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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, 1997
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 on
Title of Each Class Which Registered
- ---------------------------------------------- ----------------------------
Common, $1-2/3 par value (678,564,579 shares
outstanding as of February 28, 1998) New York Stock Exchange, Inc.
Class H Common, $0.10 par value (104,368,924
shares outstanding as of February 28, 1998) 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, 1998) New York Stock Exchange, Inc.
Preference, $0.10 par value, Series D
7.92% Depositary Shares, stated value
$25 per share, dividends cumulative
(3,014,654 depositary shares outstanding
as of February 28, 1998) New York Stock Exchange, Inc.
Preference, $0.10 par value, Series G
9.12% Depositary Shares, stated value
$25 per share, dividends cumulative
(5,015,410 depositary shares outstanding
as of February 28, 1998) New York Stock Exchange, Inc.
General Motors Capital Trust D 8.67% Trust
Originated Preferred Securities (sm) (TOPrS (sm)),
Series D (3,149,748 shares outstanding as of
February 28, 1998) New York Stock Exchange, Inc.
General Motors Capital Trust G 9.87% Trust
Originated Preferred Securities (sm) (TOPrS (sm)),
Series G (5,221,123 shares outstanding as of
February 28, 1998) New York Stock Exchange, Inc.
Note: The $1-2/3 par value common stock of the Registrant is also listed for trading on:
Chicago Stock Exchange, Inc. Chicago, Illinois
Pacific Exchange, Inc. San Francisco, California
Philadelphia Stock Exchange, Inc. Philadelphia, Pennsylvania
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 27, 1998) of General Motors
Corporation $1-2/3 par value and Class H common stocks held by nonaffiliates on
February 27, 1998 was approximately $46.6 billion and $4.3 billion,
respectively.
Documents incorporated by reference are as follows:
Part and Item Number of Form
Document 10-K into Which Incorporated
- -------- -----------------------------
General Motors Notice of Annual Meeting of Stockholders
and Proxy Statement for the Annual Meeting of Stockholders
to be held June 1, 1998 Part III, Items 10 through 13
- ------------------------
(sm) "Trust Originated Preferred Securities" and "TOPrS" are service trademarks
of Merrill Lynch & Co.
COVER PAGE
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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(s)
---- -------
Wholesale Sales II-45 and II-48
Employment and Payrolls II-64
Note 24 of Notes to Consolidated Financial Statements (Segment Reporting) II-36
While the major portion of GM's operations is derived from the automotive
industry, GM also has financing and insurance operations and produces products
and provides services in other industries. GM participates in the automotive
industry through the activities of its automotive business operating segments:
GM-North American Operations (GM-NAO); Delphi Automotive Systems (Delphi); and
GM International Operations (GMIO). GM-NAO designs, manufactures, and markets
vehicles primarily in North America under the following nameplates: Chevrolet,
Pontiac, GMC, Oldsmobile, Buick, Cadillac, and Saturn. Delphi is a diverse
supplier of automotive systems and components. Delphi offers products and
services in the areas of chassis, interior, lighting, electronics, power and
signal distribution, energy and engine management, steering, and thermal
systems. GMIO meets the demands of customers outside North America with
vehicles designed, manufactured, and marketed under the following nameplates:
Opel, Vauxhall, Holden, Isuzu, Saab, Chevrolet, GMC, and Cadillac. GM's
financing and insurance operations primarily relate to General Motors
Acceptance Corporation (GMAC). GMAC provides a broad range of financial
services, including consumer vehicle financing, full-service leasing and fleet
leasing, dealer financing, car and truck extended service contracts,
residential and commercial mortgage services, and vehicle and homeowners
insurance. GM's other operations relate to its Hughes Electronics Corporation
subsidiary (Hughes) and the design, manufacturing and marketing of locomotives
and heavy-duty transmissions.
On December 17, 1997, GM completed a series of related transactions
(Hughes Transactions) that were designed to address strategic challenges
facing the three principal businesses of Hughes and unlock stockholder value in
GM. The Hughes Transactions included the tax-free spin-off of the defense
electronics business of Hughes (Hughes Defense) to holders of $1-2/3 par value
and Class H common stocks, which was then followed immediately by the merger of
Hughes Defense with Raytheon Company (Raytheon). Concurrently, Delco
Electronics, the automotive electronics subsidiary of Hughes, was transferred
from Hughes to Delphi. Finally, Class H common stock was recapitalized into a
GM tracking stock, Class H common stock, that is linked to the
telecommunications and space businesses of Hughes.
Additional information regarding the Hughes Transactions is contained in
Note 22 to the GM consolidated financial statements.
Substantially all automotive-related products 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, 1997,
there were approximately 8,500 GM vehicle dealers in the United States, 900 in
Canada and Mexico, and 5,500 outlets overseas.
RAW MATERIALS AND SERVICES
GM purchases materials, parts, supplies, freight transportation, energy,
and other services from numerous unaffiliated firms. Interruptions in
production or delivery of these goods or services could adversely affect GM.
BACKLOG OF ORDERS
Shipments of GM automotive products are made as promptly as possible after
receipt of firm sales orders; therefore, no significant backlog of unfilled
orders accumulates. Hughes had a $10.3 billion and $6.8 billion backlog of
commercial contracts relating to its telecommunications and space businesses at
the end of 1997 and 1996, respectively.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
COMPETITIVE POSITION
GM's principal competitors in passenger cars and trucks in the United
States and Canada include Ford Motor Company, Chrysler Corporation, Toyota
Corporation, Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd., Mazda
Motor Corporation, Mitsubishi Motors Corporation, Fuji Heavy 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 Hyundai currently operate vehicle manufacturing facilities in
the United States or Canada. Toyota and GM operate the New United Motor
Manufacturing, Inc. facility in Fremont, California as a joint venture which
currently builds passenger cars and light-duty trucks. Wholesale unit sales of
GM passenger cars and trucks during the three years ended December 31, 1997 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 GM's competitive position
during the years ended December 31, 1997, 1996, and 1995, respectively, were as
follows:
1997(1) 1996 1995
---- ---- ----
(Units in Thousands)
Total industry registrations
In the United States 15,417 15,486 15,219
In Canada and Mexico 1,919 1,535 1,343
In other countries 36,125 34,789 32,853
------ ------ ------
Total industry registrations - all countries 53,461 51,810 49,415
====== ====== ======
1997(1) 1996 1995
---- ---- ----
(Percent of Total Industry)
GM's registrations
In the United States 31% 31% 32%
In Canada and Mexico 31 31 32
In other countries 9 9 9
Total GM's registrations - all countries 16 16 17
- --------------------
(1) Preliminary
The above information on registrations of new cars, trucks, and buses was
obtained from outside sources and that pertaining to GM's registrations
includes units which are manufactured overseas by other companies and which are
imported and sold by GM and affiliates.
RESEARCH AND DEVELOPMENT
In 1997, GM spent $8.2 billion for research, manufacturing engineering,
product engineering, and development activities related primarily to the
development of new products or services or the improvement of existing products
or services, including activities related to vehicle emissions control,
improved fuel economy, and the safety of persons using GM products. In
addition, $1.5 billion was spent for customer-sponsored activities, the
majority of which were government related. Comparable data for 1996 were $8.9
billion for company-sponsored activities and $1.6 billion for
customer-sponsored activities and for 1995 were $8.2 billion for
company-sponsored activities and $1.4 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 lead to
substantial cost for GM 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.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive Emissions Control (concluded)
Both the EPA and the CARB emission requirements will become even more
stringent in the future. A new tier of exhaust emission standards for cars and
light-duty trucks, the "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. GM 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. California is now
considering additional reductions in vehicle emissions beginning with the 2004
model year.
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, has recommended the OTC jurisdictions to impose the California LEV
program requirements throughout the Northeast Ozone Transport Region (OTR).
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
(NLEV) program, which would require the phase-in of TLEVs and LEVs in the
northeast starting in 1999, and vehicles in all states outside California
meeting LEV standards on average starting in 2001. The EPA issued a final rule
which would implement the NLEV program as a voluntary alternative available to
automakers providing the OTC jurisdictions and the manufacturers formally
opt-in to the agreement. On March 2, 1998, the EPA declared that the NLEV
program was "in effect" for 1999 and later model years after all manufacturers
and all the Northeast states except New York, Massachusetts, Maine, and Vermont
opted to participate in the program.
In addition to the above-mentioned exhaust emission programs, enhanced
onboard diagnostic (OBD) devices, used to diagnose problems with emission
control systems, were required both federally and in California effective with
the 1996 model year. This new system has the potential of increasing warranty
costs and the chance for recall.
New evaporative emission control requirements for cars and trucks began
phasing in with the 1995 model year in California and the 1996 model year
federally. Systems 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, test procedures 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.
Also, the EPA, in accordance with the Clean Air Act Amendment of 1990, is
studying the need, cost, and feasibility of further tightening of vehicle
emission standards as early as the 2004 model year. The EPA adopted new
National Ambient Air Quality standards for ozone and particulates in 1997 which
are expected to enhance the need for additional emission reductions from both
mobile and industrial sources.
Industrial Environmental Control
GM is subject to various laws relating to the protection of the
environment including laws regulating air emissions, water discharge, waste
management, and environmental cleanup.
GM is in various stages of investigation or remediation for sites where
contamination has been alleged and has recorded a liability of $610 million at
December 31, 1997 and $646 million at December 31, 1996 for worldwide
environmental investigation and remediation as summarized below:
. GM has been identified as a potentially responsible party at
sites identified by the EPA and state regulatory agencies for
investigation and remediation under the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) and similar state
statutes. GM voluntarily and actively participates in cleanup
activity where such involvement is verified. The foreseeable total
liability for 1997 and beyond for sites involving GM is estimated to
be $186 million, which was recorded at December 31, 1997. This
compares to $209 million at December 31, 1996.
I-3
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Industrial Environmental Control (concluded)
. For closed or closing plants owned by the Corporation,
an estimated liability for environmental investigation and
remediation is typically recognized at the time of the closure
decision. Such liability, which is based on an environmental
assessment of the plant property, was estimated at $122 million at
December 31, 1997. This compares to $121 million at December 31,
1996.
. GM is involved in investigations and remediation activities at
additional locations worldwide with a foreseeable liability of
approximately $302 million, which was recorded at December 31,
1997. This compares to $316 million at December 31, 1996.
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 GM in the United States for industrial environmental
control facilities during the years ended December 31, 1997, 1996, and 1995,
respectively, were as follows (in millions): 1997-$108; 1996-$117; and
1995-$116. The Corporation currently estimates that future expenditures for
industrial environmental control facilities through 2001 will be (in millions):
1998-$118; 1999-$74; 2000 and 2001-$156. 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.
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 September 1,
1998.
GM is working with NHTSA and suppliers to introduce, during the 1998 model
year on all GM cars and light trucks, less aggressive air bags in order to
address concerns about inflation injuries, particularly to children and smaller
adult passengers who are not properly restrained. GM also will be making
available, starting in the 1998 model year, air bag on-off switches for those
customers who request them and also are eligible under the requirements of the
new NHTSA regulation allowing these devices.
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 continues its consumer information side impact
crash test program at an elevated impact speed for passenger cars, and possibly
adds certain light-duty trucks to the test program after September 1, 1998.
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 along with additional crash
testing procedures 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.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive Fuel Economy
The Energy Policy and Conservation Act passed in 1975 provided for
production-weighted average fuel economy standards for passenger cars for 1978
and thereafter. Based on EPA combined city-highway test data, the GM 1997
model year domestic passenger car fleet is projected to attain a Corporate
Average Fuel Economy (CAFE) of 28.2 miles per gallon (mpg) versus the standard
of 27.5 mpg. The CAFE estimate for 1998 model year passenger cars is projected
at 27.8 mpg versus the standard of 27.5 mpg.
