IV-11
(23) Consent of Independent Auditors............................. IV-20
(99) Hughes Electronics Corporation and Subsidiaries Consolidated
Financial Statements and Management's Discussion and
Analysis.................................................... IV-21
(27) Financial Data Schedule (for SEC information only).......... N/A
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December
31, 1996.
* The registrant hereby undertakes to furnish supplementally a copy of any
omitted schedule or other attachment to the Securities and Exchange
Commission upon request.
** Required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
IV-3
88
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SCHEDULE II -- ALLOWANCES
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
----------- ---------- ---------- ---------- ---------- -----------
(DOLLARS IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, 1996
Allowances Deducted from Assets
Finance receivables (unearned income)....... $3,922 $ -- $2,949 $3,324 $3,547
Allowance for financing losses.............. 808 669 116(a) 671(b) 922
Accounts and notes receivable (for doubtful
receivables).............................. 138 49 -- 36 151
Inventories (principally for obsolescence of
service parts)............................ 229 74 -- -- 303
Other investments and miscellaneous assets
(receivables and other)................... 33 1 -- 22 12
Miscellaneous allowances (mortgage)......... 59 99 31 51 138
------ ---- ------ ------ ------
Total Allowances Deducted from Assets..... $5,189 $892 $3,096 $4,104 $5,073
====== ==== ====== ====== ======
FOR THE YEAR ENDED DECEMBER 31, 1995
Allowances Deducted from Assets
Finance receivables (unearned income)....... $3,310 $ -- $3,617 $3,005 $3,922
Allowance for financing losses.............. 693 449 88(a) 422(b) 808
Accounts and notes receivable (for doubtful
receivables).............................. 187 25 1 75(b) 138
Inventories (principally for obsolescence of
service parts)............................ 178 78 -- 27(c) 229
Other investments and miscellaneous assets
(receivables and other)................... 32 -- 1 -- 33
Miscellaneous allowances (insurance and
mortgage)................................. 36 36 -- 13 59
------ ---- ------ ------ ------
Total Allowances Deducted from Assets..... $4,436 $588 $3,707 $3,542 $5,189
====== ==== ====== ====== ======
FOR THE YEAR ENDED DECEMBER 31, 1994
Allowances Deducted from Assets
Finance receivables (unearned income)....... $3,195 $ -- $2,325 $2,210 $3,310
Allowance for financing losses.............. 748 177 129(a) 361(b) 693
Accounts and notes receivable (for doubtful
receivables).............................. 170 55 1 39(b) 187
Inventories (principally for obsolescence of
service parts)............................ 149 53 -- 24(c) 178
Other investments and miscellaneous assets
(receivables and other)................... 34 -- -- 2 32
Miscellaneous allowances (insurance and
mortgage)................................. 25 28 -- 17 36
------ ---- ------ ------ ------
Total Allowances Deducted from Assets..... $4,321 $313 $2,455 $2,653 $4,436
====== ==== ====== ====== ======
- -------------------------
Notes: (a) Primarily reflects the recovery of accounts previously written-off.
(b) Accounts written off.
(c) Obsolete parts written off, etc.
Reference should be made to the notes to consolidated financial statements.
IV-4
89
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
GENERAL MOTORS CORPORATION
-----------------------------------
(Registrant)
Date: March 3, 1997 By /s/ JOHN F. SMITH, JR.
------------------------------------
(John F. Smith, Jr.
Chairman of the Board of Directors,
Chief Executive Officer, and
President)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on this 3rd day of March 1997 by the following
persons on behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/ JOHN F. SMITH, JR. Chairman of the Board of Directors,
- ----------------------------------- Chief Executive Officer, and
(John F. Smith, Jr.) President
/s/ HARRY J. PEARCE Vice Chairman of the Board of
- ----------------------------------- Directors
(Harry J. Pearce)
/s/ J. MICHAEL LOSH Executive Vice President and Chief
- ----------------------------------- Financial Officer Principal
(J. Michael Losh) } Financial
/s/ LEON J. KRAIN Vice President and Group Executive Officers
- -----------------------------------
(Leon J. Krain)
/s/ JOHN D. FINNEGAN Vice President and Treasurer
- -----------------------------------
(John D. Finnegan)
/s/ WALLACE W. CREEK Comptroller Principal
- ----------------------------------- } Accounting
(Wallace W. Creek) Officers
/s/ PETER R. BIBLE Chief Accounting Officer
- -----------------------------------
(Peter R. Bible)
IV-5
90
SIGNATURES -- CONCLUDED
SIGNATURE TITLE
--------- -----
/s/ ANNE L. ARMSTRONG Director
- -----------------------------------
(Anne L. Armstrong)
/s/ PERCY BARNEVIK Director
- -----------------------------------
(Percy Barnevik)
/s/ JOHN H. BRYAN Director
- -----------------------------------
(John H. Bryan)
/s/ THOMAS E. EVERHART Director
- -----------------------------------
(Thomas E. Everhart)
/s/ CHARLES T. FISHER, III Director
- -----------------------------------
(Charles T. Fisher, III)
/s/ GEORGE M. C. FISHER Director
- -----------------------------------
(George M. C. Fisher)
/s/ J. WILLARD MARRIOTT, JR. Director
- -----------------------------------
(J. Willard Marriott, Jr.)
/s/ ANN D. MCLAUGHLIN Director
- -----------------------------------
(Ann D. McLaughlin)
/s/ ECKHARD PFEIFFER Director
- -----------------------------------
(Eckhard Pfeiffer)
/s/ EDMUND T. PRATT, JR. Director
- -----------------------------------
(Edmund T. Pratt, Jr.)
/s/ JOHN G. SMALE Director
- -----------------------------------
(John G. Smale)
/s/ LOUIS W. SULLIVAN Director
- -----------------------------------
(Louis W. Sullivan)
/s/ DENNIS WEATHERSTONE Director
- -----------------------------------
(Dennis Weatherstone)
/s/ THOMAS H. WYMAN Director
- -----------------------------------
(Thomas H. Wyman)
IV-6
91
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Board of Directors of
Hughes Electronics Corporation:
We have audited the Consolidated Balance Sheet of Hughes Electronics
Corporation and subsidiaries as of December 31, 1996 and 1995 and the related
Consolidated Statement of Income and Available Separate Consolidated Net Income
and Consolidated Statement of Cash Flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of Hughes Electronics Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Hughes Electronics Corporation and
subsidiaries at December 31, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1994 Hughes Electronics Corporation changed its method of accounting
for postemployment benefits.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------------------
DELOITTE & TOUCHE LLP
Los Angeles, California
January 28, 1997
IV-22
92
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS EXCEPT
PER SHARE AMOUNTS)
Revenues
Net sales
Outside customers....................................... $10,661.5 $ 9,528.8 $ 9,108.7
General Motors and affiliates........................... 5,082.6 5,185.5 4,953.6
Other income -- net....................................... 173.8 57.5 37.1
--------- --------- ---------
Total revenues.......................................... 15,917.9 14,771.8 14,099.4
--------- --------- ---------
Costs and expenses
Cost of sales and other operating charges, exclusive of
items listed below...................................... 12,083.9 11,325.1 10,943.4
Selling, general, and administrative expenses............. 1,505.6 1,234.2 1,018.3
Depreciation and amortization............................. 560.3 487.7 470.2
Amortization of GM purchase accounting adjustments related
to Hughes Aircraft Company.............................. 122.3 123.4 123.8
Interest expense -- net................................... 11.2 7.5 15.1
--------- --------- ---------
Total costs and expenses.................................. 14,283.3 13,177.9 12,570.8
--------- --------- ---------
Income before income taxes................................ 1,634.6 1,593.9 1,528.6
Income taxes.............................................. 605.7 645.6 572.8
--------- --------- ---------
Income before cumulative effect of accounting change...... 1,028.9 948.3 955.8
Cumulative effect of accounting change.................... -- -- (30.4)
--------- --------- ---------
Net income................................................ 1,028.9.. 948.3 925.4
Adjustments to exclude the effect of GM purchase
accounting adjustments related to Hughes Aircraft
Company................................................. 122.3 159.5 123.8
--------- --------- ---------
Earnings Used for Computation of Available Separate
Consolidated Net Income................................. $ 1,151.2 $ 1,107.8 $ 1,049.2
========= ========= =========
Available Separate Consolidated Net Income
Average number of shares of General Motors Class H
common stock outstanding (in millions)
(numerator)........................................ 98.4 95.5 92.1
Class H dividend base (in millions) (denominator).... 399.9 399.9 399.9
Available Separate Consolidated Net Income........... $283.3 $264.6 $241.6
========= ========= =========
Earnings attributable to General Motors Class H common
stock on a per share basis
Before cumulative effect of accounting change........ $2.88 $2.77 $2.70
Cumulative effect of accounting change............... -- -- (0.08)
--------- --------- ---------
Net earnings attributable to General Motors Class H
common stock....................................... $2.88 $2.77 $2.62
========= ========= =========
Reference should be made to the notes to consolidated financial statements.
IV-23
93
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
------------------------
1996 1995
---- ----
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNT)
ASSETS
Current assets
Cash and cash equivalents................................... $ 1,161.3 $ 1,139.5
Accounts and notes receivable
Trade receivables (less allowances)....................... 1,200.6 1,235.6
General Motors and affiliates............................. 113.4 146.7
Contracts in process, less advances and progress payments of
$1,010.4 and $1,327.2..................................... 2,507.1 2,469.2
Inventories (less allowances)............................... 1,528.5 1,225.5
Prepaid expenses, including deferred income taxes of $428.0
and $484.4................................................ 568.1 594.3
--------- ---------
Total current assets................................. 7,079.0 6,810.8
--------- ---------
Property-net................................................ 2,886.6 2,739.2
--------- ---------
Telecommunications and other equipment, net of accumulated
depreciation of $362.3 and $274.5......................... 1,133.5 1,175.1
--------- ---------
Intangible assets, net of amortization of $1,579.1 and
$1,415.1.................................................. 3,466.0 3,573.7
--------- ---------
Investments and other assets -- principally at cost (less
allowances)............................................... 1,915.0 1,675.6
--------- ---------
Total assets......................................... $16,480.1 $15,974.4
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable
Outside................................................... $ 896.4 $ 748.7
General Motors and affiliates............................. 27.5 52.2
Advances on contracts....................................... 868.9 838.3
Notes and loans payable..................................... 248.1 432.5
Income taxes payable........................................ 132.9 190.8
Accrued liabilities......................................... 2,025.8 2,046.3
--------- ---------
Total current liabilities............................ 4,199.6 4,308.8
--------- ---------
Long-term debt and capitalized leases....................... 34.5 258.8
--------- ---------
Postretirement benefits other than pensions................. 1,658.9 1,610.6
--------- ---------
Other liabilities and deferred credits...................... 1,407.2 1,270.5
--------- ---------
Commitments and Contingencies
Stockholder's equity
Capital stock (outstanding, 1,000 shares, $0.10 par value)
and additional paid-in capital......................... 6,347.2 6,338.1
Net income retained for use in the business............... 2,968.8 2,323.9
--------- ---------
Subtotal............................................. 9,316.0 8,662.0
Minimum pension liability adjustment...................... (113.5) (108.6)
Accumulated foreign currency translation adjustments...... (22.6) (27.7)
--------- ---------
Total stockholder's equity........................... 9,179.9 8,525.7
--------- ---------
Total liabilities and stockholder's equity........... $16,480.1 $15,974.4
========= =========
Certain amounts for 1995 have been reclassified to conform with 1996
classifications.
Reference should be made to the notes to consolidated financial statements.
IV-24
94
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Cash flows from operating activities
Income before cumulative effect of accounting change...... $1,028.9 $ 948.3 $ 955.8
Adjustments to reconcile income before cumulative effect
of accounting change to net cash provided by operating
activities
Depreciation and amortization........................... 560.3 487.7 470.2
Amortization and adjustment of GM purchase accounting
adjustments related to Hughes Aircraft Company......... 122.3 159.5 123.8
Pension cost, net of cash contributions................. (1.3) (51.9) 20.3
Provision for postretirement benefits other than
pensions, net of cash payments......................... 40.1 43.5 78.4
Net (gain) loss on sale of property..................... (23.2) 6.1 14.3
Net gain on sale of investments and businesses.......... (120.3) (12.9) (3.6)
Change in deferred income taxes and other*.............. 130.9 (150.1) (60.1)
Change in other operating assets and liabilities
Accounts receivable................................... 86.7 (147.3) (238.1)
Contracts in process.................................. (34.1) (186.2) 111.4
Inventories........................................... (302.8) (160.1) (27.5)
Prepaid expenses...................................... (30.3) (3.0) (15.2)
Accounts payable...................................... 122.0 (92.0) 25.8
Income taxes payable.................................. (57.9) 160.4 (70.7)
Accrued and other liabilities......................... (13.9) 257.0 (28.2)
Other*................................................ (308.0) (272.8) 20.2
-------- -------- --------
Net cash provided by operating activities................... 1,199.4 986.2 1,376.8
-------- -------- --------
Cash flows from investing activities
Investment in companies, net of cash acquired............. (28.7) (309.5) (7.0)
Expenditures for property and special tools............... (652.3) (545.7) (490.5)
Increase in telecommunications and other equipment........ (191.2) (198.9) (351.9)
Proceeds from sale and leaseback of satellite transponders
with GMAC............................................... 252.0 -- --
Proceeds from disposal of property........................ 96.2 50.6 90.6
Proceeds from sale of investments and businesses.......... -- 127.2 3.6
Decrease (increase) in notes receivable................... 1.6 (13.6) 206.9
-------- -------- --------
Net cash used in investing activities....................... (522.4) (889.9) (548.3)
-------- -------- --------
Cash flows from financing activities
Net decrease in notes and loans payable................... (393.2) (80.9) (2.1)
Increase in long-term debt................................ 13.5 28.0 7.5
Decrease in long-term debt................................ (29.0) (37.7) (20.8)
Proceeds from sale of minority interest in subsidiary..... 137.5 -- --
Cash dividends paid to General Motors..................... (384.0) (368.0) (320.0)
-------- -------- --------
Net cash used in financing activities....................... (655.2) (458.6) (335.4)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 21.8 (362.3) 493.1
Cash and cash equivalents at beginning of the year.......... 1,139.5 1,501.8 1,008.7
-------- -------- --------
Cash and cash equivalents at end of the year................ $1,161.3 $1,139.5 $1,501.8
======== ======== ========
- -------------------------
* 1994 amounts exclude the effect of accounting change.