Fuel economy standards for light-duty trucks became effective in 1979.
GM's light truck CAFE fleet average for the 1996 model year reached 20.9 mpg
versus a standard of 20.7 mpg. For the 1997 model year, GM's truck CAFE is
projected to be 20.2 mpg versus a standard of 20.7 mpg. GM's 1998 model year
truck CAFE is projected at 21.2 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.
It is expected that the Kyoto agreement on global warming will lead to
continued pressure to increase fuel economy levels.
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
Operating and geographic segment data for 1997, 1996, and 1995 are
summarized in Note 24 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 292
locations operating in 33 states and 145 cities in the United States. Of
these, 24 are engaged in the final assembly of GM cars and trucks; 35 are
service parts operations responsible for distribution or warehousing; 8 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 20 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, Australia, 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.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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, 1997, or subsequent thereto, but
before the filing of this report are summarized below.
ENVIRONMENTAL MATTERS
In March 1993, the Michigan Department of Environmental Quality (MDEQ)
notified the Corporation's Powertrain Group (GMPTG) that MDEQ was making a
referral to the Michigan Attorney General for resolution of allegations by MDEQ
that a GMPTG Malleable Iron facility in Saginaw, Michigan had failed to conduct
a timely environmental investigation to MDEQ's satisfaction of a landfill and
certain other areas at the facility's property, and that the facility's on-site
water recycling basins were improperly discharging contaminants into the
groundwater and the Saginaw River. The Corporation has reached a settlement of
this matter whereby it will pay a civil penalty of $200,000 and contribute
$200,000 toward environmental projects in the Saginaw, Michigan area. The
Corporation has entered into a consent judgment which documents the settlement
and it is anticipated that it will be lodged within 90 days.
* * *
On June 28, 1994, the Attorney General for the State of Michigan, on
behalf of the Michigan Department of Natural Resources (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.
* * *
In August, 1997, the Delaware Department of Natural Resources &
Environmental Control (DDNREC) issued a Notice of Administrative Penalty
Assessment to the GM Wilmington Assembly Plant seeking civil penalties in
excess of $100,000 for alleged violations of the Delaware volatile organic
compound rules. GM filed a request for hearing, and is pursuing discussions
with DDNREC to resolve the matter.
* * *
In December, 1997 the Ohio Environmental Protection Agency (OEPA) and the
Ohio Attorney General proposed to settle alleged violations by the GM
Powertrain Group Defiance Foundry of certain Ohio air pollution rules for a
civil penalty in excess of $100,000. The primary violations alleged by OEPA
are that the Defiance Foundry failed to timely perform a stack test on certain
equipment, failed to comply with an air permit variance granted to the foundry,
did not comply with the "Prevention of Significant Deterioration" regulations
in connection with the installation of certain equipment, and exceeded certain
air emission limits set forth in a number of permits. GM is pursuing
settlement discussions with OEPA and the Ohio Attorney General.
* * *
The Illinois Environmental Protection Agency (IEPA) and U.S. Environmental
Protection Agency (EPA) assert that portions of a facility maintained by the
Electro-Motive Division of GM (EMD) at LaGrange, Illinois, for the purpose of
providing reliability and durability engine testing is required to secure
permits under Title I of the Clean Air Act. EMD has long considered the
facility to be exempt from the permitting and other requirements of Title I of
the Clean Air Act. Without conceding this point, and in the interest of
expeditiously resolving this matter, EMD has obtained a "Prevention of
Significant Deterioration" permit for these units. The IEPA has referred this
matter to the Illinois Attorney General's office, and a judicial consent order
is being finalized. A penalty of between $100,000 and $150,000 and a
supplemental environmental project with a value of approximately $200,000 is
anticipated.
* * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ENVIRONMENTAL MATTERS (CONCLUDED)
In August, 1996, the California Air Resources Board (CARB) ordered General
Motors to recall about 11,500 1992 MY "S" Trucks. (These trucks are known by
their emissions engine family designator as N3G4.3TBXEB2.) The CARB claims
that these trucks exceeded the applicable new motor vehicle emissions standard
for oxides of nitrogen (Nox). In addition to the ordered recall, the CARB
threatened civil penalties of up to $57 million. General Motors believes that
it has valid defenses to all CARB's claims and has requested an administrative
review of the penalties and ordered recall. General Motors' defenses include
the failure of CARB's outside contractor test laboratory to comply with the
Federal Test Procedure used to identify non-compliant engine families. The
administrative case is in the discovery stage, and a hearing is not likely
until sometime in 1999.
* * *
OTHER MATTERS
U.S. Government contracts held by the Corporation and its subsidiaries are
subject to termination by the U.S. Government either for its convenience or for
default by the contractor. The costs recovered for terminations for
convenience do not always fully reimburse the contractor, and the profit or fee
received by the contractor may be lower than that which it had expected for the
portion of the contract performed. In cases of termination for default, normal
contract remedies generally apply. In addition, the U.S. Government has broad
discretion to suspend or debar a contractor from engaging in new government
business, including discretion as to the period of suspension and activities
affected. A contractor may be debarred based on a conviction or civil judgment
involving certain offenses, including fraud in connection with obtaining or
performing a public contract, or subcontract thereunder, and may be suspended
if indicted for such an offense or if there is other adequate evidence that
such an offense has been committed. Like other government contractors, GM and
its subsidiaries are subject to civil audits and criminal investigations
relating to their contracting activity.
* * *
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 (CAFC) affirmed the
decision of the Court of Claims which awarded Hughes $114 million in damages,
together with interest. The U.S. Government petitioned the CAFC for a
rehearing. That petition was denied in October 1996. The U.S. Government then
filed a petition with the U.S. Supreme Court seeking certiorari. On April 21,
1997, the U.S. Supreme Court, citing a recent decision it had rendered in
Warner-Jenkinson v. Hilton Davis, remanded Hughes' suit over the Williams
Patent back to the CAFC in order to have the CAFC determine whether the ruling
in the Williams Patent matter was consistent with the U.S. Supreme Court's
decision in the Warner-Jenkinson case. The previous liability decision of the
Court of Claims in the Williams Patent matter, and its $114 million damage
award to Hughes, currently remain in effect pending reconsideration of the case
by the CAFC. Hughes is unable to estimate the duration of this reconsideration
process. While no amount has been recorded in the financial statements of
Hughes to reflect the $114 million award or the interest accumulating thereon,
a resolution of this matter could result in a gain that would be material to
the earnings of GM attributable to Class H common stock.
* * *
In October, 1994, as previously reported, a California jury awarded a
total of $89.5 million in damages against Hughes, which include $9.5 million of
actual damages and 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 and 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' petition for review by the California Supreme Court was granted in
November, 1997. Hughes filed its opening brief in January, 1998, but no
decision is expected earlier than late 1998.
* * *
I-7
9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
OTHER MATTERS (CONTINUED)
In January, 1992, five retired employees of Hughes filed Jacobson, et al
v. Hughes Aircraft Co. et al, in the U.S. District Court in Arizona,
subsequently transferred to Los Angeles, as a putative class action to obtain
increased retirement benefits from excess assets in the Hughes Non-Bargaining
Retirement Plan (the "Plan"). The complaint alleges that the 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 certain participants and newly hired
employees. The complaint further alleges that an effect of another Plan
amendment is that assets of the Plan have been used improperly to provide an
early retirement program for certain participants. On January 23, 1997, 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.
In February 1998, Hughes filed a petition for writ of certiorari in the
United States Supreme Court seeking that court's review of the Ninth Circuit
decision. Because certiorari is in the discretion of the Supreme Court, no
assurance can be given that the case will be accepted for review. Hughes
anticipates that in the second quarter of 1998 the Supreme Court will issue its
decision to grant or deny certiorari.
* * *
On or about October 25, 1996, an action was commenced by Comsat
Corporation against PanAmSat, News Corporation Limited (News Corp.) and Grupo
Television, S.A., in the United States District Court for the Central District
of California. The Complaint alleges that News Corp. wrongfully terminated an
agreement with Comsat for the lease of transponders on an Intelsat satellite
over the term of a five-year lease, breached certain alleged promises related
to such agreement, and breached its alleged obligations under a tariff filed by
Comsat with the Federal Communications Commission (FCC). As to PanAmSat, the
complaint alleges that PanAmSat, alone and in conspiracy with Televisa,
intentionally interfered with the alleged agreement and with Comsat's economic
relationship with News Corp. Comsat had previously filed a similar action in
the United States District Court for the District of Maryland. By order dated
October 10, 1996, the Maryland District Court dismissed without prejudice the
complaint in that action on the ground that the court lacked personal
jurisdiction over all of the defendants. The complaint in the present action
seeks actual and consequential damages, and punitive or exemplary damages in an
amount to be determined at trial. PanAmSat believes this action is without
merit. It intends to vigorously contest this matter although there can be no
assurance that PanAmSat will prevail. If PanAmSat were not to prevail, the
amounts involved could be material to PanAmSat.
* * *
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, challenging GM's split-off of Electronic Data Systems Corporation
(EDS). 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 against certain present and former directors of
General Motors, as 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
I-8
10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
OTHER MATTERS (CONTINUED)
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 was consummated and
were withdrawing their application for expedited proceedings including a
preliminary injunction hearing. Thus, plaintiffs abandoned 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).
On December 1, 1997, plaintiffs served a Third Amended and Supplemental
Consolidated Complaint which makes essentially the same allegations as the
Second Amended Complaint. The complaint seeks monetary damages, including
recissory damages, and an accounting for any special benefits obtained by
defendants. On December 11, 1997, defendants filed a motion to dismiss the
complaint.
* * *
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.
* * *
The following nine lawsuits were filed in the Delaware Court of Chancery
during the first quarter of 1997: 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; John P. McCarthy Profit Sharing
Plan v. General Motors Corporation, et al., on March 6, 1997; and Patinkin v.
General Motors Corporation, et al., on
I-9
11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
OTHER MATTERS (CONTINUED)
March 31, 1997. Each suit was denominated as a class action and was
purportedly brought on behalf of specified holders of GM Class H common stock
against the defendants, General Motors and its directors. The complaints made
essentially the same allegations, namely, that the defendants have breached
and are continuing to breach their fiduciary and alleged contractual duties to
specified holders of GM Class H common stock in connection with the Hughes
transactions. All of these lawsuits have been consolidated under the caption,
In Re General Motors Class H Shareholders Litigation.
Following a hearing on November 24, 1997, the Delaware Court of Chancery
denied plaintiffs' request for expedited discovery and for the scheduling of a
hearing on a motion for a preliminary injunction. On December 17, 1997, having
received consent of a majority of the holders of each class of its common
stock, the Hughes transactions were consummated. (See Tabulation of consents at
Item 4, page I-13 of the Form 10-K filed by General Motors for the Year Ended
December 31, 1997).
On December 1, 1997, plaintiffs filed a Second Consolidated Amended
Complaint which asserts three claims against General Motors and its directors.
The first claim alleges that General Motors is breaching contractual
obligations to GM Class H common stockholders by effecting a disposition of the
defense electronics business of Hughes Electronics without providing for a
recapitalization of the GM Class H common stock into $1-2/3 common stock at a
120% exchange ratio, as currently provided for under certain circumstances in
the GM Certificate of Incorporation. Plaintiffs contend that any amendment of
the GM Certificate of Incorporation as part of the Hughes transactions would be
invalid because stockholders are being coerced into approving such a change.
Plaintiffs' second claim alleges that GM's directors have breached their
fiduciary duties (1) by failing to act in an informed manner and (2) by failing
to act independently to protect the interests of both classes of GM common
stockholders. In particular, this claim alleges that no processes were
employed to ensure that the interests of GM Class H common stockholders were
adequately represented in connection with the various aspects of the Hughes
transactions. Plaintiffs' third claim is that GM's directors have breached
their duty of candor by using false and misleading solicitation materials to
obtain approval of the Hughes transactions. This claim alleges, among other
things, that the Solicitation Statement fails to disclose the consideration
that GM Class H common stockholders would have received in the event the Hughes
transactions triggered the provision in the GM Certificate of Incorporation for
nondiscretionary recapitalization of GM Class H common stock into GM $1-2/3
common stock at a 120% exchange ratio; misstates that there is substantial
uncertainty regarding application of this provision to the Hughes transactions;
and misleadingly portrays the Hughes transactions as being fair to GM Class H
common stockholders. The complaint alleges that GM Class H common stockholders
would be irreparably damaged if the Hughes transactions were to be consummated
as structured because they would lose their alleged right to receive a 20%
premium in the event of a disposition of Hughes Aircraft. Plaintiffs sought,
among other things, an injunction against the consummation of the Hughes
transactions, an order requiring defendants to implement certain procedures
designed to protect the interests of GM Class H common stockholders, or, in the
event the transaction closes (it has now closed), rescission and/or
compensatory damages against the defendants.
On December 17, 1997, defendants filed a motion to dismiss the complaint.
* * *
Thirty-nine class actions have been filed in state, federal, and Canadian
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.
I-10
12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
OTHER MATTERS (CONTINUED)
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 open a defect
investigation of the Type III door latches was denied by the National Highway
Safety Traffic Administration.
* * *
Eleven purported class actions alleging that certain antilock braking
systems on 1989 to 1996 light-duty GM trucks are defective were consolidated by
the Judicial Panel on Multidistrict Litigation for coordinated pretrial
proceedings as In Re General Motors Anti-Lock Brake Products Liability
Litigation, USDC, Eastern District of Missouri, Eastern Division. On June 11,
1997, GM's motion to dismiss the consolidated complaint was granted.
Plaintiffs have appealed to the federal court of appeals for the Eighth
Circuit.
* * *
Three class actions have recently been filed against General Motors, as
well as a number of other vehicle manufacturers and dealers, claiming that the
front seat air bags installed in 1993 to 1997 model vehicles are defective:
Eloisa Rodriguez, et al. v. General Motors Corporation, Ford Motor Company,
Chrysler Corporation, Volvo of North America, Inc., Armadillo Motor Company,
Inc., and Wickstrom Chevrolet Co., Inc., filed on April 11, 1997, in the
District Court of Maverick County, Texas; Ellen Smith, et al. v. General Motors
Corporation, Ford Motor Company, Chrysler Motors Corporation, Sylacauga Auto
Plex, et al., filed on April 25, 1997, in Circuit Court of Coosa County,
Alabama: and Frederick Lewis, et al. v. Volvo of North America, Inc., General
Motors Corporation, Ford Motor Corporation, Chrysler Motors Corporation, and
Spinato Chrysler Plymouth, Inc. dba Bergeron Volvo filed in Civil District
Court of the Parish of Orleans, Louisiana. In essence, the complaints allege
the bags are defective because, when deployed, they are likely to injure
small-statured adults and children. The Texas and Louisiana matters purport to
be statewide classes, while the Alabama state court entered an order
conditionally certifying a nationwide class but made no determination that
plaintiffs have met the requirements for maintaining the case as a class
action. GM has the right to challenge the order and will oppose the class
action status of the case. The complaints generally seek compensatory damages,
the cost of repair or replacement of the allegedly defective air bags, and
plaintiffs' attorney fees. Two of the matters, those in Louisiana and Texas,
have been removed to federal court, and are consolidated for pre-trial
proceedings in the federal court in New Orleans. After removal, the Alabama
matter was remanded by the federal court back to Alabama state court. The
defendants have filed motions for change of venue and dismissal of the
complaint in the Alabama matter which are under submission to the court.
Motions to dismiss the Texas and Louisiana matters will be filed pursuant to a
schedule established by the court later this spring. GM intends to vigorously
defend these actions.
* * *
I-11
13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
OTHER MATTERS (CONTINUED)
Four separate putative class actions have been filed alleging defects in
the paint applied by GM on various vehicles which it distributed. Two of those
cases have been dismissed. No determination has been made as to whether either
of the two pending cases may proceed as a class action.
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 alleged 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. On September 11, 1997, the Court dismissed the case without
prejudice at the request of the plaintiffs. 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 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.
Subsequently, the Court dismissed each of plaintiff's claims except for an
allegation that paint conditions are covered under GM's six-year corrosion
warranty. The complaint seeks unspecified compensatory damages, statutory
damages, and penalties; an injunction halting the practices alleged; and
attorneys' fees, litigation expenses, and costs.
* * *
(b) Previously reported legal proceedings which have been terminated,
either during the quarter ended December 31, 1997, or subsequent thereto, but
before the filing of this report are summarized below:
On March 1, 1993, the U.S. 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 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. On December 24, 1997, the U.S. EPA Appeal
Board affirmed the ALJ's ruling awarding a $62,500 penalty. The Appeal Board
ruled that GM should have challenged its permit within 60 days of issuance and
is now barred from challenging its intent or effect. GM is appealing the
ruling to the U.S. Court of Appeals for the D.C. Circuit, but will no longer
report on this matter in its SEC filings because the penalty has been
established at a level below the threshold for reporting under Regulation S-K.
* * * * * *
I-12
14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ACTIONS BY WRITTEN CONSENT OF GENERAL MOTORS STOCKHOLDERS
A Solicitation Statement/Prospectus of General Motors (GM), dated November
10, 1997, was distributed to holders of $1-2/3 par value and Class H common
stocks in order to obtain their written consent to the proposed "Hughes
Transactions" relating to the three principal businesses of GM's Hughes
Electronics subsidiary (Hughes). The proposed Hughes Transactions consisted of
the following:
- The spin-off of the Hughes defense electronics business (Hughes Defense),
approximately 58.7% to Class H common stockholders and approximately
41.3% to $1-2/3 par value common stockholders (estimated based on stock
prices as of November 7, 1997). Immediately after the spin-off, this
business would merge with Raytheon Company.
- The transfer of the automotive electronics business (Delco) from Hughes
to GM. As a result, the approximate 25.6% tracking stock interest in
this business held by Class H common stockholders would in effect be
allocated to $1-2/3 par value common stockholders.
- The recapitalization of Class H common stock into a new tracking stock
interest of approximately 25.6% in the telecommunications and space
businesses of Hughes. This business would also be provided with a
substantial amount of new capital funding.
The $1-2/3 par value and Class H common stockholders gave their consent to
the Hughes Transactions. Action in respect of the Hughes Transactions was
taken by GM on December 17, 1997. The responses of GM stockholders to the
consent solicitation are tabulated below.
PROPOSAL FOR THE HUGHES TRANSACTIONS
Consent Withhold Abstain Total
------- -------- ------- -----
CLASS OF STOCK (Final tabulation as of December 17, 1997)
$1-2/3 par value common stock,
voting as a separate class:
Shares 433,712,572 3,002,064 4,710,876 441,425,512
Percent of Outstanding 61.3% 0.4% 0.7% 62.4%
Percent of Voting 98.2% 0.7% 1.1% 100.0%
Class H common stock,
voting as a separate class:
Shares 74,350,326 3,641,974 4,217,592 82,209,892
Percent of Outstanding 72.4% 3.6% 4.1% 80.1%
Percent of Voting 90.5% 4.4% 5.1% 100.0%
Combined $1-2/3 par value and
Class H common stocks, voting
together as a single class:
Votes 470,887,736 4,823,050 6,819,672 482,530,458
Percent of Outstanding 62.1% 0.6% 0.9% 63.6%
Percent of Voting 97.6% 1.0% 1.4% 100.0%
* * * * * *
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-40 - Selected Quarterly Data
(b) Approximate number of holders of
common stocks II-40 - Selected Quarterly Data
(c) Dividends
(1) History II-40 - Selected Quarterly Data
(2) Policy II-32 - Dividends on Common Stocks
6. Selected Financial Data II-44 - Selected Financial Data
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations II-45 - 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,
1997, 1996, and 1995
II-5 - Consolidated Balance Sheets,
December 31, 1997 and 1996
II-6 - Consolidated Statements of Cash Flows
for the Years Ended December 31,
1997, 1996, and 1995
II-7 - Consolidated Statements of Stockholders'
Equity for the Years Ended December 31,
1997, 1996, and 1995
II-8 - Notes to Consolidated Financial Statements
II-40 - 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.
Management is further responsible for maintaining internal control
designed to provide reasonable assurance that the books and records reflect the
transactions of the companies and that established policies and procedures are
carefully followed. From a stockholder's point of view, perhaps the most
important feature in internal control is that it is continually reviewed for
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 control 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 Audit 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 Audit 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 Audit
Committee to review the activities of each, to ensure that each is properly
discharging its responsibilities, and to assess the effectiveness of internal
control. It is management's conclusion that internal control at December 31,
1997 provides reasonable assurance that the books and records reflect the
transactions of the companies and that established policies and procedures are
complied with. To ensure complete independence, Deloitte & Touche LLP has full
and free access to meet with the Audit Committee, without management
representatives present, to discuss the results of the audit, the adequacy of
internal control, and the quality of 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
17
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, 1997 and 1996 and the related
Consolidated Statements of Income, Cash Flows, and Stockholders' Equity for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997 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.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 26, 1998
II-3
18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-------------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions Except Per Share Amounts)
NET SALES AND REVENUES (Note 1)
Manufactured products $153,683 $145,341 $143,666
Financial services 12,762 12,674 11,664
Other income (Note 23) 11,729 5,998 4,924
-------- -------- --------
TOTAL NET SALES AND REVENUES 178,174 164,013 160,254
-------- -------- --------
COSTS AND EXPENSES
Cost of sales and other operating charges,
exclusive of items listed below 130,028 123,195 121,300
Selling, general and administrative expenses 16,192 14,580 12,550
Depreciation and amortization expenses (Notes 1 and 2) 16,616 11,840 11,213
Interest expense (Note 10) 6,113 5,695 5,182
Other deductions (Note 23) 1,511 2,083 1,678
-------- -------- --------
TOTAL COSTS AND EXPENSES 170,460 157,393 151,923
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTERESTS 7,714 6,620 8,331
Income taxes (Note 6) 1,069 1,723 2,316
Minority interests 53 56 18
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 6,698 4,953 6,033
Income from discontinued operations (Note 1) - 10 900
Cumulative effect of accounting change (Note 1) - - (52)
-------- -------- --------
NET INCOME 6,698 4,963 6,881
Premium on exchange of/tender offer for
preference stocks (Notes 17 and 18) 26 - 153
Dividends on preference stocks (Note 18) 72 81 211
-------- -------- --------
EARNINGS ON COMMON STOCKS $6,600 $4,882 $6,517
======== ======== ========
BASIC EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS (NOTE 19)
$1-2/3 par value common stock
Continuing operations $8.70 $6.07 $7.21
Discontinued operations - (0.01) 0.14
Cumulative effect of accounting change - - (0.07)
-------- -------- --------
Earnings per share attributable to $1-2/3 par value $8.70 $6.06 $7.28
======== ======== ========
Income from discontinued operations attributable to Class E $ - $0.04 $1.96
-------- -------- --------
Earnings per share attributable to Class H (prior to its
recapitalization on December 17, 1997) (Note 22) $3.17 $2.88 $2.77
-------- -------- --------
Earnings per share attributable to Class H (subsequent to
its recapitalization on December 17, 1997) (Note 22) $0.02 $ - $ -
-------- -------- --------
DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS (NOTE 19)
$1-2/3 par value common stock
Continuing operations $8.62 $ 6.03 $7.14
Discontinued operations - (0.01) 0.14
Cumulative effect of accounting change - - (0.07)
-------- -------- --------
Earnings per share attributable to $1-2/3 par value $8.62 $6.02 $7.21
======== ======== ========
Income from discontinued operations attributable to Class E $ - $0.04 $1.96
-------- -------- --------
Earnings per share attributable to Class H (prior to its
recapitalization on December 17, 1997) (Note 22) $3.17 $2.88 $2.77
-------- -------- --------
Earnings per share attributable to Class H (subsequent to
its recapitalization on December 17, 1997) (Note 22) $0.02 $ - $ -
-------- -------- --------
Reference should be made to the notes to consolidated financial statements.