Reference should be made to the notes to consolidated financial statements.
IV-25
95
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Hughes
Electronics Corporation (Hughes) and its domestic and foreign subsidiaries that
are more than 50% owned. Investments in associated companies in which at least
20% of the voting securities is owned are accounted for under the equity method
of accounting.
Effective December 31, 1985, General Motors Corporation (General Motors or
GM) acquired Hughes Aircraft Company and its subsidiaries for $2.7 billion in
cash and cash equivalents and 100 million shares of GM Class H common stock
having an estimated value of $2,561.9 million, which carried certain guarantees.
On February 28, 1989, GM and the Howard Hughes Medical Institute
(Institute) reached an agreement to terminate GM's then-existing guarantee
obligations with respect to the Institute's holding of GM Class H common stock.
Under terms of the agreement as amended, the Institute received put options
exercisable under most circumstances at $30 per share on March 1, 1991, 1992,
1993, and 1995 for 20 million, 10 million, 10.5 million, and 15 million shares,
respectively. The Institute exercised these put options at $30 per share on
March 1, 1991, March 2, 1992, and March 1, 1993. On February 15, 1995, GM and
the Institute entered into an agreement under which GM assisted the Institute in
selling 15 million shares of GM Class H common stock at $38.50 per share. The
March 1, 1995 put option expired unexercised.
The acquisition of Hughes Aircraft Company was accounted for as a purchase.
The purchase price exceeded the net book value of Hughes Aircraft Company by
$4,244.7 million, which was assigned as follows: $500.0 million to patents and
related technology, $125.0 million to the future economic benefits to GM of the
Hughes Aircraft Company Long-Term Incentive Plan (LTIP), and $3,619.7 million to
other intangible assets, including goodwill. The amounts assigned to patents and
related technology are being amortized on a straight-line basis over 15 years
and other intangible assets, including goodwill, over 40 years. The amount
assigned to the future economic benefits of the LTIP was fully amortized in
1990.
For the purpose of determining earnings per share and amounts available for
dividends on the common stocks of General Motors, the amortization and disposal,
if any, of these intangible assets is charged against earnings attributable to
GM $1 2/3 par value common stock and amounted to $122.3 million, $159.5 million
and $123.8 million in 1996, 1995, and 1994, respectively. The 1995 amount
included a $36.1 million charge, included in other income, for the write-off of
such purchase accounting adjustments related to the disposition of certain
non-strategic business units.
The earnings of Hughes and its subsidiaries since the acquisition of Hughes
Aircraft Company form the base from which any dividends on the GM Class H common
stock are declared. These earnings include income earned from sales to GM and
its affiliates, but exclude purchase accounting adjustments (See Notes 2 and 7).
On January 16, 1997, GM and Hughes announced a series of planned
transactions designed to address strategic challenges and unlock stockholder
value in the three Hughes business segments (See Note 18).
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Due to the inherent
uncertainty involved in making estimates, actual results reported in future
periods may be based upon amounts that differ from those estimates.
IV-26
96
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
REVENUE RECOGNITION
Sales to General Motors and affiliates and to outside customers not
pursuant to long-term contracts are generally recognized as products are shipped
or services are rendered. Sales under long-term contracts are recognized
primarily using the percentage-of-completion (cost-to-cost) method of
accounting. Under this method, sales are recorded equivalent to costs incurred
plus a portion of the profit expected to be realized, determined based on the
ratio of costs incurred to estimated total costs at completion. Sales under
certain commercial long-term contracts are recognized using the
units-of-delivery method.
Profits expected to be realized on long-term contracts are based on
estimates of total sales value and costs at completion. These estimates are
reviewed and revised periodically throughout the lives of the contracts, and
adjustments to profits resulting from such revisions are recorded in the
accounting period in which the revisions are made. Estimated losses on contracts
are recorded in the period in which they are identified.
Certain contracts contain cost or performance incentives which provide for
increases in profits for surpassing stated objectives and decreases in profits
for failure to achieve such objectives. Amounts associated with incentives are
included in estimates of total sales values when there is sufficient information
to relate actual performance to the objectives.
CASH FLOWS
Cash equivalents consist of highly liquid investments purchased with
original maturities of 90 days or less.
Net cash provided by operating activities reflects cash payments for
interest and income taxes as follows:
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Interest........................................... $ 39.6 $ 37.5 $ 40.7
------ ------ ------
Income taxes....................................... $647.9 $634.2 $686.2
------ ------ ------
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS
Trade receivables are principally related to long-term contracts and
programs. Amounts billed under retainage provisions of contracts are not
significant, and substantially all amounts are collectible within one year.
Contracts in process are stated at costs incurred plus estimated profit,
less amounts billed to customers and advances and progress payments applied.
Engineering, tooling, manufacturing, and applicable overhead costs, including
administrative, research and development, and selling expenses, are charged to
costs and expenses when incurred. Contracts in process include amounts relating
to contracts with long production cycles and amounts receivable under sales-type
leases, and $546.0 million of the 1996 amount is expected to be billed after one
year. Contracts in process in 1996 also include approximately $53.8 million
relating to claims, requests for equitable adjustments, and amounts withheld
pending negotiation or settlement with customers. Under certain contracts with
the U.S. Government, progress payments are received based on costs incurred on
the respective contracts. Title to the inventories related to such contracts
(included in contracts in process) vests with the U.S. Government.
IV-27
97
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
INVENTORIES
Inventories are stated at the lower of cost or market principally using the
first-in, first-out (FIFO) or average cost methods.
MAJOR CLASSES OF INVENTORIES 1996 1995
- ---------------------------- ---- ----
(DOLLARS IN MILLIONS)
Productive material, work in process, and supplies....... $1,383.1 $1,060.4
Finished product......................................... 145.4 165.1
-------- --------
Total............................................... $1,528.5 $1,225.5
======== ========
PROPERTY AND DEPRECIATION
Property is carried at cost. Depreciation of property is provided for based
on estimated useful lives (3 to 45 years) generally using accelerated methods.
TELECOMMUNICATIONS AND OTHER EQUIPMENT
Telecommunications and other equipment includes satellite transponders and
other equipment subject to operating leases or service agreements. Such
equipment is carried at Hughes' direct and indirect manufacturing cost and is
amortized over the estimated useful lives (7 to 23 years) using the
straight-line method. The net book value of equipment subject to operating
leases was $412.4 million and $299.8 million at December 31, 1996 and 1995,
respectively.
INTANGIBLE ASSETS
Intangible assets, principally the excess of cost over the fair value of
identifiable net assets of purchased businesses, are amortized using the
straight-line method over periods not exceeding 40 years. Hughes periodically
evaluates the recoverability of goodwill and other intangible assets by
assessing whether the unamortized intangible asset can be recovered over its
remaining life through undiscounted cash flows generated by underlying tangible
assets.
INCOME TAXES
The provision for income taxes is based on reported income before income
taxes. Deferred income tax assets and liabilities reflect the impact of
temporary differences between the amounts of assets and liabilities recognized
for financial reporting purposes and such amounts recognized for tax purposes,
as measured by applying currently enacted tax laws. Provision has been made for
U.S. Federal income taxes to be paid on that portion of the undistributed
earnings of foreign subsidiaries that has not been deemed permanently
reinvested.
Hughes and its domestic subsidiaries join with General Motors in filing a
consolidated U.S. Federal income tax return. The portion of the consolidated
income tax liability recorded by Hughes is generally equivalent to the liability
it would have incurred on a separate return basis.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to costs and expenses
as incurred and amounted to $730.0 million in 1996, $761.7 million in 1995 and
$699.3 million in 1994.
IV-28
98
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
FINANCIAL INSTRUMENTS
Hughes enters into foreign exchange-forward contracts to reduce its
exposure to fluctuations in foreign exchange rates. Foreign exchange-forward
contracts are accounted for as hedges to the extent they are designated as, and
are effective as, hedges of firm foreign currency commitments.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency transaction net gains (losses) included in consolidated
operating results amounted to $5.4 million in 1996, $(0.5) million in 1995, and
$(4.2) million in 1994.
MARKET AND CREDIT RISK CONCENTRATIONS
Sales under United States Government contracts were 34.5%, 35.5%, and 37.6%
of net sales in 1996, 1995, and 1994, respectively. Sales to General Motors and
affiliates, consisting of various automotive electronic component parts, were
32.3% of total sales in 1996, and 35.2% in 1995 and 1994.
Financial instruments which potentially subject Hughes to concentrations of
credit risk consist principally of highly liquid investments purchased with
original maturities of 90 days or less. Hughes places these investments with
high-quality counterparties and, by policy, limits the amount of credit exposure
to any one counterparty.
ACCOUNTING CHANGES
Effective January 1, 1996, Hughes adopted Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, and as
permitted by this standard, will continue to apply the recognition and
measurement principles of Accounting Principles Board Opinion No. 25 to its
stock options. Hughes has calculated the proforma effects of applying SFAS No.
123 and determined that such effects are not significant in relation to reported
net income and earnings per share.
Effective January 1, 1996, Hughes also adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The adoption of this new accounting standard did
not have a material effect on Hughes' consolidated operating results or
financial position.
Effective January 1, 1994, Hughes adopted SFAS No. 112, Employers'
Accounting for Postemployment Benefits. The Statement requires accrual of the
costs of benefits provided to former or inactive employees after employment, but
before retirement. The unfavorable cumulative effect of adopting this Standard
was $30.4 million, net of income taxes of $19.2 million, or $0.08 per share of
GM Class H common stock. The charge primarily related to extended disability
benefits which are accrued on a service-driven basis.
NOTE 2: RELATED-PARTY TRANSACTIONS
SALES, PURCHASES, AND ADMINISTRATIVE EXPENSES
The amounts due from and to GM and affiliates result from sales of products
to and purchases of materials and services from units controlled by GM.
Purchases from GM and affiliates, including computer systems services provided
by Electronic Data Systems Corporation prior to its split-off from GM, and
common administrative expenses allocated by GM, amounted to approximately $77.9
million, $233.7 million, and $257.1 million, in 1996, 1995, and 1994,
respectively.
IV-29
99
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
INCENTIVE PLANS
Certain eligible employees of Hughes participate in various incentive plans
of GM and its subsidiaries.
NOTE 3: INCENTIVE PLAN
Under the Hughes Electronics Corporation Incentive Plan (the Plan), as
approved by the GM Board of Directors in 1987, 1992, and 1995, shares, rights,
or options to acquire up to 20 million shares of GM Class H common stock may be
granted through May 31, 1997.
The GM Executive Compensation Committee may grant options and other rights
to acquire shares of GM Class H common stock under the provisions of the Plan.
The option price is equal to 100% of the fair market value of GM Class H common
stock on the date the options are granted. These nonqualified options generally
expire 10 years from the dates of grant and are subject to earlier termination
under certain conditions.
Changes in the status of outstanding options were as follows:
SHARES UNDER WEIGHTED AVERAGE
GM CLASS H COMMON STOCK OPTION EXERCISE PRICE
----------------------- ------------ ----------------
Outstanding at January 1, 1994.............................. 6,366,008 $25.19
Granted..................................................... 1,612,640 36.75
Exercised................................................... (712,107) 24.48
Terminated.................................................. (202,220) 34.22
---------- -------
Outstanding at December 31, 1994............................ 7,064,321 27.64
Granted..................................................... 1,537,350 39.94
Exercised................................................... (1,929,393) 24.81
Terminated.................................................. (14,425) 34.17
---------- -------
Outstanding at December 31, 1995............................ 6,657,853 31.29
Granted..................................................... 1,501,900 61.31
Exercised................................................... (864,889) 28.58
Terminated.................................................. (128,075) 42.94
---------- -------
Outstanding at December 31, 1996............................ 7,166,789 $37.70
========== =======
Exercisable at December 31, 1996............................ 4,965,289 $30.40
========== =======
The following table summarizes information about the Plan stock options
outstanding at December 31, 1996:
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- -------- ----------- --------
$15.00 to $24.99 829,669 4.6 $20.74 829,669 $20.74
25.00 to 34.99 2,179,755 5.5 27.36 2,179,755 27.36
35.00 to 44.99 2,692,090 7.9 38.45 1,955,865 37.89
45.00 to 54.99 -- -- -- -- --
55.00 to 65.00 1,465,275 9.3 61.31 -- --
- ---------------- --------- -- ------ --------- ------
$15.00 to $65.00 7,166,789 7.1 $37.70 4,965,289 $30.40
================ ========= == ====== ========= ======
At December 31, 1996, the maximum number of shares for which additional
options and other rights may be granted under the Plan was 2,314,449 shares.
IV-30
100
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4: PENSION PROGRAMS
Hughes' total pension expense amounted to $97.5 million in 1996, $39.0
million in 1995 and $54.9 million in 1994.
Substantially all the employees of Delco Electronics participate in the
defined benefit pension plans of General Motors. Plans covering represented
employees generally provide benefits of negotiated stated amounts for each year
of service as well as significant supplemental benefits for employees who retire
with 30 years of service before normal retirement age. The benefits provided by
the plans covering salaried employees are generally based on years of service
and the employee's salary history. Certain nonqualified pension plans covering
executives are based on targeted wage replacement percentages and are unfunded.
The accumulated plan benefit obligation and plan net assets for the employees of
Delco Electronics are not determined separately; however, GM charged Delco
Electronics $53.1 million, $50.9 million, and $93.3 million, for benefits earned
by these employees in 1996, 1995, and 1994, respectively.
Substantially all of Hughes' non-automotive employees are covered by
Hughes' bargaining and non-bargaining defined benefit retirement plans. Benefits
are based on years of service and compensation earned during a specified period
of time before retirement. Additionally, an unfunded, nonqualified pension plan
covers certain executives. The net pension expense (credit), related to these
plans covering non-automotive employees, included the components shown below:
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Benefits earned during the year......... $ 161.3 $ 110.5 $ 146.7
Interest accrued on benefits earned in
prior years........................... 413.4 403.6 377.0
Actual return on assets................. (1,253.1) (1,198.3) (104.7)
Net amortization and deferral........... 722.8 672.3 (457.4)
--------- --------- -------
Net retirement plan expense
(credit)......................... $ 44.4 $ (11.9) $ (38.4)
========= ========= =======
Costs are actuarially determined using the projected unit credit method and
are funded in accordance with U.S. Government cost accounting standards to the
extent such costs are tax-deductible. SFAS No. 87, Employers' Accounting for
Pensions, requires the recognition of an additional pension liability to
increase the amounts recorded up to the unfunded accumulated benefit obligation.
The adjustment required to recognize the minimum pension liability required by
SFAS No. 87 is recorded as an intangible asset to the extent of unrecognized
prior service cost and the remainder, net of applicable deferred income taxes,
is recorded as a reduction of Stockholder's Equity. At December 31, 1996 and
1995, the additional minimum pension liability recorded was $210.8 million and
$204.9 million, respectively, of which $113.5 million and $108.6 million,
respectively, was recorded as a reduction of Stockholder's Equity.
Plan assets are invested primarily in listed common stock, cash and
short-term investment funds, U.S. Government securities, and other investments.
The weighted average discount rates used in determining the actuarial
present values of the projected benefit obligation shown in the table on the
next page were 7.5% and 7.25% at December 31, 1996 and 1995, respectively. The
rate of increase in future compensation levels was 5.0% in 1996 and 1995. The
expected long-term rate of return on assets used in determining pension cost was
9.5% for 1996 and 1995.
IV-31
101
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table sets forth the funded status of the Hughes
non-automotive employee plans and the amounts included in the Consolidated
Balance Sheet.
DECEMBER 31,
-----------------------------------------
1996 1995
------------------- -------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED ACCUM. EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
Actuarial present value of benefits
based on service to date and present
pay levels
Vested............................. $4,437.0 $ 330.7 $4,685.3 $ 327.5
Nonvested.......................... 403.7 3.9 225.6 4.7
-------- ------- -------- -------
Accumulated benefit obligation.......... 4,840.7 334.6 4,910.9 332.2
Additional amounts related to projected
pay increases......................... 549.3 13.8 456.7 11.0
-------- ------- -------- -------
Total projected benefit obligation based
on service to date.................... 5,390.0 348.4 5,367.6 343.2
Plan assets at fair value............... 7,094.9 70.2 6,397.7 65.9
-------- ------- -------- -------
Plan assets in excess of (less than)
projected benefit obligation.......... 1,704.9 (278.2) 1,030.1 (277.3)
Unamortized net amount resulting from
changes in plan experience and
actuarial assumptions................. (564.0) 208.6 173.3 193.3
Unamortized net asset at date of
adoption.............................. (106.6) -- (161.9) --
Unamortized net amount resulting from
changes in plan provisions............ (13.0) 15.9 (13.8) 22.6
Adjustment for unfunded pension
liabilities........................... -- (210.8) -- (204.9)
-------- ------- -------- -------
Net prepaid pension cost (accrued
liability)......................... $1,021.3 $(264.5) $1,027.7 $(266.3)
======== ======= ======== =======
NOTE 5: OTHER POSTRETIREMENT BENEFITS
Substantially all of the employees of Delco Electronics participate in
various postretirement medical, dental, vision, and life insurance plans of
General Motors. Hughes maintains a program for eligible non-automotive retirees
to participate in health care and life insurance benefits generally until they
reach age 65. Qualified employees who elected to participate in the Hughes
contributory defined benefit pension plans may become eligible for these
benefits if they retire from Hughes between the ages of 55 and 65.
The total non-pension postretirement benefit cost of Hughes and its
subsidiaries included the components set forth as follows:
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Benefits earned during the year............................. $ 36.2 $ 33.9 $ 50.1
Interest accrued on benefits earned in prior years.......... 116.5 123.3 130.3
Net amortization............................................ (11.0) (16.5) 7.6
------ ------ ------
Total non-pension postretirement benefit cost.......... $141.7 $140.7 $188.0
====== ====== ======
IV-32
102
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table displays the components of Hughes' obligation
recognized for postretirement benefit plans included in the Consolidated Balance
Sheet:
DECEMBER 31,
--------------------
1996 1995
---- ----
(DOLLARS IN
MILLIONS)
Accumulated postretirement benefit obligation attributable
to
Current retirees....................................... $ 808.3 $ 857.1
Fully eligible active plan participants................ 254.2 221.1
Other active plan participants......................... 562.0 547.5
-------- --------
Accumulated postretirement benefit obligation............... 1,624.5 1,625.7
Unrecognized net amount resulting from changes in plan
experience and actuarial assumptions...................... 103.7 62.4
-------- --------
Net postretirement benefit obligation....................... 1,728.2 1,688.1
Less current portion........................................ 69.3 77.5
-------- --------
Net long-term postretirement benefit obligation............. $1,658.9 $1,610.6
======== ========
The assumed weighted average discount rates used in determining the
actuarial present value of the accumulated postretirement benefit obligation
were 7.56% and 7.25% at December 31, 1996 and 1995, respectively. The assumed
weighted average rate of increase in future compensation levels related to pay-
related life insurance benefits was 4.5% at December 31, 1996 and 4.4% at
December 31, 1995.
The assumed weighted average health care cost trend rate was 7.91% in 1996,
decreasing linearly each successive year until it reaches 5.31% in 2006, after
which it remains constant. A one percentage point increase in each year of this
annual trend rate would increase the accumulated postretirement benefit
obligation at December 31, 1996 by approximately $150 million, and increase the
service and interest cost components of the 1996 postretirement benefit expense
by approximately $17 million.
Hughes has disclosed in the consolidated financial statements certain
amounts associated with estimated future postretirement benefits other than
pensions and characterized such amounts as "accumulated postretirement benefit
obligations", "liabilities", or "obligations." Notwithstanding the recording of
such amounts and the use of these terms, Hughes does not admit or otherwise
acknowledge that such amounts or existing postretirement benefit plans of Hughes
(other than pensions) represent legally enforceable liabilities of Hughes.
IV-33
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HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6: INCOME TAXES
The income tax provision consisted of the following:
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Taxes currently payable
U.S. Federal.............................................. $390.7 $ 664.6 $532.2
Foreign................................................... 11.2 13.4 10.3
U.S. state and local...................................... 102.8 138.4 100.5
------ ------- ------
Total.................................................. 504.7 816.4 643.0
------ ------- ------
Deferred tax (assets) liabilities -- net
U.S. Federal.............................................. 97.9 (130.0) (62.2)
Foreign................................................... 0.3 2.0 1.3
U.S. state and local...................................... 2.8 (42.8) (9.3)
------ ------- ------
Total.................................................. 101.0 (170.8) (70.2)
------ ------- ------
Total income tax provision........................... $605.7 $ 645.6 $572.8*
====== ======= ======
- ------------------------
* Excluding effect of accounting change.
The deferred income tax benefit in 1994 included a $63.0 million credit
that resulted from an adjustment to the beginning of the year valuation
allowance because of a change in circumstances with respect to Hughes' ability
to realize the benefit from a capital loss carryforward.
Income before income taxes included the following components:
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
U.S. income................................................. $1,547.1 $1,494.7 $1,448.1
Foreign income.............................................. 87.5 99.2 80.5
-------- -------- --------
Total..................................................... $1,634.6 $1,593.9 $1,528.6
======== ======== ========
The consolidated income tax provision was different than the amount
computed using the U.S. statutory income tax rate for the reasons set forth in
the following table:
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Expected tax at U.S. statutory income tax rate.............. $572.1 $557.9 $535.0
U.S. state and local income taxes........................... 68.6 62.2 59.3
Purchase accounting adjustments............................. 42.8 55.8 43.3
Foreign sales corporation tax benefit....................... (27.2) (22.2) (19.2)
Change in valuation allowance............................... -- -- (63.0)
Other....................................................... (50.6) (8.1) 17.4
------ ------ ------
Consolidated income tax provision......................... $605.7 $645.6 $572.8*
====== ====== ======
- -------------------------
* Excluding effect of accounting change.
IV-34
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HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Temporary differences and carryforwards which gave rise to deferred tax
assets and liabilities were as follows:
DECEMBER 31,
--------------------------------------------------------
1996 1995
------------------------- -------------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
(DOLLARS IN MILLIONS)
Postretirement benefits other than pensions....... $ 763.6 $ -- $ 704.9 $ --
Profits on long-term contracts.................... 370.7 142.3 384.5 203.5
Leveraged leases.................................. 119.6 -- 74.9 --
Employee benefit programs......................... 148.9 387.8 185.2 393.3
Depreciation...................................... -- 496.2 -- 479.5
Special provision for restructuring............... 29.0 -- 56.4 --
Other............................................. 313.2 251.6 445.2 220.3
-------- -------- -------- --------
Subtotal........................................ 1,745.0 1,277.9 1,851.1 1,296.6
Valuation allowance............................... (33.6) -- (22.8) --
-------- -------- -------- --------
Total deferred taxes............................ $1,711.4 $1,277.9 $1,828.3 $1,296.6
======== ======== ======== ========
Provision has been made for U.S. Federal income taxes to be paid on that
portion of the undistributed earnings of foreign subsidiaries that has not been
deemed permanently reinvested. At December 31, 1996 and 1995, undistributed
earnings of foreign subsidiaries amounted to approximately $462.3 million and
$397.4 million, respectively. Repatriation of all accumulated foreign earnings
would have resulted in tax liabilities of $122.6 million and $110.3 million,
respectively, for which Hughes has provided deferred tax liabilities of $93.4
million and $82.8 million, respectively.
At December 31, 1996, Hughes had $73.6 million of foreign operating loss
carryforwards which expire in varying amounts between 1997 and 2001. The
valuation allowance includes a provision for all of the foreign operating loss
carryforwards. In addition, Hughes had $19.6 million of capital loss
carryforwards, of which $12.3 million will expire in 1998 and $7.3 million will
expire in 2000. No valuation allowance has been provided for the capital loss
carryforwards.
NOTE 7: EARNINGS ATTRIBUTABLE TO GENERAL MOTORS CLASS H COMMON STOCK ON A PER
SHARE BASIS AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME
Earnings attributable to General Motors Class H common stock on a per share
basis have been determined based on the relative amounts available for the
payment of dividends to holders of the GM Class H common stock. Holders of GM
Class H common stock have no direct rights in the equity or assets of Hughes,
but rather have rights in the equity and assets of GM (which includes 100% of
the stock of Hughes).