II-4
19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
ASSETS 1997 1996
----------- -----------
(Dollars in Millions)
Cash and cash equivalents $11,262 $14,063
Other marketable securities 11,722 8,199
-------- --------
Total cash and marketable securities (Notes 1 and 3) 22,984 22,262
Finance receivables - net (Note 4) 58,870 57,550
Accounts and notes receivable (less allowances) 7,493 6,557
Inventories (less allowances) (Note 5) 12,102 11,898
Deferred income taxes (Note 6) 22,478 19,510
Equipment on operating leases (less accumulated depreciation) (Note 7) 33,302 30,112
Property - net (Note 8) 34,567 37,504
Intangible assets - net (Notes 1 and 9) 11,469 12,691
Other assets 25,623 24,058
-------- --------
TOTAL ASSETS $228,888 $222,142
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable (principally trade) $15,782 $14,221
Notes and loans payable (Note 10) 93,027 85,300
Deferred income taxes (Note 6) 2,923 3,196
Postretirement benefits other than pensions (Note 13) 41,168 43,190
Pensions (Note 14) 7,043 7,581
Accrued expenses and other liabilities (Note 15) 50,490 45,144
-------- --------
TOTAL LIABILITIES 210,433 198,632
-------- --------
Minority interests 727 92
General Motors - obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely
junior subordinated debentures of General Motors (Note 17)
Series D 79 -
Series G 143 -
STOCKHOLDERS' EQUITY (Notes 18 and 20)
Preference stocks 1 1
Common stocks
$1-2/3 par value (issued, 693,456,394 and 756,619,625 shares) 1,156 1,261
Class H (Note 22, issued, 100,075,000 shares) - 10
Class H (Note 22, issued, 103,885,803 shares) 10 -
Capital surplus (principally additional paid-in capital) 15,369 19,189
Retained earnings 5,416 6,137
-------- --------
Subtotal 21,952 26,598
Accumulated foreign currency translation adjustments (888) (113)
Net unrealized gains on securities 504 423
Minimum pension liability adjustment (4,062) (3,490)
-------- --------
Accumulated other comprehensive loss (4,446) (3,180)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 17,506 23,418
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $228,888 $222,142
========= ========
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,
----------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations before cumulative
effect of accounting change $6,698 $4,953 $6,033
Adjustments to reconcile income from continuing
operations before cumulative effect of accounting
change to net cash provided by operating activities
Depreciation and amortization expenses 16,616 11,840 11,213
Gain on Hughes Defense spin-off (Note 22) (4,269) - -
Postretirement benefits other than pensions,
net of payments and VEBA contribution (1,425) 1,575 1,684
Pensions expense, net of contributions 240 801 (2,932)
Originations and purchases of mortgage loans (30,878) (19,455) (12,086)
Proceeds on sales of mortgage loans 28,543 18,157 11,613
Originations and purchases of mortgage securities (2,516) (970) (515)
Proceeds on sales of mortgage securities 1,449 758 533
Change in other investments and miscellaneous
assets (1,269) (713) (510)
Change in other operating assets and liabilities
(Note 1) 2,237 184 751
Other 1,028 1,379 765
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,454 18,509 16,549
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property (10,320) (9,949) (8,786)
Investments in other marketable securities - acquisitions (30,897) (27,431) (17,794)
Investments in other marketable securities - liquidations 29,279 24,966 17,254
Finance receivables - acquisitions (163,614) (155,477) (163,033)
Finance receivables - liquidations 129,577 120,253 134,265
Proceeds from sales of finance receivables 31,191 36,657 25,389
Operating leases - acquisitions (21,073) (18,494) (15,125)
Operating leases - liquidations 12,467 10,507 6,268
Proceeds from borrowings of Hughes Defense prior to
the Hughes Defense spin-off (Note 22) 4,006 - -
Investments in companies, net of cash acquired (2,296) (167) (381)
Special inter-company payment from EDS (Note 1) - 500 -
Other 723 1,292 (114)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (20,957) (17,343) (22,057)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in loans payable 5,069 662 6,227
Increase in long-term debt 14,971 15,933 11,242
Decrease in long-term debt (12,454) (12,810) (9,580)
Repurchases of common and preference stocks (4,365) (251) (1,681)
Proceeds from issuing common stocks 614 480 453
Cash dividends paid to stockholders (1,620) (1,530) (1,328)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,215 2,484 5,333
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents (513) (185) 146
-------- -------- --------
NET CASH (USED IN) PROVIDED BY CONTINUING OPERATIONS (2,801) 3,465 (29)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS - 103 193
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (2,801) 3,568 164
Cash and cash equivalents at beginning of the year 14,063 10,495 10,331
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $11,262 $14,063 $10,495
======== ======== =========
Reference should be made to the notes to consolidated financial statements.
II-6
21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
ACCUMULATED
TOTAL OTHER TOTAL
CAPITAL CAPITAL COMPREHENSIVE RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS INCOME EARNINGS INCOME (LOSS) EQUITY
------- -------- ------------- -------- ------------- -------------
BALANCE AT JANUARY 1, 1995 $1,294 $13,149 $ 1,785 $(3,404) $12,824
Shares reacquired (17) (1,511) - - (1,528)
Shares issued 31 6,785 - - 6,816
Reclassification of shares formerly
subject to repurchase 2 448 - - 450
Comprehensive income:
Net income - - $ 6,881 6,881 - 6,881
---------
Other comprehensive income (loss):
Foreign currency translation adjustments - - 323 - - -
Unrealized gains on securities - - 249 - - -
Minimum pension liability adjustment - - (1,188) - - -
---------
Other comprehensive loss - - (616) - (616) (616)
---------
Comprehensive income - - $ 6,265 - - -
=========
Cash dividends - - (1,328) - (1,328)
Redemption price of preference stock in excess
of stated value - - (153) - (153)
------ ------- ------- --------- --------
BALANCE AT DECEMBER 31, 1995 1,310 18,871 7,185 (4,020) 23,346
Shares reacquired (8) (243) - - (251)
Shares issued 14 519 - - 533
Series C conversion 5 (7) - - (2)
EDS split-off (49) 49 (4,481) - (4,481)
Comprehensive income:
Net income - - $ 4,963 4,963 - 4,963
---------
Other comprehensive income (loss):
Foreign currency translation adjustments - - (336) - - -
Unrealized losses on securities - - (70) - - -
Minimum pension liability adjustment - - 1,246 - - -
---------
Other comprehensive income - - 840 - 840 840
---------
Comprehensive income - - $ 5,803 - - -
=========
Cash dividends - - (1,530) - (1,530)
------ ------- ------- --------- --------
BALANCE AT DECEMBER 31, 1996 1,272 19,189 6,137 (3,180) 23,418
Shares reacquired (122) (4,243) - - (4,365)
Shares issued 17 619 - - 636
Preference stock exchange - (196) (26) - (222)
Hughes Defense spin-off - - (5,773) - (5,773)
Comprehensive income:
Net income - - $ 6,698 6,698 - 6,698
---------
Other comprehensive income (loss):
Foreign currency translation adjustments - - (775) - - -
Unrealized gains on securities - - 81 - - -
Minimum pension liability adjustment (572) -
---------
Other comprehensive loss - - (1,266) - (1,266) (1,266)
---------
Comprehensive income $ 5,432 - - -
=========
Cash dividends - - (1,620) - (1,620)
------ ------- ------- --------- --------
BALANCE AT DECEMBER 31, 1997 $1,167 $15,369 $ 5,416 $(4,446) $17,506
====== ======= ======= ========= ========
Reference should be made to the notes to consolidated financial statements.
II-7
22
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, principally General
Motors Acceptance Corporation and Subsidiaries (GMAC) and Hughes Electronics
Corporation and Subsidiaries, prior to the December 17, 1997 restructuring of
the company (hereinafter referred to as "former Hughes") and subsequent to the
December 17, 1997 restructuring of the company (hereinafter referred to as
"Hughes") (Note 22) (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. GM encourages
reference to the GMAC Annual Report on Form 10-K for the period ended December
31, 1997, 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, 1997.
Certain amounts for 1996 and 1995 have been reclassified to conform with
the 1997 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.
To conform to the consensus reached by the Emerging Issues Task Force of
the Financial Accounting Standards Board on Issue No. 95-1, Revenue Recognition
on Sales with a Guaranteed Minimum Resale Value, the Corporation modified its
revenue recognition policy on sales to daily rental car companies, effective
January 1, 1995, which resulted in an unfavorable cumulative effect of $52
million after-tax or $0.07 per share of $1-2/3 par value common stock.
Financing revenue is recorded over the terms of the receivables using the
interest method. Certain loan origination costs are deferred and amortized to
financing revenue over the lives of the related loans using the interest
method.
Income from operating lease assets is recognized on a straight-line basis
over the scheduled lease term. 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, premium taxes, and other costs incurred
in acquiring new business are deferred and amortized over the terms of the
related policies on the same basis as premiums are earned. The liability for
losses and loss expenses 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 was $4.1 billion in 1997, $3.4 billion
in 1996, and $3.1 billion in 1995. Research and development expense was $8.2
billion in 1997, $8.9 billion in 1996, and $8.2 billion in 1995.
Depreciation and Amortization
Depreciation is provided based on the 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 terms
of five years or less is provided using the straight-line method; leases with
terms in excess of five years are depreciated using the foregoing accelerated
methods.
II-8
23
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and Amortization (concluded)
Depreciation of vehicles and other equipment on operating leases or in
GM's 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,
--------------------------
1997 1996 1995
------ ------ ------
Depreciation (Note 2) $10,702 $ 8,825 $ 7,746
Amortization of special tools (Note 2) 5,674 2,856 3,212
Amortization of intangible assets (Note 9) 240 159 255
------ ------ ------
Total $16,616 $11,840 $11,213
====== ====== ======
Foreign Currency Translation
Foreign currency exchange transaction and translation losses on an
after-tax basis included in consolidated net income in 1997, 1996, and 1995,
pursuant to Statement of Financial Accounting Standards (SFAS) No. 52, Foreign
Currency Translation, amounted to $429 million, $380 million, and $381 million,
respectively.
Discontinued Operations
On June 7, 1996 GM split-off Electronic Data Systems Corporation (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 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.
The financial data related to EDS prior to the June 7, 1996 split-off from
GM are classified as discontinued operations. The financial results of EDS,
including assets and liabilities, subsequent to the split-off are not included
in GM's consolidated financial statements.
EDS systems and other contracts revenues from outside customers included
in income from discontinued operations totaled $4.3 billion and $8.5 billion
for the years ended December 31, 1996, and 1995, respectively. Income from
discontinued operations of $10 million and $900 million for the years ended
December 31, 1996 and 1995, is reported net of income tax expense of $14
million and $528 million, respectively.