Dividends on the GM Class H common stock are declared by GM's Board of
Directors out of the Available Separate Consolidated Net Income of Hughes earned
since the acquisition of Hughes Aircraft Company by GM. The Available Separate
Consolidated Net Income of Hughes is determined quarterly and is equal to the
separate consolidated net income of Hughes, excluding the effects of GM purchase
accounting adjustments arising from the acquisition of Hughes Aircraft Company
(Earnings Used for Computation of Available Separate Consolidated Net Income),
multiplied by a fraction, the numerator of which is a number equal to the
weighted average number of shares of GM Class H common stock outstanding during
the period and the denominator of which was 399.9 million during the fourth
quarters of 1996, 1995, and 1994.
The denominator used in determining the Available Separate Consolidated Net
Income of Hughes is adjusted as deemed appropriate by the GM Board of Directors
to reflect subdivisions or combinations of the GM Class H common stock and to
reflect certain transfers of capital to or from Hughes. The GM Board's
IV-35
105
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
discretion to make such adjustments is limited by criteria set forth in GM's
Certificate of Incorporation. In this regard, the GM Board has generally caused
the denominator to decrease as shares are purchased by Hughes, and to increase
as such shares are used, at Hughes expense, for Hughes employee benefit plans or
acquisitions.
Dividends may be paid on GM Class H common stock only when, as, and if
declared by the GM Board of Directors in its sole discretion. The current policy
of the GM Board with respect to GM Class H common stock is to pay cash dividends
approximately equal to 35% of the Available Separate Consolidated Net Income of
Hughes for the prior year. Notwithstanding the current dividend policy, the
dividends paid on the GM Class H Common Stock during 1996, 1995, and 1994 were
based on an annual rate higher than 35% of the Available Separate Consolidated
Net Income of Hughes for the preceding year.
NOTE 8: PROPERTY -- NET
ESTIMATED
USEFUL
LIVES
(YEARS) 1996 1995
--------- ---- ----
(DOLLARS IN
MILLIONS)
Land and improvements................... 10-40 $ 187.6 $ 189.7
Buildings and unamortized leasehold
improvements.......................... 5-45 1,361.5 1,293.3
Machinery and equipment................. 3-13 3,140.3 2,874.2
Furniture, fixtures, and office
machines.............................. 5-15 139.1 118.3
Construction in progress................ -- 348.5 439.9
-------- --------
Total.............................. 5,177.0 4,915.4
Less accumulated depreciation........... 2,378.1 2,244.2
-------- --------
Net real estate, plants, and
equipment............................. 2,798.9 2,671.2
Special tools -- less amortization...... 3 87.7 68.0
-------- --------
Property -- net.................... $2,886.6 $2,739.2
======== ========
NOTE 9: NOTES AND LOANS PAYABLE AND LONG-TERM DEBT AND CAPITALIZED LEASES
1996 1995
---- ----
(DOLLARS IN MILLIONS)
Loans payable to banks.................. $ 10.2 $ 15.1
Current portion of long-term debt....... 151.4 7.2
Current portion of GM term loans........ 58.8 85.0
Other................................... 27.7 325.2
------ ------
Total notes and loans payable...... $248.1 $432.5
====== ======
Foreign bank debt....................... $ 27.1 $ 53.8
Term loans
GM.................................... 58.8 143.8
Other................................. 150.0 150.0
Other debt.............................. -- 2.9
------ ------
Total.............................. 235.9 350.5
Less current portion.................... 210.2 92.2
------ ------
Long-term debt.......................... 25.7 258.3
Capitalized leases...................... 8.8 .5
------ ------
Total long-term debt and
capitalized leases............... $ 34.5 $258.8
====== ======
At December 31, 1996, Hughes had $550.0 million and $650.0 million of
unused credit available under short-term lines of credit and an unsecured
revolving credit loan agreement, respectively. The unsecured
IV-36
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HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
revolving credit loan agreement provides for a commitment of $650.0 million
through January 2000, subject to a facility fee of 0.10% per annum. Borrowings
under the agreement bear interest at a rate which approximates the London
Interbank Offered Rate plus 0.175%. No amounts were outstanding under the
agreement or the short-term lines of credit at December 31, 1996.
At December 31, 1996, foreign bank debt included $27.1 million denominated
in British pounds sterling, bearing interest at rates ranging from 5.9% to 7.1%,
with maturity dates from 1997 to 2003.
The GM term loan bears interest at 6.1% with a maturity date in 1997. The
other term loans consisted of notes payable to an insurance company bearing
interest at rates ranging from 7.7% to 8.0% with maturity dates in 1997.
Other notes and loans payable for 1995 included $302.7 million related to
the acquisition of Magnavox Electronic Systems Company (see Note 13). The note,
which bore interest at a rate of 5.3%, was repaid in full on January 5, 1996.
Annual maturities of long-term debt and capitalized leases are $210.2
million in 1997, $2.4 million in 1998, $2.5 million in 1999, $2.8 million in
2000, $3.1 million in 2001, and $23.7 million thereafter.
Property with a net book value of $14.8 million at December 31, 1996 was
pledged as collateral under such debt.
NOTE 10: ACCRUED LIABILITIES
1996 1995
---- ----
(DOLLARS IN MILLIONS)
Payrolls and other compensation.......................... $ 671.3 $ 553.2
Provision for losses on contracts........................ 356.3 408.4
Accrual for restructuring................................ 32.9 115.9
Other.................................................... 965.3 968.8
-------- --------
Total............................................... $2,025.8 $2,046.3
======== ========
Certain amounts for 1995 have been reclassified to conform with 1996
classifications.
IV-37
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HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 11: STOCKHOLDER'S EQUITY
The authorized capital stock of Hughes consists of 1,000 shares of $0.10
par value common stock. At December 31, 1996, 1995, and 1994, 1,000 shares
having an aggregate par value of $100 were issued and outstanding. All of the
outstanding capital stock of Hughes is held by General Motors.
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Capital stock and additional paid-in
capital
Balance at beginning of the year...... $6,338.1 6,326.5 $6,323.1
Tax benefit from exercise of GM Class
H common stock options............. 9.1 11.6 3.4
-------- -------- --------
Balance at end of the year......... $6,347.2 $6,338.1 $6,326.5
======== ======== ========
Net income retained for use in the
business
Balance at beginning of the year...... $2,323.9 $1,743.6 $1,138.2
Net income............................ 1,028.9 948.3 925.4
Cash dividends paid to General
Motors............................. (384.0) (368.0) (320.0)
-------- -------- --------
Balance at end of the year......... $2,968.8 $2,323.9 $1,743.6
======== ======== ========
Minimum pension liability adjustment
Balance at beginning of the year...... $ (108.6) $ (76.1) $ (120.4)
Change during the year................ (4.9) (32.5) 44.3
-------- -------- --------
Balance at end of the year......... $ (113.5) $ (108.6) $ (76.1)
======== ======== ========
Accumulated foreign currency translation
adjustments
Balance at beginning of the year...... $ (27.7) $ (18.2) $ (12.8)
Change during the year................ 5.1 (9.5) (5.4)
-------- -------- --------
Balance at end of the year......... $ (22.6) $ (27.7) $ (18.2)
======== ======== ========
As sole stockholder of Hughes, GM is able to cause Hughes to pay cash
dividends and make advances to or otherwise enter into transactions with GM as
GM deems desirable and appropriate. GM reserves the right to cause Hughes to pay
cash dividends to GM in such amounts as GM determines are desirable under the
then prevailing facts and circumstances. Such amounts may be the same as,
greater than, or less than the cash dividends paid by GM on its Class H common
stock. There is no fixed relationship, on a per share or aggregate basis,
between the cash dividends that may be paid by GM to holders of its Class H
common stock and the cash dividends or other amounts that may be paid by Hughes
to GM.
NOTE 12: SPECIAL PROVISION FOR RESTRUCTURING
In 1992, Hughes recorded a special restructuring charge of $1,237.0 million
primarily attributable to redundant facilities and related employment costs. The
special charge comprehended a reduction of Hughes' worldwide employment, a major
facilities consolidation, and a reevaluation of certain business lines that no
longer met Hughes' strategic objectives. Restructuring costs of $92.4 million,
$208.8 million and $228.3 million were charged against the reserve during 1996,
1995, and 1994, respectively. In addition, in 1994 the restructuring reserve was
increased by $35.0 million primarily due to changes in the estimated loss on
disposition of a subsidiary. The remaining liability at December 31, 1996 of
$42.0 million relates primarily to reserves for excess facilities and other site
consolidation costs. Approximately $40.7 million of this total will require
future cash outflows. It is expected that these costs will be expended
predominantly during the next year.
IV-38
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HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13: ACQUISITIONS AND DIVESTITURES
In December 1996, Hughes announced that it had reached an agreement to
acquire the Marine Systems Division of Alliant Techsystems, Inc. for $141.0
million in cash. The Marine Systems Division is a leader in lightweight torpedo
manufacturing and the design and manufacturing of underwater surveillance, sonar
and mine warfare systems. The acquisition was completed in the first quarter of
1997.
In September 1996, Hughes and PanAmSat Corporation entered into an
agreement to merge their respective satellite services operations into a new
publicly-held company. Hughes would contribute its Galaxy(R) satellite services
business in exchange for a 71.5% interest in the new company. Current PanAmSat
stockholders would receive a 28.5% interest in the new company and $1.5 billion
in cash. The source of the cash component of the consideration is expected to be
new debt financing, which will be an obligation of the new company. PanAmSat is
a leading provider of international satellite services. The transaction, which
is contingent upon receiving certain regulatory approvals, is expected to close
during the second quarter of 1997.
In March 1996, Hughes sold a 2.5% equity interest in DIRECTV(R), a
wholly-owned subsidiary of Hughes, to AT&T for $137.5 million, with options to
increase their ownership interest under certain conditions. The sale resulted in
a $120.3 million pre-tax gain which is included in other income.
In February 1995, Hughes acquired substantially all of the assets of
CAE-Link Corporation for $176.0 million in cash. CAE-Link is an established
supplier of simulation, training, and technical services, primarily to the U.S.
military and NASA. In December 1995, Hughes acquired all of the stock of
Magnavox Electronic Systems Company (Magnavox) for $382.4 million, consisting of
cash of $70.5 million, a note payable of $302.7 million, and estimated
additional amounts to be paid of $9.2 million. Magnavox is a leading supplier of
military tactical communications, electronic warfare, and command and control
systems. In addition, Hughes acquired several other enterprises with operations
that complement existing technological capabilities at aggregate purchase
prices, paid in cash, of $28.7 million and $63.0 million in 1996 and 1995,
respectively.
All acquisitions were accounted for using the purchase method of
accounting. The operating results of the entities acquired were consolidated
with those of Hughes from their respective acquisition dates. These acquisitions
did not have a material impact on the operating results of Hughes. The purchase
price of each acquisition was allocated to the net assets acquired, including
intangible assets, based upon their estimated fair values at the date of
acquisition.
During 1995, Hughes divested several non-strategic enterprises generating
aggregate proceeds of approximately $127.2 million and a net loss of
approximately $8.2 million, which included the write-off of $30.1 million of
purchase accounting adjustments related to GM's acquisition of Hughes Aircraft
Company. Also in 1995, Hughes recorded a $46.0 million charge for the estimated
loss on disposition of a business unit (including $6.0 million related to the
write-off of GM purchase accounting adjustments) and completed the divestiture
of Hughes LAN Systems, for which a pre-tax charge of $35.0 million was taken in
1994.
NOTE 14: DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Hughes is a party to financial instruments with off-balance sheet risk in
the normal course of business to reduce its exposure to fluctuations in foreign
exchange rates. The primary class of derivatives used by Hughes is foreign
exchange-forward contracts. These instruments involve, to varying degrees,
elements of credit risk in the event a counterparty should default and market
risk as the instruments are subject to rate and price fluctuations. Credit risk
is managed through the periodic monitoring and approval of financially sound
counterparties. Market risk is mitigated because the derivatives are used to
hedge underlying transactions. Cash receipts or payments on these contracts
normally occur at maturity. Hughes holds derivatives only for purposes other
than trading.
IV-39
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HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Foreign exchange-forward contracts are legal agreements between two parties
to purchase and sell a foreign currency, for a price specified at the contract
date, with delivery and settlement in the future. Hughes uses these agreements
to hedge risk of changes in foreign currency exchange rates associated with
certain firm commitments denominated in foreign currency.
The total notional amount of foreign exchange-forward contracts Hughes held
at December 31, 1996 and 1995 was approximately $223 million and $289 million,
respectively. Hughes' open contracts extend for periods averaging six months.
NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS
For notes and loans payable and long-term debt and capitalized leases, the
estimated fair value (which approximates book value) was $283.2 million and
$694.9 million at December 31, 1996 and 1995, respectively. Such fair value is
based on the quoted market prices for similar issues or on the current rates
offered to Hughes for debt of similar remaining maturities. The carrying value
of debt with an original term of less than 90 days is assumed to approximate
fair value.
The fair values of derivative financial instruments reflect the estimated
amounts Hughes would receive or pay to terminate the contracts at the reporting
date, which takes into account the current unrealized gains or losses on open
contracts that are deferred and recognized when the offsetting gains and losses
are recognized on the related hedged items. The fair value of foreign
exchange-forward contracts is estimated based on foreign exchange rate quotes at
the reporting date. At December 31, 1996 and 1995, the estimated fair value of
open contracts, which were in a net gain position, was $4.5 million and $10.7
million, respectively.
For all financial instruments not described above, fair value approximates
book value.
NOTE 16: SEGMENT REPORTING
Hughes operates within the field of modern high-technology electronics for
use in Telecommunications and Space, Automotive Electronics, and Aerospace and
Defense Systems business segments. The Telecommunications and Space segment
includes satellite construction, ownership and operation, communication
services, ground equipment, and direct-to-home satellite television
entertainment services. Radios, controls for engines and transmissions,
navigation and communication systems, monitors and sensors for air bags,
controllers for anti-lock brakes, climate control, dashboard instrumentation,
vehicle security electronics, and other automotive electronic products are
included in the Automotive Electronics segment. The Aerospace and Defense
Systems segment includes missile systems, command and control systems, torpedoes
and sonar systems, electro-optical systems, airborne radar and communication
systems, military training and simulation systems, air traffic control systems,
information systems, and guidance and control systems. Intercompany transfers
between segments are not material. Information concerning operations by segment
is shown on the next page:
IV-40
110
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
AEROSPACE
TELECOM. AUTOMOTIVE & DEFENSE CORPORATE
& SPACE ELECTRONICS SYSTEMS & OTHER TOTAL
-------- ----------- --------- --------- -----
(DOLLARS IN MILLIONS)
Revenues
1996............................... $4,114.9 $5,350.8 $6,338.4 $ 113.8 $15,917.9
1995............................... 3,092.7 5,561.3 5,945.4 172.4 14,771.8
1994............................... 2,596.2 5,221.7 6,023.6 257.9 14,099.4
Operating Profit (Loss)(1)
1996............................... $ 238.8 $ 654.0 $ 593.8 $ (14.6) $ 1,472.0
1995............................... 168.2 869.0 587.1 (80.4) 1,543.9
1994............................... 250.0 794.8 562.7 (100.9) 1,506.6
Identifiable Assets at Year End(2)
1996............................... $4,874.7 $3,394.9 $7,544.7 $ 665.8 $16,480.1
1995............................... 4,309.0 3,267.4 7,718.4 679.6 15,974.4
1994............................... 3,727.8 3,429.8 6,712.0 980.9 14,850.5
Depreciation and Amortization(1)
1996............................... $ 215.8 $ 195.9 $ 258.5 $ 12.4 $ 682.6
1995............................... 199.3 151.4 232.9 27.5 611.1
1994............................... 161.8 142.2 259.4 30.6 594.0
Capital Expenditures(3)
1996............................... $ 449.8 $ 196.0 $ 171.1 $ 23.3 $ 840.2
1995............................... 436.5 264.7 109.8 9.3 820.3
1994............................... 399.3 166.4 159.5 21.1 746.3
- -------------------------
Certain amounts for 1995 have been reclassified to conform with 1996
classifications.
(1) Includes purchase accounting adjustments associated with GM's purchase of
Hughes Aircraft Company of $122.3 million in 1996 ($21.0 million, $100.9
million, and $0.4 million related to Telecommunications and Space, Aerospace
and Defense Systems, and Corporate and Other, respectively), $123.4 million
in 1995 ($21.0 million, $100.9 million, and $1.5 million related to
Telecommunications and Space, Aerospace and Defense Systems, and Corporate
and Other, respectively) and $123.8 million in 1994 ($21.0 million, $100.9
million, and $1.9 million related to Telecommunications and Space, Aerospace
and Defense Systems, and Corporate and Other, respectively).
(2) Identifiable assets include the unamortized purchase accounting adjustments
associated with the purchase of Hughes Aircraft Company as detailed below:
AEROSPACE
TELECOM. & DEFENSE CORP. &
& SPACE SYSTEMS OTHER TOTAL
-------- --------- ------- -----
1996................................. $468.0 $2,247.8 $ 7.7 $2,723.5
1995................................. 489.0 2,348.7 8.1 2,845.8
1994................................. 510.0 2,449.6 45.7 3,005.3
(3) Telecommunications and Space includes expenditures related to
telecommunications and other equipment amounting to $187.9 million, $274.6
million, and $255.8 million in 1996, 1995, and 1994, respectively.
IV-41
111
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A reconciliation of operating profit shown on the previous page to Income
before Income Taxes shown in the Consolidated Statement of Income and Available
Separate Consolidated Net Income follows:
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Operating Profit............................................ $1,472.0 $1,543.9 $1,506.6
Other Income -- net......................................... 173.8 57.5 37.1
Interest Expense -- net..................................... (11.2) (7.5) (15.1)
-------- -------- --------
Income before Income Taxes................................ $1,634.6 $1,593.9 $1,528.6
======== ======== ========
Export sales from the U.S. were as follows:
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Africa...................................................... $ 42.2 $ 25.4 $ 25.8
Asia........................................................ 1,168.1 948.9 758.2
Canada...................................................... 721.3 861.8 876.3
Europe...................................................... 1,296.8 929.4 678.6
Mexico...................................................... 196.2 143.4 96.9
Other Latin America......................................... 115.5 76.0 90.3
Middle East................................................. 250.9 327.0 370.1
-------- -------- --------
Total............................................. $3,791.0 $3,311.9 $2,896.2
======== ======== ========
NOTE 17: COMMITMENTS AND CONTINGENCIES
Hughes signed agreements in 1995 and 1996 to procure commercial satellite
launches, a significant number of which are expected to be used in connection
with satellites ordered by outside customers. The agreements provide for
launches beginning in 1998 and also contain options for additional launch
vehicles. The total amount of the commitment, which is dependent upon the number
of options exercised, market conditions, and other factors, could exceed $2
billion.
In December 1994, Hughes entered into an agreement with Computer Sciences
Corporation (CSC) whereby CSC provides a significant amount of the
non-automotive data processing services required by Hughes. Baseline service
payments to CSC are expected to aggregate approximately $1.5 billion over the
term of the eight-year agreement. The contract is cancelable by Hughes with
substantial early termination penalties.
Minimum future commitments under operating leases having noncancelable
lease terms in excess of one year, primarily for real property and satellite
transponders, aggregating $2,552.5 million, are payable as follows: $274.8
million in 1997, $244.5 million in 1998, $265.9 million in 1999, $289.7 million
in 2000, $208.8 million in 2001, and $1,268.8 million thereafter. Certain of
these leases contain escalation clauses and renewal or purchase options. Rental
expenses under operating leases were $279.4 million in 1996, $257.9 million in
1995, and $306.2 million in 1994.
Hughes has issued or is a party to various guarantees and letter of credit
agreements totaling $813.4 million at December 31, 1996. In the Company's past
experience, virtually no claims have been made against these financial
instruments.
Hughes and its subsidiaries are subject to potential liability under
government regulations and various claims and legal actions which are pending or
may be asserted against them. The aggregate ultimate liability of Hughes and its
subsidiaries under these government regulations, and under these claims and
actions, was not determinable at December 31, 1996. In the opinion of management
of Hughes, such liability is not expected to have a material adverse effect on
Hughes' consolidated operations or financial position.
IV-42
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HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Hughes has maintained a suit against the U.S. Government since September
1973, regarding the Government's infringement and use of a Hughes patent (the
"Williams Patent") covering "Velocity Control and Orientation of a Spin
Stabilized Body," principally satellites. On June 17, 1994, the U.S. Court of
Claims awarded Hughes damages of $114 million. Because Hughes believed that the
record supported a higher royalty rate, it appealed that decision. The U.S.
Government, contending that the award was too high, also appealed. On June 19,
1996, the Court of Appeals for the Federal Circuit affirmed the decision of the
Court of Claims which awarded Hughes $114 million in damages, together with
interest. The U.S. Government petitioned the Court of Appeals for the Federal
Circuit for a rehearing. That petition was denied in October of 1996. The U.S.
Government has filed a petition with the U.S. Supreme Court seeking certiorari.
In the opinion of management of Hughes, there is a reasonable possibility that
this matter could be resolved in the near term. While no amount has been
recorded in the financial statements of Hughes to reflect the $114 million
award, a resolution of this matter could result in a gain that would be material
to the earnings of General Motors attributable to Class H common stock.
NOTE 18: SUBSEQUENT EVENT
On January 16, 1997, GM and Hughes announced a series of planned
transactions that would impact the defense electronics, automotive electronics,
and telecommunications and space businesses of Hughes. The transactions would
include:
- The tax-free spin-off of 100% of the Hughes defense business, to
holders of GM's $1 2/3 par value and Class H common stocks;
- The tax-free merger of the Hughes defense business with Raytheon
Company (Raytheon) immediately following the spin-off, after which
there would be outstanding two classes of Raytheon/Hughes defense
common stock;
- The transfer of Delco Electronics (Delco), the automotive electronics
subsidiary of Hughes, from Hughes to GM's Delphi Automotive Systems
and a reallocation of the derivative interest in the earnings of Delco
currently held by Class H common stockholders to holders of $1 2/3 par
value common stock; and
- The recapitalization of Class H common stock into a tracking stock
linked solely to the telecommunications and space business of Hughes.
GM would continue to own 100% of Hughes, which would hold and operate
its existing telecommunications and space business.
The distribution of stock in the Hughes defense business to holders of GM
Class H and $1 2/3 par value common stock would be in a ratio that would be
determined by GM's Board of Directors to be fair to both classes of stockholders
and would reflect: (1) a pro rata spin-off of the Hughes defense business to
holders of GM Class H and $1 2/3 par value common stock; (2) a partial
reallocation of the Hughes defense business from holders of GM $1 2/3 par value
common stock to holders of Class H common stock in exchange for the derivative
interest in the earnings of Delco currently held by the Class H stockholders;
and (3) other effects of and factors relating to the planned transactions. Such
a distribution ratio will be set by GM's Board of Directors at a time closer to
GM's distribution of the solicitation statement/prospectus pursuant to which GM
stockholders will be asked to approve the transactions.
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113
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
The planned transactions are subject to approval by holders of GM $1 2/3
par value and Class H common stock. In addition, the merger of the Hughes
defense business with Raytheon, which is contingent upon the spin-off of the
Hughes defense business, is subject to approval by the stockholders of Raytheon.
The planned transactions also are subject to a variety of regulatory approvals
and actions, including anti-trust clearance and receipt of rulings by the
Internal Revenue Service that the spin-off of the Hughes defense business would
be tax-free to GM and its stockholders.
The spin-off is not being proposed in a manner that would result in the
recapitalization of Class H common stock into $1 2/3 par value common stock at a
120% exchange ratio, as currently provided for under certain circumstances in
GM's Restated Certificate of Incorporation.
No assurances can be given that the above transactions will be completed;
however, management of GM and Hughes and GM's Board of Directors expect to
solicit stockholder approval during the third quarter of 1997, after certain
conditions are satisfied.