Income from discontinued operations for 1996 also includes split-off
expenses attributable to $1-2/3 par value common stock of $15 million after-tax
or $0.02 per share of $1-2/3 par value common stock. Income from discontinued
operations for 1995 includes $39 million, or $0.05 per share of $1-2/3 par
value common stock of expense associated with purchase accounting adjustments
made at the time of GM's purchase of EDS.
Cash and Cash Equivalents
Cash equivalents are defined as short-term, highly liquid investments with
original maturities of 90 days or less.
Statement of Cash Flows Supplementary Information
Years Ended December 31,
------------------------------
1997 1996 1995
------- ------ -------
(Dollars in Millions)
Changes in other operating assets and liabilities were as follows:
Accounts receivable $(1,907) $(178) $(331)
Prepaid expenses and other deferred charges 1,046 (134) (607)
Inventories (716) (757) (1,214)
Accounts payable 1,777 1,530 980
Deferred taxes and income taxes payable (1,925) (562) 1,892
Accrued expenses and other liabilities 3,962 285 31
----- --- ---
Total $2,237 $184 $751
===== === ===
Cash paid for interest and income taxes was as follows:
Interest $5,950 $5,792 $5,927
Income taxes $1,423 $2,338 $447
II-9
24
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Valuation of Long-Lived Assets
GM 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.
Derivative Instruments
GM 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.
GM established the Risk Management Committee to develop and monitor the
Corporation's financial risk strategies, policies and procedures. The
Committee reviews and approves all new risk management strategies, establishes
approval authority guidelines for approved programs and monitors compliance and
performance of existing risk management programs. GM does not enter into
derivative transactions for trading purposes.
As part of the hedging program approval process, GM's management is
required to identify the specific financial risk which the derivative
transaction will minimize, the appropriate hedging instrument to be used to
reduce the risk, and the correlation between the financial risk and the hedging
instrument. Purchase orders, letters of intent, vehicle production forecasts,
capital planning forecasts, and historical data are used as the basis for
determining the anticipated values of the transactions to be hedged.
Generally, GM does not enter into derivative transactions that do not have a
high correlation with the underlying financial risk. In the infrequent
instances in which a derivative transaction is entered into that does not have
a high correlation with the underlying exposure, then the derivative is marked
to market for accounting purposes. The hedge positions, as well as the
correlation between the transaction risks and the hedging instruments, are
reviewed by management on an ongoing basis.
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 and options that are designated, and are 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 hedge contracts are deferred and
amortized over the remaining period of the original swap or the remaining term
of the underlying exposure, whichever is shorter. Open interest rate contracts
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 swaptions) and other swaps that do
not qualify for hedge accounting are marked to market on a current basis.
II-10
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
Derivative Instruments (concluded)
GM also enters into commodity forward and option contracts. Since GM 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 and Employee Termination Benefits
GM's postemployment benefits primarily relate to GM's extended-disability
benefit program in the United States and employee job security and supplemental
unemployment compensation benefits (mainly pursuant to union or other
contractual agreements). Extended disability benefits are accrued on a
service-driven basis and employee job security and supplemental unemployment
compensation benefits are accrued on an event-driven basis. Accruals for
postemployment benefits represent the discounted future cash expenditures
expected during the period between the idling of affected employees and the
time when such employees are redeployed, retire or otherwise terminate their
employment.
Voluntary termination benefits are accrued when the employees accept the
offer. Involuntary termination benefits are accrued when management has
committed to a termination plan and the benefit arrangement is communicated to
affected employees.
Environmental Liabilities
GM 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 GM 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 GM
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), GM 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 GM. For GM's operating plants, an estimated liability is typically
recognized either upon completion of an environmental assessment or when GM
proposes an agreement with the appropriate regulatory agency to take action at
a site. For closed or closing plants owned by GM 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.
GM's 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 GM periodically evaluates and revises such
estimates based on expenditures against established reserves and the
availability of additional information.
Labor Force
GM, on a worldwide basis, has a concentration of its labor supply in
employees working under union collective bargaining agreements, a majority of
which will expire in 1999.
NOTE 2. COMPETITIVENESS STUDIES
The global automotive industry, including the automotive components and
systems market, has become increasingly competitive and is presently undergoing
significant restructuring and consolidation activities. All of the major
industry participants are continuing to increase their focus on efficiency and
cost improvements, while announced capacity increases for the North American
market and excess capacity in the European market have led to continuing price
pressures. As a result, GM-North American Operations (GM-NAO), Delphi
Automotive Systems (Delphi), Delco Electronics Corporation (Delco), and
GM-International Operations (GMIO) initiated studies in 1997 concerning the
long-term competitiveness of all facets of their businesses (Competitiveness
Studies). These studies were performed in conjunction with GM's current
business planning cycle and were substantially completed in December 1997.
II-11
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 2. COMPETITIVENESS STUDIES (CONCLUDED)
Based on the results of these Competitiveness Studies, GM recorded pre-tax
charges against income totaling $6.4 billion ($4.0 billion after-tax, or $5.59
per share of $1-2/3 par value common stock). Following are the components of
the charges:
Pre-tax After-tax
------------ ------------
$3.7 billion $2.4 billion Underperforming assets, including both vehicle and
component-manufacturing assets
$1.4 billion $0.8 billion Capacity reductions
$0.5 billion $0.3 billion Assets held for disposal
$0.8 billion $0.5 billion Other
The charges were comprised of $3.8 billion ($2.4 billion after-tax) for
GM-NAO, $1.4 billion ($870 million after-tax) for Delphi and Delco, $1 billion
($658 million after-tax) for GMIO, and $205 million ($128 million after-tax)
for GM's other sector. Overall, these charges had the effect of reducing net
sales and revenues by $548 million and increasing cost of sales, depreciation
and amortization, and other deductions by $1.7 billion, $4.1 billion and $72
million, respectively.
The amount included for underperforming assets represents charges recorded
pursuant to GM's policy for the valuation of long-lived assets. GM
re-evaluated the carrying values of its long-lived assets as events and
circumstances of the industry changed. This re-evaluation was performed using
product specific cash flow information, which was developed by GMIO during 1997
and refined for GM-NAO, Delphi, and Delco in connection with the separation of
Delphi from GM-NAO and the transfer of Delco from former Hughes to Delphi. As
a result, the carrying values of certain long-lived assets were determined to
be impaired as the separately identifiable, anticipated, undiscounted future
cash flows from such assets were less than their respective carrying values.
The resulting pre-tax impairment charges represented the amount by which the
carrying values of such assets exceeded their respective fair market values.
The amount included for capacity reductions represents post-employment
benefits payable to employees, pursuant to contractual agreements, and costs
associated with the disposal of assets at facilities subject to capacity
reductions. This includes the previously announced actions concerning GM-NAO's
Buick City Assembly and V-6 Powertrain plants in Flint, Michigan; Detroit Truck
Assembly in Detroit, Michigan; Delphi's leaf-spring plant in Livonia, Michigan;
and certain GMIO facilities in Europe.
Assets held for disposal primarily related to Delphi's seating, lighting,
and coil spring operations, which were announced for sale during 1997. The
related pre-tax charges represented the amount by which the carrying values of
such assets exceeded the estimated sales value, net of related costs to sell.
The amount included as other primarily represents losses on contracts
associated with pricing pressures on used vehicles and the related effect on
GM's retail-lease commitments. These pricing pressures are primarily a result
of increased industry sales incentives on new vehicles.
In connection with the Competitiveness Studies, GM reviewed the remaining
previously recorded reserve for plant closings. The amounts remaining in the
plant closings reserve at December 31, 1997, which primarily related to accrued
expenses for postemployment benefits (mainly pursuant to union or other
contractual arrangements), other liabilities and asset writedowns, were
reclassified to the consolidated balance sheet accounts that reflect the nature
of the specific reserve components. In addition, favorable 1996 adjustments to
the plant closings reserve totaling $789 million were reclassified to cost of
sales. 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.
Separately, GM recorded pre-tax plant closings charges of $80 million in
1997 and $62 million in 1996. The components of these charges were recorded in
accounts that reflect the nature of the charges, including postemployment
benefits, other liabilities, and asset writedowns.
NOTE 3. MARKETABLE AND OTHER SECURITIES
Marketable securities held by GM are classified as available-for-sale,
except for certain mortgage related securities of GMAC, which are 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 component of stockholders' equity. The excess of fair value over cost
for trading securities is included in income on a current basis. GM determines
cost on the specific identification basis.
II-12
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 3. MARKETABLE AND OTHER SECURITIES (CONCLUDED)
Investments in marketable securities were as follows (in millions):
December 31, 1997
-------------------------------------------------
Fair Unrealized Unrealized
Type of Security Cost Value Gains Losses
-------- ------- ---------- ----------
Bonds, notes, and other securities
United States government and governmental
agencies and authorities $1,308 $1,317 $9 $-
States, municipalities, and political subdivisions 1,576 1,686 121 11
Mortgage-backed securities 110 113 3 -
Other 5,589 5,644 65 10
------ ------ --- --
Total debt securities available for sale 8,583 8,760 198 21
Mortgage-backed securities held for
trading purposes 2,063 2,063 - -
------ ------ --- --
Total debt securities 10,646 10,823 198 21
Equity securities 523 899 416 40
------ ------ --- --
Total investment in securities $11,169 $11,722 $614 $61
====== ====== === ==
December 31, 1996
--------------------------------------------------
Fair Unrealized Unrealized
Type of Security Cost Value Gains Losses
------ ------ ---------- ----------
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 3,442 40 8
----- ----- --- --
Total debt securities available for sale 6,747 6,859 132 20
Mortgage-backed securities held for
trading purposes 697 697 - -
----- ----- --- --
Total debt securities 7,444 7,556 132 20
Equity securities 328 643 326 11
----- ----- --- --
Total investment in securities $7,772 $8,199 $458 $31
===== ===== === ==
Debt securities totaling $1.2 billion mature within one year, $4.7 billion
mature after one through five years, $1.6 billion mature after five years
through 10 years, and $3.1 billion mature after 10 years.
Proceeds from sales and maturities of marketable securities totaled $13.6
billion in 1997, $5.7 billion in 1996, and $6.2 billion in 1995. The gross
gains and (losses) related to sales of marketable securities were $297 million
and $(96) million, $236 million and $(33) million, and $118 million and $(29)
million in 1997, 1996, and 1995, respectively.
Other securities classified as cash equivalents, which consisted primarily
of commercial paper, repurchase agreements, and certificates of deposit, were
$10.3 billion and $13.5 billion at December 31, 1997 and 1996, respectively.
II-13
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 4. FINANCE RECEIVABLES - NET
Finance receivables-net included the following (in millions):
December 31,
----------------
1997 1996
------- -------
U.S.
Retail $26,570 $26,708
Wholesale 15,213 13,609
Leasing and lease financing 716 1,131
Term loans to dealers and others 3,436 3,305
------ ------
Total U.S. 45,935 44,753
------ ------
Canada, Mexico and International
Retail 8,059 8,745
Wholesale 6,475 5,942
Leasing and lease financing 2,069 2,015
Term loans to dealers and others 619 564
------ ------
Total Canada, Mexico and International 17,222 17,266
------ ------
Total finance receivables 63,157 62,019
Less-Unearned income (3,384) (3,547)
-Allowance for financing losses (903) (922)
------ ------
Total finance receivables - net $58,870 $57,550
====== ======
The aggregate amount of total finance receivables maturing in each of the
five years following December 31, 1997 is as follows: 1998-$36.8 billion;
1999-$10.6 billion; 2000-$8.1 billion; 2001-$4.9 billion; 2002-$2.1 billion;
and 2003 and thereafter-$765 million.