IV-44
114
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
SELECTED QUARTERLY DATA (UNAUDITED)
1ST 2ND 3RD 4TH
--- --- --- ---
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
1996 QUARTERS
Revenues.............................................. $3,736.7 $4,062.5 $3,822.6 $4,296.1
======== ======== ======== ========
Income before income taxes............................ $ 472.5 $ 448.3 $ 366.2 $ 347.6
Income taxes.......................................... 191.4 172.3 144.7 97.3
-------- -------- -------- --------
Net income............................................ $ 281.1 $ 276.0 $ 221.5 $ 250.3
======== ======== ======== ========
Earnings used for computation of available separate
consolidated net income............................. $ 311.7 $ 306.6 $ 252.0 $ 280.9
Average number of shares of General Motors Class H
common stock outstanding (in millions).............. 97.4 98.2 98.8 99.3
Class H dividend base (in millions)................... 399.9 399.9 399.9 399.9
Available separate consolidated net income............ $ 76.0 $ 75.2 $ 62.3 $ 69.8
======== ======== ======== ========
Net earnings attributable to General Motors Class H
common stock on a per share basis................... $ 0.78 $ 0.77 $ 0.63 $ 0.70
======== ======== ======== ========
Stock price range of General Motors Class H common
stock
High................................................ $ 63.38 $ 68.25 $ 61.38 $ 59.25
Low................................................. $ 45.00 $ 57.50 $ 53.13 $ 49.50
SELECTED QUARTERLY DATA (UNAUDITED)
1ST 2ND 3RD 4TH
--- --- --- ---
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
1995 QUARTERS
Revenues.............................................. $3,578.8 $3,723.6 $3,441.3 $4,028.1
======== ======== ======== ========
Income before income taxes............................ $ 403.3 $ 436.3 $ 310.6 $ 443.7
Income taxes.......................................... 165.4 178.8 121.6 179.8
-------- -------- -------- --------
Net income............................................ $ 237.9 $ 257.5 $ 189.0 $ 263.9
======== ======== ======== ========
Earnings used for computation of available separate
consolidated net income............................. $ 268.9 $ 288.4 $ 256.1 $ 294.4
Average number of shares of General Motors Class H
common stock outstanding (in millions).............. 94.2 95.4 95.9 96.5
Class H dividend base (in millions)................... 399.9 399.9 399.9 399.9
Available separate consolidated net income............ $ 63.3 $ 68.8 $ 61.4 $ 71.1
======== ======== ======== ========
Net earnings attributable to General Motors Class H
common stock on a per share basis................... $ 0.67 $ 0.72 $ 0.64 $ 0.74
======== ======== ======== ========
Stock price range of General Motors Class H common
stock
High................................................ $ 41.75 $ 41.63 $ 42.75 $ 50.00
Low................................................. $ 33.25 $ 37.75 $ 39.13 $ 39.50
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115
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION -- CONCLUDED
SELECTED FINANCIAL DATA (UNAUDITED)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Revenues................................ $15,917.9 $14,771.8 $14,099.4 $13,517.5 $12,297.1
Earnings (Loss) used for computation of
available separate consolidated net
income (loss)......................... $ 1,151.2 $ 1,107.8 $ 1,049.2 $ 921.6 $ (921.6)
Average number of shares of General
Motors Class H common stock
outstanding (in millions)............. 98.4 95.5 92.1 88.6 75.3
Class H dividend base (in millions)..... 399.9 399.9 399.9 399.9 399.9
Available separate consolidated net
income (loss)......................... $ 283.3 $ 264.6 $ 241.6 $ 204.5 $ (142.3)
GM Class H cash dividends............... $ 94.4 $ 87.9 $ 73.8 $ 64.1 $ 53.3
Dividend payout ratio (1)............... 35.7% 36.4% 36.0% N/A 51.0%
Earnings (Loss) attributable to General
Motors Class H common stock on a per
share basis before cumulative effect
of accounting changes................. $ 2.88 $ 2.77 $ 2.70 $ 2.30 $ (0.11)
Earnings (Loss) attributable to General
Motors Class H common stock on a per
share basis after cumulative effect of
accounting changes.................... $ 2.88 $ 2.77 $ 2.62 $ 2.30 $ (2.29)
Capital expenditures(2)................. $ 840.2 $ 820.3 $ 746.3 $ 580.0 $ 558.5
Cash and cash equivalents............... $ 1,161.3 $ 1,139.5 $ 1,501.8 $ 1,008.7 $ 702.7
Working capital......................... $ 2,879.4 $ 2,502.0 $ 2,695.5 $ 2,165.2 $ 1,692.4
Total assets............................ $16,480.1 $15,974.4 $14,850.5 $14,117.1 $14,209.2
Long-term debt and capitalized leases... $ 34.5 $ 258.8 $ 353.5 $ 416.8 $ 711.0
Return on equity*(3).................... 11.6% 11.5% 12.1% 11.3% (13.9)%
Income (Loss) before interest and taxes
as a percent of capitalization (4).... 18.3% 18.7% 19.0% 18.0% (2.3)%
Pre-tax return on total assets (5)...... 10.1% 10.3% 10.6% 9.7% (1.8)%
- -------------------------
* Includes unfavorable cumulative effect of accounting changes of $30.4
million in 1994 and $872.1 million in 1992.
(1) GM Class H cash dividends divided by available separate consolidated net
income for the prior year.
(2) Includes expenditures related to telecommunications and other equipment
amounting to $187.9 million, $274.6 million, $255.8 million, $131.1 million,
and $101.6 million in 1996, 1995, 1994, 1993, and 1992, respectively.
(3) Net income (loss) divided by average stockholder's equity (General Motors'
equity in its wholly-owned subsidiary, Hughes). Holders of GM Class H common
stock have no direct rights in the equity or assets of Hughes, but rather
have rights in the equity and assets of GM (which includes 100% of the stock
of Hughes).
(4) Income (Loss) before interest and taxes divided by average stockholder's
equity plus average debt.
(5) Income (Loss) before Income Taxes divided by average Total Assets.
IV-46
116
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING AND FINANCIAL REVIEW
The following discussion excludes purchase accounting adjustments related
to General Motors' acquisition of Hughes Aircraft Company (see Supplemental Data
beginning on page IV-54).
Statements made concerning expected financial performance, ongoing
financial performance strategies, and possible future action which Hughes
intends to pursue to achieve strategic objectives for each of its three
principal business segments (including the planned transactions described below)
constitute forward-looking information. The implementation of these strategies
and of such future actions and the achievement of such financial performance are
each subject to numerous conditions, uncertainties and risk factors, and,
accordingly, no assurance can be given that Hughes will be able to successfully
accomplish its strategic objectives or achieve such financial performance. The
principal important risk factors which could cause actual performance and future
actions to differ materially from the forward-looking statements made herein
include economic conditions, product demand and market acceptance, government
action, competition, ability to achieve cost reductions, GM's global sourcing
strategy with respect to automotive electronics, General Motors' North American
Operations (GM-NAO) volumes, technological risk, interruptions to production
attributable to causes outside Hughes' control, and the receipt of various
approvals with respect to the planned transactions.
GENERAL
On January 16, 1997, GM and Hughes announced a series of planned
transactions designed to address strategic challenges and unlock stockholder
value in the three Hughes business segments. The transactions would include the
tax-free spin-off of the Hughes defense business to holders of GM's $1 2/3 par
value and Class H common stocks, followed immediately by the tax-free merger of
that business with Raytheon Company (Raytheon). The spin-off is not being
proposed in a manner that would result in the recapitalization of Class H common
stock into $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. At the same time, Delco Electronics,
the automotive electronics subsidiary of Hughes, would be transferred from
Hughes to GM's Delphi Automotive Systems unit. Finally, GM's Class H common
stock would be recapitalized into a tracking stock linked solely to the
telecommunications and space business of Hughes. After the spin-off and tax-free
merger of the Hughes defense business with Raytheon, there would be outstanding
two classes of Raytheon/Hughes defense common stock: Class A common stock,
approximately 103 million shares of which would have been distributed to GM's
$1 2/3 and Class H stockholders in the spin-off, and Class B common stock which
would be exchanged for Raytheon common stock on a one-for-one share basis in the
merger. The common stock of the Hughes defense business that would be
distributed to GM common stockholders would represent approximately 30% of the
stock of the combined company. The distribution of stock in the Hughes defense
business to holders of GM Class H and $1 2/3 par value common stock would be in
a ratio that would be determined by GM's Board of Directors to be fair to both
classes of stockholders and would reflect: (1) a pro rata spin-off of the Hughes
defense business to holders of GM Class H and $1 2/3 par value common stock; (2)
a partial reallocation of the Hughes defense business from holders of GM $1 2/3
par value common stock to holders of Class H common stock in exchange for the
derivative interest in the earnings of Delco currently held by the Class H
stockholders; and (3) other effects of and factors relating to the planned
transactions. Such a distribution ratio will be set by GM's Board of Directors
at a time closer to GM's distribution of the solicitation statement/prospectus
pursuant to which GM stockholders will be asked to approve the transactions.
The spin-off of the Hughes defense business and merger with Raytheon would
have an indicated total value of $9.5 billion to GM and its common stockholders
based on stock prices as of the announcement date. That value would consist of a
combination of approximately $4.7 billion of total debt obligations of the
Hughes defense business at the time of the merger, and $4.8 billion of indicated
value of Hughes defense stock to be
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117
distributed to common stockholders (after giving affect to the merger based on
the market price of Raytheon common stock as of the announcement date of
$47.00). The merger terms provide that the total debt of the Hughes defense
business will be adjusted to reflect variations in the average market price of
Raytheon stock, subject to specified limits, so that the two components of value
will total $9.5 billion so long as such market price is in a range of between
$44.42 and $54.29 per share. Substantially all of such debt would be incurred
immediately prior to the spin-off, with the proceeds used principally to fund
the telecommunications and space business of Hughes.
Consummation of the transactions described previously is subject to various
contingencies, including regulatory clearances and approval by GM common
stockholders. Additional information regarding these planned transactions is
included in Note 18 to the Hughes Consolidated Financial Statements. These
planned transactions had no impact on 1996 financial results.
The planned transactions described previously are intended to result in the
achievement of several strategic objectives. The merger of the Hughes defense
business with Raytheon would create a stronger defense electronics company which
would be able to more effectively compete for new business in an industry where
significant consolidation is occurring. At the same time, the integration of
Delco Electronics and Delphi Automotive Systems would combine advanced
electronics capability with components and systems expertise, and would be
expected to result in reduced costs. Hughes Electronics would continue to hold
and operate the telecommunications and space business. This would allow Hughes
management to focus on this business segment and the capital infusion would
allow it to take advantage of growth opportunities in this very competitive
industry. The strategy of this business is to continue to expand its offerings
from being primarily a supplier of hardware to becoming a provider of hardware
and video, voice, and data services worldwide. This strategy requires
significant current and future investment in order to maintain and enhance the
segment's competitive position with respect to existing products and to take
advantage of the growth opportunities presented, as well as the formation of
strategic alliances to compete in the very competitive global marketplace.
RESULTS OF OPERATIONS
REVENUES. Hughes reported record revenues of $15,917.9 million in 1996, a
7.8% increase over 1995. Revenues in 1995 were $14,807.9 million, an increase of
5.0% compared with 1994 revenues of $14,099.4 million. The increase in 1996
revenues was largely the result of continued growth in the Telecommunications
and Space segment and increased revenues in the Aerospace and Defense Systems
segment, partially offset by lower Automotive Electronics revenues caused in
part by work stoppages at various GM production locations during the year. 1995
revenue growth was driven by the Automotive Electronics and Telecommunications
and Space segments. (Pro forma segment information is presented on page IV-56).
Telecommunications and Space. Revenues in the Telecommunications and Space
segment were $4,114.9 million in 1996, a 33.1% increase over 1995, and $3,092.7
million in 1995, a 19.1% increase over 1994 revenues of $2,596.2 million. The
increases in both years were primarily due to continued expansion of the
DIRECTV(R) subscriber base, increased sales of commercial satellites and
cellular communications equipment, and increased video distribution revenues
from Galaxy(R) satellite transponders.
Automotive Electronics. Revenues in the Automotive Electronics segment
decreased 3.8% in 1996 to $5,350.8 million from $5,561.3 million in 1995. The
decline was principally due to a decrease in GM vehicles produced in the United
States and Canada (excluding joint ventures) primarily related to the United and
Canadian Auto Workers' (UAW and CAW, respectively) strikes offset, in part, by
an increase in Hughes-supplied electronic content in these vehicles from $888
per vehicle to $906 per vehicle and an increase in international and non-GM-NAO
sales from $841 million in 1995 to $1,010 million in 1996. Revenues increased
$339.6 million, or 6.5%, in 1995 from $5,221.7 million in 1994. 1995 revenue
growth was attributed to an increase in Hughes-supplied electronic content in GM
vehicles produced in North America to $888 in 1995 from $857 in 1994, and an
increase in sales to international and non-GM-NAO customers to
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118
$841 million in 1995 from $672 million in 1994. Vehicle production remained
relatively unchanged between 1994 and 1995.
Aerospace and Defense Systems. Aerospace and Defense Systems segment
revenues were $6,338.4 million in 1996, a 6.6% increase from 1995 revenues of
$5,945.4 million. The growth was primarily attributable to additional revenues
resulting from the December 1995 acquisition of Hughes Defense Communications
(formerly Magnavox Electronic Systems Company) and the build-up of newer
programs including Desktop V, Wide Area Augmentation System and Land Warrior.
1995 revenues decreased $78.2 million, or 1.3%, from 1994 revenues of $6,023.6
million. The decline was principally due to lower production rates on several
missile programs, partially offset by the additional revenues related to the
1995 acquisition of CAE-Link Corporation.
Other Income. Included in revenues is other income of $173.8 million, $93.6
million, and $37.1 million for 1996, 1995, and 1994, respectively. 1996 includes
the $120.3 million pre-tax gain from the sale of a 2.5% equity interest in
DIRECTV to AT&T. 1995 and 1994 included pre-tax charges of $40.0 million and
$35.0 million, respectively, for the estimated losses on disposition of certain
non-strategic business units. Also included in 1995 was $35.9 million of revenue
earned for providing services to GM.
OPERATING PROFIT. Operating profit was $1,594.3 million in 1996, $1,667.3
million in 1995, and $1,630.4 million in 1994. Operating profit margins, as a
percentage of net sales, were 10.1%, 11.3%, and 11.6% in 1996, 1995, and 1994,
respectively. The decline in profitability in 1996 compared to 1995 was
primarily attributable to the lower GM production volumes related to the UAW and
CAW strikes and continued price reductions in the Automotive Electronics segment
offset in part, by the increased profitability in the Telecommunications and
Space segment. Also offsetting the 1996 decline in profitability were the
reduced operating losses at Hughes-Avicom International, Inc. Operating profit
improved in 1995 largely due to a continued emphasis on cost reduction efforts,
most notably in the Automotive Electronics and Aerospace and Defense Systems
segments, and the overall growth in revenues, partially offset by a planned
increase in operating expenses associated with DIRECTV. The 1995 operating
profit margin decline was attributable primarily to the DIRECTV operating
expense increase which more than offset the margin improvements in the two other
segments.
Telecommunications and Space. Operating profit for 1996 was $259.8 million,
a 37.3% increase from $189.2 million reported in 1995. The 1996 increase was
largely a result of the revenue increases previously discussed and reduced
mobile telephony satellite development costs offset, in part, by operating
losses related to the start of service by the Company's DIRECTV business in
Latin America. Operating profit in 1995 decreased 30.2% from 1994 operating
profit of $271.0 million. The 1995 decline in operating profit was principally
due to increased operating expenses associated with the expansion of DIRECTV and
increased development costs on a geostationary satellite mobile telephony
product line. Operating profit margins were 6.5% in 1996, 6.2% in 1995, and
10.3% in 1994. After 1996, operating profit margins in the Telecommunications
and Space segment are expected to increase as DIRECTV's subscriber base grows.
Automotive Electronics. In 1996, operating profit was $654.0 million
compared with $869.0 million in 1995. The decline was mostly due to the reduced
production volumes, continued price reductions resulting from competitive
pricing in connection with GM's global sourcing initiative, and the impact from
continued investment in international expansion. 1995 operating profit increased
$74.2 million, or 9.3%, as compared to 1994 operating profit of $794.8 million.
The improvement in profitability in 1995 was attributable not only to increased
revenues, but also to an aggressive cost reduction program.
As the principal supplier of automotive electronics to General Motors'
North American Operations unit (GM-NAO), Hughes' sales of automotive electronics
will continue to be heavily dependent on General Motors production of vehicles
in North America, the level of Hughes-supplied electronic content per GM
vehicle, the price of such electronics, and the competitiveness of Hughes'
product offerings. In this regard, it is anticipated that competition through
GM's global purchasing process will negatively impact Hughes' sales to GM-NAO
and result in a decline in the portion of GM-NAO automotive electronics supplied
by Hughes. The segment's strategy is to aggressively reduce costs in order to
minimize the effect of continuing price reductions and to manage the loss of
GM-NAO market share by offering competitive
IV-49
119
products which increase electronic functionality through a focus on safety,
security, communications, and convenience. The segment will also seek to improve
its systems capability and cost competitiveness both internally and by
developing key design, manufacturing, and marketing alliances and other
relationships with mechanical and electrical automotive component suppliers.
The international market for automotive electronic products is also highly
competitive. The segment has refined its strategy for this market to focus on
profitable growth as well as increased market share, and accordingly, will seek
to enhance the cost competitiveness of its international operations.
The competitive environment described above is making it increasingly
difficult to maintain the level of operating profit margins realized in this
segment in the past. Beyond 1996, operating margins are expected to be lower
than recent historical levels as price and volume declines associated with GM's
global sourcing initiatives more than offset Hughes' ability to achieve cost
reductions. In response to the increased pressure on margins and to enhance
future competitiveness, management will take action to reduce the cost structure
of the business. As a result of the factors described above, the operating
margin is expected to decline further in 1997 to low double digits, and then
show modest improvement in 1998 and 1999.
Aerospace and Defense Systems. Operating profit was $694.7 million in 1996
compared to $688.0 million in 1995 and $663.6 million in 1994. The operating
profit margin for 1996 declined to 11.0% from 11.7% in 1995 primarily due to a
continued shift from production programs to engineering and development
programs, and growth in information systems and services revenues. The operating
profit margin for 1995 increased to 11.7% from 11.0% largely due to a provision
taken in 1994 for certain air traffic control contracts, partly offset by
reduced revenues in 1995. Future operating profits could be adversely impacted
by further reductions in the U.S. defense budget.
COSTS AND EXPENSES. Selling, general, and administrative expenses were
$1,505.6 million in 1996, $1,234.2 million in 1995, and $1,018.3 million in
1994. The increases were principally due to the continued expansion of DIRECTV,
both in the U.S. and internationally, and increased international sales
activities at Delco Electronics.
The effective income tax rate was 34.5%, 36.8%, and 34.7% in 1996, 1995,
and 1994, respectively. The decrease in the effective income tax rate in 1996
was due primarily to the favorable resolution of certain tax contingencies while
the effective income tax rate in 1994 was favorably impacted by the recognition
of capital loss carryforward benefits.
EARNINGS. Hughes' 1996 earnings were $1,151.2 million, or $2.88 per share
of GM Class H common stock, compared with 1995 earnings of $1,107.8 million, or
$2.77 per share, and 1994 earnings of $1,049.2 million, or $2.62 per share.
Earnings in 1994 included the unfavorable effect of an accounting change for
postemployment benefits. Excluding the accounting change, Hughes' earnings in
1994 would have been $1,079.6 million, or $2.70 per share.
BACKLOG. The 1996 year-end backlog of $15,100 million increased from
$14,929 million at the end of 1995, primarily due to record backlog in the
Aerospace and Defense Systems segment. 1995 year-end backlog increased from the
$13,210 million at the end of 1994, primarily due to increased satellite orders
in the Telecommunications and Space segment. A portion of the backlog is subject
to appropriation decisions by the U.S. Government subsequent to award. In
addition, Hughes' contracts with the U.S. Government are subject to termination
by the Government either for its convenience or for default by Hughes. Sales to
the U.S. Government may be affected by changes in acquisition policies, budget
considerations, changing concepts in national defense, spending priorities, and
other factors that are outside of Hughes' control.
SPECIAL PROVISION FOR RESTRUCTURING. In 1992, Hughes recorded a special
charge of $749.4 million (after-tax), for the restructuring of Hughes'
operations. The special charge comprehended a reduction of Hughes' worldwide
employment, a major facilities consolidation, and a reevaluation of certain
business lines that no longer met Hughes' strategic objectives. Restructuring
costs of $92.4 million, $208.8 million, and $228.3 million were charged against
the reserve during 1996, 1995, and 1994, respectively. In addition, in 1994, the
restructuring reserve was increased by $35.0 million, primarily due to changes
in the estimated loss on disposition of a subsidiary. The remaining liability at
December 31, 1996 of $42.0 million
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120
relates primarily to reserves for excess facilities and other site consolidation
costs. Approximately $40.7 million of this amount will require future cash
outflows. It is expected that these costs will be expended predominantly during
the next year.
ACCOUNTING CHANGES. Effective January 1, 1996, Hughes adopted Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, and as permitted by this standard, will continue to apply the
recognition and measurement principles of Accounting Principles Board Opinion
No. 25 to its stock options. Hughes has calculated the proforma effects of
applying SFAS No. 123 and determined that such effects are not significant in
relation to reported net income and earnings per share.
Effective January 1, 1996, Hughes also adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The adoption of this new accounting standard did
not have a material effect on Hughes' consolidated operating results or
financial position.
Effective January 1, 1994, Hughes adopted SFAS No. 112, Employers'
Accounting for Postemployment Benefits. The Statement requires accrual of the
costs of benefits provided to former or inactive employees after employment, but
before retirement. The unfavorable cumulative effect of adopting this Standard
was $30.4 million, net of income taxes of $19.2 million, or $0.08 per share of
GM Class H common stock. The charge primarily related to extended disability
benefits which are accrued on a service-driven basis.
LIQUIDITY AND CAPITAL RESOURCES
CASH AND CASH EQUIVALENTS. Cash and cash equivalents were $1,161.3 million
at December 31, 1996, an increase of $21.8 million from December 31, 1995.
Operating activities generated cash of $1,199.4 million as Hughes achieved
another year of record earnings. Additional cash was provided by proceeds from
the sale and leaseback of satellite transponders with General Motors Acceptance
Corporation, and proceeds from the sale of a minority interest in DIRECTV of
$137.5 million. The increases in cash were offset by the cash used to fund
capital expenditures, repay notes and loans payable and pay dividends to General
Motors.
In 1995, cash and cash equivalents decreased $362.3 million to $1,139.5
million at December 31, 1995, from $1,501.8 million at December 31, 1994.
Operating activities generated cash of $986.2 million, however, cash used to
fund capital expenditures, pay dividends to General Motors, and acquire new
businesses more than offset the cash generated by operating activities.
In the third quarter of 1996, Hughes reported that cash flows in 1997 and
beyond were expected to be negatively impacted by a change in the credit terms
between Hughes and GM-NAO for purchases of automotive electronics. With the
announcement of the planned transactions in January 1997 (see Note 18 to the
Hughes Consolidated Financial Statements), implementation of the change in
credit terms has been deferred pending the consummation of such planned
transactions.
LIQUIDITY MEASUREMENT. As a measure of liquidity, the current ratio (ratio
of current assets to current liabilities) was 1.69 at December 31, 1996, 1.58 at
December 31, 1995, and 1.76 at December 31, 1994. The increase from 1995 to 1996
was principally due to the repayment of certain notes and loans payable. The
decrease from 1994 to 1995 was principally due to the decrease in cash described
above and increases in the notes and loans payable balance, primarily caused by
a loan related to an acquisition. (See Note 13 to the Hughes Consolidated
Financial Statements.)
PROPERTY AND EQUIPMENT. Property, net of accumulated depreciation,
increased $147.4 million in 1996 while telecommunications and other equipment,
net of accumulated depreciation, decreased $41.6 million, primarily due to the
sale and leaseback of GIIIR which more than offset additional expenditures
related to the Galaxy satellite fleet.
IV-51
121
Expenditures for property and equipment were $652.3 million in 1996
compared with $545.7 million and $490.5 million in 1995 and 1994, respectively.
Management anticipates that capital expenditures in 1997 will increase
approximately $100 million over 1996 and will be financed primarily from cash
provided by operating activities.
Telecommunications and other equipment expenditures were $187.9 million in
1996 compared with $274.6 million and $255.8 million in 1995 and 1994,
respectively. Management anticipates that telecommunications and other equipment
expenditures in 1997 will increase significantly compared with 1996 and will be
financed primarily from cash provided by operating activities.
Telecommunications and Space. Capital expenditures, including expenditures
related to telecommunications and other equipment, increased to $449.8 million
in 1996 from $436.5 million in 1995 and $399.3 million in 1994. The 1996 capital
expenditures increase reflects additions to the Galaxy satellite fleet and
construction of the California Broadcast Center, an uplink facility that
supports Hughes' DIRECTV business in Latin America. The increase in 1995 was due
primarily to additions to the Galaxy satellite fleet.
Automotive Electronics. Capital expenditures decreased to $196.0 million in
1996, compared with $264.7 million in 1995, and $166.4 million in 1994. The
decrease in the 1996 capital spending reflects the impact of delays in
engineering capital expenditures and the higher than normal level of
expenditures in 1995. The increased capital spending in 1995 reflects
expenditures for additional program requirements related to new product changes
associated with the 1996 model year combined with a decrease in tooling cost
recoveries.
Aerospace and Defense Systems. Capital expenditures in the Aerospace and
Defense Systems segment for 1996, 1995, and 1994 were $171.1 million, $109.8
million, and $159.5 million, respectively. The 1996 increase relates to capital
expenditures to support expanding business requirements. The 1995 decrease was
due to the high level of expenditures in 1994 related to the consolidation of
facilities in an effort to increase the operational efficiencies of
manufacturing and engineering activities.
DEBT AND CAPITALIZED LEASES. Long-term debt and capitalized leases were
$34.5 million at December 31, 1996, a decrease from $258.8 million at December
31, 1995, and $353.5 million at December 31, 1994, reflecting scheduled
principal repayments and the reclassification of certain amounts to current
liabilities. The ratio of long-term debt and capitalized leases to the total of
such debt and pro forma stockholder's equity decreased to 0.5% in 1996 from 4.4%
in 1995 and 6.6% in 1994.
As discussed below, additional debt will be incurred in conjunction with
the PanAmSat merger. It is anticipated that a portion of this debt would be
repaid from cash expected to be received pursuant to the planned transactions
(see Note 18 to the Hughes Consolidated Financial Statements).
OTHER BALANCE SHEET ITEMS. In evaluating both its pension and retiree
medical liabilities, Hughes recognizes the impact of changes in long-term
interest rates by adjusting the discount rate used in determining the actuarial
present values of the projected benefit obligations. In 1996, the weighted
average discount rate for Hughes' non-automotive pension obligations increased
from 7.25% to 7.5% and the weighted average discount rate for Hughes' other
postretirement benefits increased from 7.25% to 7.56%.
ACQUISITIONS AND DIVESTITURES. In December 1996, Hughes announced that it
had reached an agreement to acquire the Marine Systems Division of Alliant
Techsystems, Inc. for $141.0 million in cash. The Marine Systems Division is a
leader in lightweight torpedo manufacturing and the design and manufacturing of
underwater surveillance, sonar and mine warfare systems. The acquisition was
completed in the first quarter of 1997.
In September 1996, Hughes and PanAmSat Corporation entered into an
agreement to merge their respective satellite services operations into a new
publicly-held company. Hughes would contribute its Galaxy(R) satellite services
business in exchange for a 71.5% interest in the new company. Current PanAmSat
stockholders would receive a 28.5% interest in the new company and $1.5 billion
in cash. Such cash consideration and other funds required to consummate the
merger are expected to be funded by new debt financing totaling $1.725 billion.
This debt financing is expected to be provided by Hughes, which currently
intends to borrow such funds from General Motors.