GMAC participates in various sales of receivables programs and sold retail
finance receivables through special purpose subsidiaries with principal
aggregating $5.4 billion in 1997 and $2.2 billion in 1996. 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. GMAC continues to service these
receivables for a fee and earns other related ongoing income. GMAC's retail
finance receivable servicing portfolio amounted to $6.0 billion and $4.3
billion at December 31, 1997 and 1996, respectively.
GMAC also sold wholesale receivables that it continues to service for a
fee. The wholesale receivables servicing portfolio totaled $6.3 billion and
$5.4 billion at December 31, 1997 and 1996, respectively. Additionally, GMAC
is committed to sell eligible wholesale receivables, on a revolving basis,
arising in certain dealer accounts.
NOTE 5. INVENTORIES
Inventories included the following (in millions):
December 31,
---------------------
1997 1996
------- -------
Productive material, work in process, and supplies $7,023 $7,686
Finished product, service parts, etc. 7,347 6,558
------- -------
Total inventories at FIFO 14,370 14,244
Less LIFO allowance 2,268 2,346
------- -------
Total inventories (less allowances) $12,102 $11,898
======= =======
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), Delco, and Hughes is determined by
the last-in, first-out (LIFO) method. The cost of non-U.S., Saturn, Delco, and
Hughes inventories is determined generally by either the first-in, first-out
(FIFO) or average cost methods.
II-14
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6. INCOME TAXES
Income from continuing operations before income taxes and minority
interests included the following (in millions):
Years Ended December 31,
--------------------------------
1997 1996 1995
------- ------- --------
U.S. income $3,433 $1,691 $3,622
Foreign income 4,281 4,929 4,709
----- ----- -----
Total $7,714 $6,620 $8,331
===== ===== =====
The provision for income taxes was estimated as follows (in millions):
Years Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
Income taxes estimated to be payable (refundable) currently
U.S. federal $1,307 $(357) $(1,000)
Foreign 1,793 1,607 1,314
U.S. state and local 198 197 16
----- ----- -----
Total payable currently 3,298 1,447 330
----- ----- -----
Deferred income tax (credit) expense - net
U.S. federal (1,467) 477 2,007
Foreign (396) (147) (88)
U.S. state and local (332) (15) 136
----- ----- -----
Total deferred (2,195) 315 2,055
----- ----- -----
Investment tax credits (34) (39) (69)
----- ----- -----
Total income taxes $1,069 $1,723 $2,316
===== ===== =====
Annual tax provisions include amounts considered sufficient to pay
assessments that may result from examination of prior year tax returns;
however, the amount ultimately paid upon resolution of issues raised may differ
materially from the amount accrued.
Provisions are made for estimated U.S. and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance
of the Corporation's share of subsidiaries' undistributed earnings not deemed
to be permanently invested. Taxes have not been provided on foreign
subsidiaries' earnings, which are deemed essentially permanently reinvested, of
approximately $8.7 billion at December 31, 1997 and December 31, 1996.
Quantification of the deferred tax liability, if any, associated with
permanently reinvested earnings is not practicable.
A reconciliation of the provision for income taxes compared with the
amounts at the U.S. federal statutory rate was as follows (in millions):
Years Ended December 31,
----------------------------
1997 1996 1995
-------- ------- -------
Tax at U.S. federal statutory income tax rate $2,700 $2,336 $2,922
Hughes Defense spin-off (1,494) - -
Foreign rates other than 35% (123) (285) (220)
Taxes on unremitted earnings of subsidiaries 44 49 139
Sale of net assets of National Car Rental System - - (258)
Tax effect of the 1995 contribution of Class E common stock to
the U.S. hourly pension plan - (245) -
Research and experimentation credits (311) (165) (74)
Other adjustments 253 33 (193)
----- ----- -----
Total income tax $1,069 $1,723 $2,316
===== ===== =====
Deferred income tax assets and liabilities for 1997 and 1996 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 $20.3 billion
and $17.5 billion at December 31, 1997 and 1996, respectively.
II-15
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6. INCOME TAXES (CONCLUDED)
Temporary differences and carryforwards that gave rise to deferred tax
assets and liabilities included the following (in millions):
December 31,
---------------------------------------------------------
1997 1996
---- ----
Deferred Tax Deferred Tax
------------------------- --------------------------
Assets Liabilities Assets Liabilities
------- ----------- ------- -----------
Postretirement benefits other than pensions $15,683 $- $16,392 $-
Minimum pension liability adjustment 2,423 - 2,036 -
Employee benefit plans 2,226 6,047 2,139 6,575
Policy and warranty reserves 2,445 - 2,293 -
Sales and product reserves 1,977 8 1,505 12
Profits on long-term contracts 156 143 371 142
Alternative minimum tax credit carryforwards 673 - 625 -
Depreciation and amortization 900 3,130 513 4,682
Capitalized research and experimentation 285 - 370 -
U.S. state net operating loss carryforwards 559 - 494 -
Financing losses 361 - 323 -
Tax credit carryforwards 467 - 396 -
Lease transactions - 3,075 - 2,415
Tax on unremitted profits - 339 - 576
Other U.S. 6,700 3,016 6,104 2,802
Miscellaneous foreign 1,850 692 1,525 492
------ ------ ------- ------
Subtotal 36,705 16,450 35,086 17,696
Valuation allowances (700) - (1,076) -
------ ------ ------ ------
Total deferred taxes $36,005 $16,450 $34,010 $17,696
====== ====== ====== ======
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 alternative minimum tax credit can be carried forward indefinitely.
The U.S. state net operating loss carryforwards will expire in the years 1998 -
2012 if not utilized; however, a substantial portion will not expire until
after the year 2002. The tax credit carryforwards will expire in the years
2000 - 2012 if not utilized.
NOTE 7. EQUIPMENT ON OPERATING LEASES
The value of GM's net equipment on operating leases is based on estimated
residual values of the leased equipment, which are calculated on the lease
inception dates, less accumulated depreciation of $7.9 billion and $7.7 billion
as of December 31, 1997 and 1996, respectively. Realization of the residual
values is dependent on GM's 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, 1997 are as follows:
1998-$6.3 billion; 1999-$4.2 billion; 2000-$2.2 billion; 2001-$711 million; and
2002-$512 million.
II-16
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 8. PROPERTY - NET
Property - net included the following (in millions):
Estimated December 31,
Useful ------------------------
Lives (Years) 1997 1996
------------- -------- --------
Land - $703 $720
Land improvements 10-30 1,805 1,888
Leasehold improvements - less amortization 3-10 209 297
Buildings 29-45 12,733 13,433
Machinery and equipment 3-30 47,145 46,629
Furniture and office equipment 3-20 1,275 1,144
Capitalized leases 5-40 1,137 1,441
Construction in progress - 4,673 4,218
------ ------
Real estate, plants, and equipment 69,680 69,770
Less accumulated depreciation (41,915) (41,298)
------ ------
Real estate, plants, and equipment - net 27,765 28,472
Special tools - net 6,802 9,032
------ ------
Total property - net $34,567 $37,504
====== ======
NOTE 9. INTANGIBLE ASSETS - NET
Intangible assets - net included the following (in millions):
December 31,
------------------
1997 1996
------- -------
Pensions $7,683 $8,969
Intangible assets relating to acquisition of HAC 448 2,723
Goodwill relating to all other acquisitions 3,338 999
------ ------
Total intangible assets - net $11,469 $12,691
====== ======
Intangible assets relating to the acquisition of Hughes Aircraft Company
(HAC) as of December 31, 1997 are applicable to Hughes. Such intangible assets
relate to patents and related technology and other intangible assets that were
originally recorded in 1985 and are being amortized over 40 years. During
1997, approximately $2.2 billion of intangible assets relating to the
acquisition of HAC was eliminated in connection with the Hughes Transactions
(Note 22). Goodwill resulting from other acquisitions is amortized over
periods not exceeding 40 years. Such goodwill includes $2.4 billion associated
with the 1997 merger of the respective satellite service operations of Hughes
and PanAmSat Corporation (PAS) (Note 22) and approximately $500 million
relating to GMAC's acquisition of Integon Corporation (Integon). GMAC acquired
Integon in October 1997, and the purchase price was allocated to the net assets
acquired, including goodwill, based on estimated fair market values at the date
of acquisition. Integon is primarily a non-standard automobile insurance
provider.
NOTE 10. NOTES AND LOANS PAYABLE
Notes and loans payable were as follows (in millions):
December 31,
Weighted-Average ---------------------
Interest Rate(1) 1997 1996
---------------- ------- -------
Notes and loans
Payable within one year
Current portion of long-term debt 6.6% $11,478 $12,469
Commercial paper (2) 5.6% 27,490 22,678
All other (2) 5.2% 12,087 12,079
Payable beyond one year
1998 - - 10,318
1999 6.8% 12,143 7,860
2000 7.3% 6,903 5,048
2001 6.4% 6,389 4,400
2002 6.5% 7,038 2,119
2003 and after 7.5% 10,213 9,295
Unamortized discount (714) (966)
------- -------
Total notes and loans payable $93,027 $85,300
======= =======
II-17
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 10. NOTES AND LOANS PAYABLE (CONCLUDED)
- ----------------------------
(1) The weighted-average interest rate for 1997 includes the impact of
interest rate swap agreements.
(2) The 1996 weighted-average interest rate for commercial paper and all
other short-term borrowings was 5.8% and 5.5%, respectively.
After consideration of foreign currency swaps, the above 1997 maturities,
payable beyond one year, included $7.3 billion in currencies other than the
U.S. Dollar, primarily the Canadian Dollar ($3.2 billion), the German Mark
($1.2 billion), the British Pound ($1.2 billion) and the Australian Dollar
($0.9 billion).
At December 31, 1997 and 1996, notes and loans payable included $72
billion and $70 billion of obligations with fixed interest rates and $21
billion and $15 billion of obligations with variable interest rates
(predominantly based on the London Interbank Offering Rate - i.e., LIBOR),
after considering the impact of interest rate swap agreements.
To achieve its desired balance, within prescribed limits, between fixed
and variable rate debt, GM has entered into interest rate swap, cap, collar,
option, and swaption agreements. The notional amounts of such agreements as of
December 31, 1997 were approximately $12.1 billion ($6.8 billion pay variable
and $5.3 billion pay fixed), $1.3 billion, $50 million, $6.5 billion, and $nil,
respectively. 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.
GM and its subsidiaries maintain substantial bank lines of credit with
various banks that totaled $50.3 billion at December 31, 1997, of which $29.7
billion represented short-term credit facilities and $20.6 billion represented
long-term credit facilities. At December 31, 1996, bank lines of credit
totaled $53.6 billion, of which $32.5 billion represented short-term credit
facilities and $21.1 billion represented long-term credit facilities. The
unused short-term and long-term portions of the credit lines totaled $20.2
billion and $18.7 billion at December 31, 1997, compared with $22 billion and
$19 billion at December 31, 1996. Certain bank lines of credit contain
covenants with which the Corporation and applicable subsidiaries were in
compliance during the year ended December 31, 1997.
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
GM 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 GM 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
GM 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. GM's 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.
GM 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, GM 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. GM 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, 1997 and 1996, GM held foreign exchange forward contracts
of $10.1 billion and $8.3 billion (including cross-currency swaps of $2.1
billion and $2.4 billion), respectively. At December 31, 1997 and 1996, GM had
entered into foreign exchange options of $2.9 billion and $3.5 billion,
respectively.
II-18
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
Deferred hedging (losses) gains on outstanding foreign exchange forward
contracts hedging firm commitments to purchase inventory or fixed assets
totaled $(8) million and $14 million at December 31, 1997 and 1996,
respectively. Deferred hedging losses on outstanding purchased foreign
exchange option contracts hedging firm and anticipated transactions to purchase
inventory or fixed assets totaled $20 million and $15 million at December 31,
1997 and 1996, respectively. 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. GM's firm commitments
typically extend for periods of up to three years.