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For accounting purposes, this transaction would be treated as a partial
sale of the Galaxy business by Hughes and would result in a one-time,
nonrecurring gain. The amount of this gain depends on several variables, but is
expected to be between $400 and $600 million before tax. PanAmSat is a leading
provider of international satellite services. The transaction, which is
contingent upon receiving certain regulatory approvals, is expected to close
during the second quarter of 1997.
In March 1996, Hughes sold a 2.5% equity interest in DIRECTV(R), a
wholly-owned subsidiary of Hughes, to AT&T for $137.5 million, with options to
increase their ownership interest under certain conditions. The sale resulted in
a $120.3 million pre-tax gain which is included in other income.
In February 1995, Hughes completed the acquisition of CAE-Link Corporation,
an established supplier of simulation, training, and technical services,
primarily to the U.S. military and NASA, for $176.0 million. In December 1995,
Hughes acquired Magnavox Electronic Systems Company, a leading supplier of
military tactical communications, electronic warfare, and command and control
systems, for $382.4 million.
During 1995, Hughes divested several non-strategic enterprises resulting in
aggregate proceeds of approximately $127.2 million and a net gain of
approximately $21.9 million. Also in 1995, Hughes recorded a $40.0 million
charge for the estimated loss on disposition of a business unit and completed
the divestiture of Hughes LAN Systems, for which a pre-tax charge of $35.0
million was taken in 1994.
DIVIDEND POLICY. As discussed in Note 7 to the Hughes Consolidated
Financial Statements, it is GM's current policy to pay aggregate annual cash
dividends on the GM Class H common stock approximately equal to 35% of the
Available Separate Consolidated Net Income of Hughes for the prior year. In
January 1997, the Board of Directors of GM increased the quarterly dividend on
GM Class H common stock from $0.24 per share to $0.25 per share. It is
anticipated that if the previously described Hughes transactions are
consummated, the General Motors Board of Directors will adopt a dividend policy
relating to the new Class H common stock which the Board deems to be appropriate
in light of the capital needs and growth opportunities of the Hughes
telecommunications and space business and generally commensurate with that of
other companies in the telecommunications and space business having similar
capital needs and growth opportunities.
SECURITY RATINGS. Hughes' security ratings are tied to the security ratings
of General Motors.
In October 1996, Standard & Poor's Ratings Services, a division of
McGraw-Hill Companies, Inc. (S&P), revised its outlook on Hughes from stable to
developing as a result of the uncertainty with respect to GM's investment
strategy related to Hughes. S&P indicated that the developing outlook reflects
the possibility that if a significant change in the relationship between GM and
Hughes were to occur, the credit quality of Hughes could be either favorably or
adversely affected, depending upon the nature of the transaction pursued.
In November, 1996 and January 1997, S&P affirmed its long-term debt rating
of Hughes at A-. The S&P A- credit rating is the seventh highest within the 10
investment grade ratings available from S&P for long-term debt, based on a
strong capability to pay interest and repay principal, although somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. Additionally, S&P also affirmed
its A.2 rating on Hughes' commercial paper. S&P's ratings outlook for Hughes
remains developing.
In September 1996, Moody's Investors Service (Moody's) confirmed the
long-term credit rating of Hughes at A.3, seventh highest within the 10
investment grade ratings available from Moody's for long-term debt. Moody's
defines A.3 bonds as having "upper-medium grade" quality. Moody's rating for
Hughes' commercial paper remained unchanged at P-2. The rating indicates that
the issuer has a strong ability for repayment relative to other issuers.
Following GM's and Hughes' January 1997 announcement with respect to the
Hughes business segments (See Note 18 to the Hughes Consolidated Financial
Statements), both S&P and Moody's reaffirmed their current ratings and outlook
for Hughes' securities. Moody's, however, put Hughes' ratings on review for
possible downgrade.
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123
Debt ratings by the various rating agencies reflect each agency's opinion
of the ability of issuers to repay debt obligations punctually. Lower ratings
generally result in higher borrowing costs. A security rating is not a
recommendation to buy, sell, or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating organization. Each rating
should be evaluated independently of any other rating.
SUPPLEMENTAL DATA
The Hughes Consolidated Financial Statements reflect the application of
purchase accounting adjustments as described in Note 1 to the Hughes
Consolidated Financial Statements. However, as provided in GM's Certificate of
Incorporation, the earnings attributable to GM Class H common stock for purposes
of determining the amount available for the payment of dividends on GM Class H
common stock specifically excludes such adjustments. More specifically,
amortization and disposal of these intangible assets associated with GM's
purchase of Hughes Aircraft Company amounted to $122.3 million in 1996, $159.5
million in 1995 and $123.8 million in 1994. The 1995 amount included a $36.1
million charge, included in other income, for the write-off of such purchase
accounting adjustments related to the disposition of certain non-strategic
business units. Such amounts were excluded from the earnings available for the
payment of dividends on GM Class H common stock and were charged against the
earnings available for the payment of dividends on GM's $1 2/3 par value stock.
Unamortized purchase accounting adjustments associated with GM's purchase of
Hughes Aircraft Company were $2,723.5 million, $2,845.8 million, and $3,005.3
million at December 31, 1996, 1995, and 1994, respectively.
In order to provide additional analytical data to the users of Hughes'
financial information, supplemental data in the form of unaudited summary pro
forma financial data are provided. Consistent with the basis on which earnings
of Hughes available for the payment of dividends on the GM Class H common stock
is determined, the pro forma data exclude purchase accounting adjustments
related to General Motors' acquisition of Hughes Aircraft Company. Included in
the supplemental data are certain financial ratios which provide measures of
financial returns excluding the impact of purchase accounting adjustments. The
pro forma data are not presented as a measure of GM's total return on its
investment in Hughes.
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HUGHES ELECTRONIC CORPORATION AND SUBSIDIARIES
UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA*
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
Total Revenues.......................... $15,917.9 $14,807.9 $14,099.4
Total Costs and Expenses................ 14,161.0 13,054.5 12,447.0
--------- --------- ---------
Income before Income Taxes.............. 1,756.9 1,753.4 1,652.4
Income taxes............................ 605.7 645.6 572.8
--------- --------- ---------
Income before cumulative effect of
accounting change..................... 1,151.2 1,107.8 1,079.6
Cumulative effect of accounting
change................................ -- -- (30.4)
--------- --------- ---------
Earnings Used for Computation of
Available Separate Consolidated Net
Income................................ $ 1,151.2 $ 1,107.8 $ 1,049.2
========= ========= =========
Earnings Attributable to General Motors
Class H Common Stock on a Per Share
Basis
Before cumulative effect of accounting
change............................. $2.88 $2.77 $2.70
Cumulative effect of accounting
change............................. -- -- (0.08)
----- ----- -----
Net earnings attributable to General
Motors Class H Common Stock........ $2.88 $2.77 $2.62
===== ===== =====
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31,
----------------------
1996 1995
---- ----
(DOLLARS IN MILLIONS)
ASSETS
Total Current Assets.................... $ 7,079.0 $ 6,810.8
Property -- Net......................... 2,886.6 2,739.2
Telecommunications and Other
Equipment -- Net...................... 1,133.5 1,175.1
Intangible Assets, Investments, and
Other Assets -- Net................... 2,657.5 2,403.5
--------- ---------
Total Assets....................... $13,756.6 $13,128.6
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Total Current Liabilities............... $ 4,199.6 $ 4,308.8
Long-Term Debt and Capitalized Leases... 34.5 258.8
Postretirement Benefits Other Than
Pensions, Other Liabilities, and
Deferred Credits...................... 3,066.1 2,881.1
Total Stockholder's Equity**....... 6,456.4 5,679.9
--------- ---------
Total Liabilities and Stockholder's
Equity**.......................... $13,756.6 $13,128.6
========= =========
- -------------------------
* The summary excludes purchase accounting adjustments related to GM's
acquisition of Hughes Aircraft Company.
** General Motors' equity in its wholly-owned subsidiary, Hughes. Holders of GM
Class H common stock have no direct rights in the equity or assets of
Hughes, but rather have rights in the equity and assets of GM (which
includes 100% of the stock of Hughes).
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125
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* -- CONTINUED
PRO FORMA SELECTED SEGMENT DATA
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
TELECOMMUNICATIONS AND SPACE
Revenues.................................................... $4,114.9 $3,092.7 $2,596.2
Revenues as a percentage of Hughes Revenues................. 25.9% 20.9% 18.4%
Net Sales................................................... $3,992.2 $3,075.8 $2,633.8
Operating Profit(1)......................................... 259.8 189.2 271.0
Operating Profit Margin(2).................................. 6.5% 6.2% 10.3%
Identifiable Assets at Year-End............................. $4,406.7 $3,820.0 $3,217.8
Depreciation and Amortization............................... 194.8 178.3 140.8
Capital Expenditures(3)..................................... 449.8 436.5 399.3
AUTOMOTIVE ELECTRONICS
Revenues.................................................... $5,350.8 $5,561.3 $5,221.7
Revenues as a percentage of Hughes Revenues................. 33.6% 37.6% 37.0%
Net Sales................................................... $5,311.3 $5,479.7 $5,170.6
Operating Profit(1)......................................... 654.0 869.0 794.8
Operating Profit Margin(2).................................. 12.3% 15.9% 15.4%
Identifiable Assets at Year-End............................. $3,394.9 $3,267.4 $3,429.8
Depreciation and Amortization............................... 195.9 151.4 142.2
Capital Expenditures........................................ 196.0 264.7 166.4
AEROSPACE AND DEFENSE SYSTEMS
Revenues.................................................... $6,338.4 $5,945.4 $6,023.6
Revenues as a percentage of Hughes Revenues................. 39.8% 40.2% 42.7%
Net Sales................................................... $6,331.5 $5,899.7 $6,007.3
Operating Profit(1)......................................... 694.7 688.0 663.6
Operating Profit Margin(2).................................. 11.0% 11.7% 11.0%
Identifiable Assets at Year-End............................. $5,296.9 $5,369.7 $4,262.4
Depreciation and Amortization............................... 157.6 132.0 158.5
Capital Expenditures........................................ 171.1 109.8 159.5
CORPORATE AND OTHER
Operating Loss(1)........................................... $ (14.2) $ (78.9) $ (99.0)
Identifiable Assets at Year-End............................. 658.1 671.5 935.2
- -------------------------
* The summary excludes purchase accounting adjustments related to GM's
acquisition of Hughes Aircraft Company.
Certain amounts for 1995 have been reclassified to conform with 1996
classifications.
(1) Net Sales less Total Costs and Expenses other than Interest Expense.
(2) Operating Profit as a percentage of Net Sales.
(3) Includes expenditures related to telecommunications and other equipment
amounting to $187.9 million, $274.6 million, and $255.8 million,
respectively.
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126
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* -- CONCLUDED
PRO FORMA SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Operating profit (loss)................. $1,594 $1,667 $1,630 $1,460 $ (194)
Income (Loss) before income taxes and
cumulative effect of accounting
changes............................... $1,757 $1,753 $1,652 $1,494 $ (127)
Earnings (Loss) used for computation of
available separate consolidated net
income (loss)**....................... $1,151 $1,108 $1,049 $ 922 $ (922)
Average number of GM Class H dividend
base shares (1)....................... 399.9 399.9 399.9 399.9 399.9
Stockholder's equity**.................. $6,456 $5,680 $4,971 $4,199 $3,562
Dividends per share of GM Class H common
stock................................. $ 0.96 $ 0.92 $ 0.80 $ 0.72 $ 0.72
Working capital......................... $2,879 $2,502 $2,696 $2,165 $1,692
Operating profit (loss) as a percent of
net sales............................. 10.1% 11.3% 11.6% 10.9% (1.6)%
Pre-tax income (loss) as a percent of
net sales............................. 11.2% 11.9% 11.8% 11.1% (1.0)%
Net income (loss) as a percent of net
sales**............................... 7.3% 7.5% 7.5% 6.9% (7.6)%
Return on equity**(2)................... 19.0% 20.8% 22.9% 23.7% (21.9)%
Income (Loss) before interest and taxes
as a percent of capitalization (3).... 27.0% 29.8% 32.9% 33.1% (1.3)%
Pre-tax return on total assets (4)...... 13.1% 14.0% 14.5% 13.6% (1.2)%
- -------------------------
* The summary excludes purchase accounting adjustments related to GM's
acquisition of Hughes Aircraft Company.
** Includes unfavorable cumulative effect of accounting changes of $30.4
million in 1994 and $872.1 million in 1992.
(1) Class H dividend base shares is used in calculating earnings attributable to
GM Class H common stock on a per share basis. This is not the same as the
average number of GM Class H shares outstanding, which was 98.4 million in
1996.
(2) Earnings (Loss) used for Computation of Available Separate Consolidated Net
Income (Loss) divided by average stockholder's equity (General Motors'
equity in its wholly-owned subsidiary, Hughes). Holders of GM Class H common
stock have no direct rights in the equity or assets of Hughes, but rather
have rights in the equity and assets of GM (which includes 100% of the stock
of Hughes).
(3) Income (Loss) before interest and income taxes divided by average
stockholder's equity plus average total debt.
(4) Income (Loss) before Income Taxes divided by average Total Assets.
*******
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