Interest Rate Swaps and Options
GM's financing and cash management activities subject it to market risk
from exposure to changes in interest rates. GM 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, GM 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 GM 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, 1997 and 1996, the total
notional amount of such agreements with off-balance-sheet risk was $29.5
billion and $30.8 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 on interest rate swaps totaled approximately $40
million and $33 million at December 31, 1997 and 1996, respectively. Written
options, including those embedded in interest rate swaps, written interest rate
caps, interest rate collars, 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,
1997 and 1996, commitments to sell mortgage loans and securities totaled $3.9
billion and $1.5 billion, respectively, and commitments to purchase or
originate mortgage loans totaled $4.1 billion and $2.6 billion, respectively.
GMAC's exchange traded futures and option contracts, which are used to hedge
mortgage loans held for sale, had notional values of $2.2 billion and $2.4
billion at December 31, 1997 and 1996, respectively. 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 $1.4 billion and $4.8
billion at December 31, 1997 and 1996, 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 $8 billion and $11 billion at December 31, 1997 and 1996,
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, 1997
and 1996, the notional values of such instruments totaled $264 million and $327
million, respectively.
II-19
34
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONCLUDED)
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, GM 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. GM generally does not require or place
collateral for these financial instruments, except for the lines of credit it
extends.
GM 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 GM.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
GM 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, 1997 and 1996. 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, 1997 and 1996 may differ
significantly from these amounts.
Book and estimated fair values of financial instruments, for which it is
practicable to estimate fair value, were as follows (in millions):
December 31,
-------------------------------------------------
1997 1996
---- ----
Book Fair Book Fair
Value Value Value Value
------- ------- ------- -------
ASSETS
Cash and marketable securities $22,984 $22,984 $22,262 $22,262
Finance receivables - net $58,800 $59,248 $57,545 $57,584
Accounts and notes receivable
(less allowances) $7,394 $7,394 $6,485 $6,485
Other assets $11,033 $11,041 $7,191 $7,294
LIABILITIES
Accounts payable $15,782 $15,782 $14,221 $14,221
Notes and loans payable
Payable within one year $51,055 $51,096 $47,024 $47,080
Payable beyond one year $41,972 $43,196 $38,276 $41,113
Other liabilities $593 $626 $624 $635
Preferred securities of subsidiary trusts (Note 17) $222 $233 $- $-
II-20
35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The prior table excludes the book value and estimated fair value of
financial instrument derivatives which were as follows (in millions):
Fair Value of Open Contracts (1) at
December 31,
------------------------------------------------------------------
1997 1996
---- ----
Asset Liability Asset Liability
Position Position Position Position
-------- --------- -------- ---------
Foreign exchange forward contracts (2) $227 $409 $190 $410
Foreign exchange options $46 $7 $38 $11
Interest rate swaps $120 $99 $107 $152
Interest rate options $2 $2 $1 $12
Mortgage contracts $53 $30 $40 $34
(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 $(78) million, $43 million, $(14)
million, and $(1) million, respectively, at December 31, 1997 and $(24)
million, $42 million, $(57) million, and $(11) million, respectively, at
December 31, 1996. The related asset recorded on the balance sheet for
mortgage contracts was $20 million and $12 million at December 31, 1997
and 1996, respectively.
(2) Foreign exchange forward contracts included certain derivatives with both
foreign exchange and interest rate exposures which had a fair value of
$(177) million and $(94) million at December 31, 1997 and 1996,
respectively.
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 fair values.
Other Assets and Accrued Expenses and Other Liabilities
Other assets reported at December 31, 1997 and 1996 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 accrued
expenses and other liabilities, 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 GM 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.
II-21
36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED)
Preferred Securities of Subsidiary Trusts
The fair value of the GM-obligated mandatorily redeemable preferred
securities of subsidiary trusts (Note 17) is determined based on quoted market
prices.
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 options are valued at quoted market prices.
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 13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
GM maintains hourly and salaried benefit plans that provide postretirement
medical, dental, vision, and life insurance to most U.S. retirees and eligible
dependents. The cost of such benefits is recognized in the consolidated
financial statements during the period employees provide service to GM.
Certain of the Corporation's non-U.S. subsidiaries have postretirement
plans, although most participants are covered by government-sponsored or
administered programs. The cost of such programs generally is not significant
to GM.
The components of non-pension postretirement benefit cost were as follows
(in millions):
Years Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
Benefits earned during the year $639 $668 $617
Interest accrued on benefits earned in prior years 3,128 2,980 3,120
Termination, curtailment and settlement (gains) losses (2) (3) 26
Amortization of net actuarial losses (gains) 72 43 (7)
Amortization of prior service costs due to plan changes (116) (116) (116)
----- ----- -----
Total non-pension postretirement benefit cost $3,721 $3,572 $3,640
===== ===== =====
The status of the plans at December 31 was as follows (in millions):
1997 1996
-------- --------
Accumulated postretirement benefit obligation (APBO)
Current retirees $25,419 $23,498
Fully eligible active plan participants 7,104 6,427
Other active plan participants 11,771 11,462
------ ------
APBO 44,294 41,387
Plan assets at fair value (1) 3,000 -
------ ------
APBO in excess of plan assets 41,294 41,387
Unamortized prior service costs due to plan changes 563 679
Unamortized net amount resulting from changes in plan experience
and actuarial assumptions (689) 1,124
------ ------
Net postretirement benefit obligation $41,168 $43,190
====== ======
(1) During 1997, General Motors pre-funded a portion of its other
postretirement benefits liability by contributing $3 billion to a
Voluntary Employees' Beneficiary Association trust (VEBA). The assets of
the VEBA trust are primarily invested in U.S. government obligations and
fixed income securities.
II-22
37
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONCLUDED)
The principal assumptions used were as follows:
1997 1996 1995
---- ---- ----
Weighted-average discount rate 7.2% 7.8% 7.5%
Weighted-average rate of increase in future compensation
levels related to pay-related life insurance 4.4% 4.4% 4.3%
Base weighted-average health care cost trend rate (1) 5.5% 6.5% 6.5%
Ultimate sustained weighted-average health care cost trend rate in 2004 (2) 5.0% 5.0% 5.0%
- ----------------
(1) Current year trend rate assumed at beginning of year was adjusted to
actual to determine year-end obligations.
(2) Rate increases to 6.0% in 1999 and then decreases on a linear basis
through 2004, 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 $4.8 billion at December 31, 1997 and
increased the aggregate service and interest cost components of non-pension
postretirement benefit expense for 1997 by $462 million. A one percentage
point increase in the weighted-average discount rate would have resulted in a
$4.9 billion decrease in the APBO at December 31, 1997.
GM 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, 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.
NOTE 14. PENSIONS
GM has a number of defined benefit pension plans covering substantially
all employees. Plans covering U.S. and Canadian represented employees
generally provide benefits of negotiated, stated amounts for each year of
service as well as significant supplemental benefits for employees who retire
with 30 years of service before normal retirement age. The benefits provided
by the plans covering U.S. and Canadian salaried employees and employees in
certain foreign locations are generally based on years of service and salary
history. GM 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 (valued as of the
1997 measurement date at $123 million), and EDS common stock (valued as of the
1997 measurement date at $5.3 billion). In March 1995, under the terms of an
agreement between the Corporation and the Pension Benefit Guarantee Corporation
(PBGC), the Corporation contributed to the GM 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. The trustees for
the Hourly Plan have, from time-to-time, sold shares of former Class E common
stock and EDS common stock, with the effect of reducing the number of shares of
EDS common stock held by the Hourly Plan.
GM's funding policy with respect to its qualified plans is to contribute
annually not less than the minimum required by applicable law and regulations.
GM made pension contributions to the U.S. plans of $1.5 billion in 1997, $800
million in 1996, and $10.4 billion in 1995.
II-23
38
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 14. PENSIONS (CONTINUED)
Pension expense included the following (in millions):
Years Ended December 31,
------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------
U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans Plans Plans
----- ----- ----- ----- ----- -----
Benefits earned during the year $1,332 $191 $1,208 $185 $927 $162
Interest on projected benefit
obligation (PBO) 5,261 633 4,777 653 4,851 651
Return on assets
Actual gain (10,882) (758) (8,035) (929) (12,047) (626)
Less deferred gain 4,252 234 1,752 442 6,584 195
Net amortization and other 1,446 141 1,505 297 1,113 193
----- --- ----- ----- ----- ---
Net pension expense $1,409 $441 $1,207 $648 $1,428 $575
===== === ===== ===== ===== ====
The funded status of GM's plans at December 31, were as follows (in millions):
1997 1996
------------------------ ----------------------
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 $22,269 $40,541 $24,137 $36,723
Nonvested benefits 1,592 7,029 1,866 7,552
------ ------ ------ ------
Accumulated benefit obligation 23,861 47,570 26,003 44,275
Effect of projected benefits 1,887 252 1,992 231
------ ------ ------ ------
Total PBO based on service to date 25,748 47,822 27,995 44,506
Plan assets at fair value 28,295 43,985 31,123 40,172
------ ------ ------ ------
PBO less than (in excess of) plan assets 2,547 (3,837) 3,128 (4,334)
Unamortized net amount resulting from changes
in plan experience and actuarial assumptions 2,764 5,868 2,989 5,138
Unamortized prior service cost 1,297 6,806 1,385 7,835
Unamortized net (asset) obligation at date
of adoption (416) 311 (644) 415
Adjustment for unfunded pension liabilities - (12,733) - (13,157)
------ ------ ----- ------
Net prepaid pension asset (liability) $6,192 $(3,585) $6,858 $(4,103)
===== ====== ===== ======
NON-U.S. PLANS
Actuarial present value of:
Vested benefits $2,776 $5,969 $2,323 $6,112
Nonvested benefits 92 173 75 204
----- ----- ----- -----
Accumulated benefit obligation 2,868 6,142 2,398 6,316
Effect of projected benefits 397 417 295 517
----- ----- ----- -----
Total PBO based on service to date 3,265 6,559 2,693 6,833
Plan assets at fair value 3,381 2,694 3,065 2,850
----- ------ ----- -----
PBO less than (in excess of) plan assets 116 (3,865) 372 (3,983)
Unamortized net amount resulting from changes
in plan experience and actuarial assumptions 673 1,100 548 905
Unamortized prior service cost 181 643 194 784
Unamortized net (asset) obligation at date
of adoption (106) 116 (231) 226
Adjustment for unfunded pension liabilities - (1,452) - (1,410)
---- ------ --- ------
Net prepaid pension asset (liability) $864 $(3,458) $883 $(3,478)
=== ====== === ======
II-24
39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 14. PENSIONS (CONCLUDED)
The following assumptions were used to determine the pension expense and the
actuarial value of the PBO:
1997 1996
--------------------- -------------------------
U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans
-------- ------------ --------- -------------
Weighted-average discount rate 7.0% 6.8% 7.5% 7.3%
Rate of increase in future compensation levels (1) 5.0% 4.1% 5.0% 4.2%
Expected long-term rate of return on plan assets 10.0% 9.2% 10.0% 9.8%
- ---------------
(1) 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.
NOTE 15. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities included the following (in millions):
December 31,
-----------------------
1997 1996
------- -------
Warranties, dealer and customer allowances, claims, and discounts $14,847 $13,702
Customer deposits 7,223 6,658
Payrolls and employee benefits (excludes postemployment) 4,625 4,568
Unpaid insurance losses, loss adjustment expenses and unearned
insurance premiums 3,929 3,020
Postemployment benefits 3,536 3,116
Environmental cleanup 610 646
Governmental and other contract related 360 1,060
Income taxes 1,344 11
Taxes, other than income taxes 1,258 1,334
Deferred income 1,460 1,502
Interest 2,344 2,180
Industrial Development Bonds 593 624
Other 8,361 6,723
------ ------
Total accrued expenses and other liabilities $50,490 $45,144
====== ======
NOTE 16. COMMITMENTS AND CONTINGENT MATTERS
Commitments
GM had the following minimum commitments under noncancelable operating
leases having terms in excess of one year primarily for real property:
1998-$476 million; 1999-$469 million; 2000-$446 million; 2001-$341 million;
2002-$366 million; and $923 million in 2003 and thereafter. Certain of the
leases contain escalation clauses and renewal or purchase options. Rental
expenses under operating leases were $925 million in 1997, $853 million in
1996, and $769 million in 1995.
GM sponsors a credit card program, entitled the GM Card program, that
offers rebates that can be applied against the purchase or lease of GM
vehicles. The amount of rebates available to qualified cardholders at December
31, 1997 and 1996 was $3.5 billion and $3.2 billion, respectively. Provisions
for GM Card rebates are recorded as reductions in revenues at the time of
vehicle sale.
Contingent Matters
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 (CAFC) affirmed the
decision of the Court of Claims which awarded Hughes $114 million in damages,
together with interest. The U.S. Government petitioned the CAFC for a
rehearing. That petition was denied in October 1996. The U.S. Government then
filed a petition with the U.S. Supreme Court seeking certiorari. On April 21,
1997,
II-25
40
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 16. COMMITMENTS AND CONTINGENT MATTERS (CONCLUDED)
Contingent Matters (concluded)
the U.S. Supreme Court, citing a recent decision it had rendered in
Warner-Jenkinson v. Hilton Davis, remanded Hughes' suit over the Williams
Patent back to the CAFC in order to have the CAFC determine whether the ruling
in the Williams Patent matter was consistent with the U.S. Supreme Court's
decision in the Warner-Jenkinson case. The previous liability decision of the
Court of Claims in the Williams Patent matter, and its $114 million damage
award to Hughes, currently remain in effect pending reconsideration of the
case by the CAFC. Hughes is unable to estimate the duration of this
reconsideration process. While no amount has been recorded in the financial
statements of Hughes to reflect the $114 million award or the interest
accumulating thereon, a resolution of this matter could result in a gain that
would be material to the earnings of GM attributable to Class H common stock.
GM 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 GM under these government regulations and under these
claims and actions, was not determinable at December 31, 1997. After
discussion with counsel, it is the opinion of management that such liability is
not expected to have a material adverse effect on the Corporation's
consolidated financial statements.
NOTE 17. PREFERRED SECURITIES OF SUBSIDIARY TRUSTS
General Motors - Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts
In July 1997, the General Motors Capital Trust D (Series D Trust) issued
approximately $79 million of its 8.67% Trust Originated Preferred Securities(sm)
(TOPrS(sm)) Series D, (Series D Preferred Securities), in a one-for-one exchange
for 3,055,255 of the outstanding GM Series D 7.92% Depositary Shares, each
representing one-fourth of a share of GM Series D Preference Stock, $0.10 par
value per share. In addition, the General Motors Capital Trust G (Series G
Trust) issued approximately $143 million of its 9.87% TOPrS, Series G (Series G
Preferred Securities), in a one-for-one exchange for 5,064,489 of the
outstanding GM Series G 9.12% Depositary Shares, each representing one-fourth
of a share of GM Series G Preference Stock, $0.10 par value per share.
Concurrently with the exchanges and the related purchases by GM from the
Series D and Series G Trusts (Trusts) of the common securities of such Trusts,
which represent approximately 3 percent of the total assets of such Trusts, GM
issued to the wholly-owned Trusts, as the Series D Trust's sole assets its
8.67% Junior Subordinated Deferrable Interest Debentures, Series D, due July 1,
2012 and as the Series G Trust's sole assets, its 9.87% Junior Subordinated
Deferrable Interest Debentures, Series G, due July 1, 2012 (the "Series D
Debentures" and "Series G Debentures" or collectively the "Debentures"), having
aggregate principal amounts equal to the aggregate stated liquidation amounts
of the Series D and Series G Preferred Securities and the related common
securities, respectively ($79 million with respect to the Series D Debentures
and $131 million with respect to the Series G Debentures).
The Series D Debentures are redeemable, in whole or in part, at GM's
option on or after August 1, 1999, at a redemption price equal to 100% of the
outstanding principal amount of the Series D Debentures plus accrued and unpaid
interest, or, under certain circumstances, prior to August 1, 1999, at a
redemption price equal to 105% of the outstanding principal of the Series D
Debentures from the Series D expiration date through July 31, 1998, declining
ratably on each August 1 thereafter to 100% on August 1, 1999, plus accrued and
unpaid interest. The Series D Preferred Securities will be redeemed upon the
maturity or earlier redemption of the Series D Debentures.
The Series G Debentures are redeemable, in whole or in part, at GM's
option on or after January 1, 2001, at a redemption price equal to 100% of the
outstanding principal amount of the Series G Debentures plus accrued and unpaid
interest, or, under certain circumstances, prior to January 1, 2001, at a
redemption price equal to 114% of the outstanding principal of the Series G
Debentures from the Series G expiration date through December 31, 1997,
declining ratably on each January 1 thereafter to 100% on January 1, 2001, plus
accrued and unpaid interest. The Series G Preferred Securities will be redeemed
upon the maturity or earlier redemption of the Series G Debentures.
GM has guaranteed the payment in full to the holders of the Series D and
Series G Preferred Securities (collectively the "Preferred Securities") of all
distributions and other payments on the Preferred Securities to the extent not
paid by the Trusts only if and to the extent that the Trusts have assets
therefore, GM has made payments of interest or principal on the related
Debentures. These guarantees, when taken together with GM's obligations under
the Preferred Securities Guarantees, the Debentures, and the Indentures
relating thereto and the obligations under the Declaration of Trust of the
Trusts, including the obligations to pay certain costs and expenses of the
Trusts, constitute full and unconditional guarantees by GM of each Trust's
obligations under its Preferred Securities.
- -------------
(sm) "Trust Originated Preferred Securities" and "TOPrS" are service trademarks
of Merrill Lynch & Co.
II-26
41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 18. STOCKHOLDERS' EQUITY
The following table presents changes in capital stock for the
period from January 1, 1995 to December 31, 1997 (in millions):
Common Stocks
-----------------------------------------
Total
Preference $1-2/3 Capital
Stocks(a) par value Class H(b) Class E Class H(c) Stock
---------- --------- ---------- ------- ---------- -------
BALANCE AT JANUARY 1, 1995 $2 $1,257 $- $27 $8 $1,294
Shares reacquired (1) (16) - - - (17)
Shares issued - 14 - 17 - 31
Reclassification of shares formerly subject
to repurchase - - - - 2 2
-- ----- -- -- -- -----
BALANCE AT DECEMBER 31, 1995 1 1,255 - 44 10 1,310
Shares reacquired - (8) - - - (8)
Shares issued - 14 - - - 14
Series C conversion - - - 5 - 5
EDS split-off - - - (49) - (49)
-- ----- -- -- -- -----
BALANCE AT DECEMBER 31, 1996 1 1,261 - - 10 1,272
Shares reacquired - (122) - - - (122)
Shares issued - 17 - - - 17
Recapitalization of Class H Common Stock - - 10 - (10) -
-- ----- -- -- -- -----
BALANCE AT DECEMBER 31, 1997 $ 1 $1,156 $10 $- $- $1,167
== ===== == == == =====
(a) The following describes the Corporation's preference stocks (in millions
except par value, stated value, and per share amounts):
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, 1997, 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; outstanding at
December 31, 1997, 3 shares equivalent to .75 shares of Series D
7.92% Preference Stock (see Note 17).
- Series G 9.12% Depositary Shares, stated value $25 per share, redeemable
at Corporation option on or after January 1, 2001; outstanding at
December 31, 1997, 5 shares, equivalent to 1.25 shares of Series G
9.12% Preference Stock (see Note 17).
(b) Subsequent to its recapitalization on December 17, 1997.
(c) Prior to its recapitalization on December 17, 1997.
Common Stocks
In connection with the consummation of the Hughes Transactions (Note 22),
each share of Class H common stock was recapitalized into a share of Class H
common stock linked to the telecommunications and space businesses of Hughes.
The voting and liquidation rights of the recapitalized Class H common stock
were to be the greater of 0.5 or a number (rounded to the nearest one-tenth)
which reflected the relative market value of the recapitalized Class H common
stock compared to the market value of $1-2/3 par value common stock, determined
based on the average trading prices of such stocks during a 20-trading day
period that started on the eleventh trading day following the consummation of
the Hughes Transactions (The Trading Period). See Stockholders' Equity -
Subsequent Events for additional information. The voting and liquidation
rights of $1-2/3 par value common stock continue to be one vote per share and
one liquidation unit per share as it was prior to the Hughes Transactions.
The liquidation rights of the $1-2/3 par value and Class H common stocks
are subject to certain adjustments if outstanding common stock is subdivided,
by stock split or otherwise, or if shares of one class of common stock are
issued as a dividend to holders of another class of common stock. Holders of
Class H common stock have no direct rights in the equity or assets of Hughes,
but rather have rights in the equity and assets of GM (which includes 100% of
the stock of Hughes).
The outstanding shares of Class H common stock may be recapitalized as
shares of $1-2/3 par value common stock at any time after December 31, 2002, at
the sole discretion of the GM Board of Directors (GM Board), or automatically,
if at any time the Corporation should sell, liquidate, or otherwise dispose of
II-27
42
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 18. STOCKHOLDERS' EQUITY (CONTINUED)
Common Stocks (concluded)
80% or more of the business of Hughes, based on fair market value of the
assets, both tangible and intangible, of Hughes as of the date that such
proposed transaction is approved by the GM Board. In the event of any
recapitalization, all outstanding shares of 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, on such date. A
recapitalization of the type described in the prior sentence would occur if any
of the triggering events took place unless the holders of GM common stock
(including the holders of $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 the GM Board.
Common Stock Repurchases
During 1997, GM used $3.8 billion to acquire 63.5 million shares of $1-2/3
par value common stock, which completed the $2.5 billion stock repurchase
program announced in January 1997 and represented 50 percent of the
Corporation's second $2.5 billion stock repurchase program announced in August
1997. GM also used approximately $600 million to repurchase shares of $1-2/3
par value common stock for certain employee benefit plans. See Stockholders'
Equity - Subsequent Events for additional information.
Preference Stocks
During 1996, 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.
During 1995, the Corporation concluded a tender offer, 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 purchase price in excess of the carrying amount of the
preference shares amounted to $153 million.
Other Comprehensive Income
During 1997, GM adopted SFAS No. 130, Reporting Comprehensive Income,
which established standards for reporting and displaying comprehensive income
and its components in a financial statement that is displayed with the same
prominence as other financial statements. The changes in the components of
other comprehensive income (loss) are reported net of income taxes, as follows
(in millions):
Years Ended December 31,
--------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ------------------------- -----------------------------
Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net
Amount (Credit) Amount Amount (Credit) Amount Amount (Credit) Amount
-------- -------- -------- ------- -------- ------ ------- --------- ------
Foreign currency translation
adjustments $(1,274) $(499) $(775) $(614) $(278) $(336) $548 $225 $323
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) 272 114 158 (15) (8) (7) 474 167 307
Reclassification adjustment (118) (41) (77) (96) (33) (63) (89) (31) (58)
--- -- -- -- -- ----- -- -- --
Net unrealized gain (loss) 154 73 81 (111) (41) (70) 385 136 249
--- --- -- --- -- ----- --- --- -----
Minimum pension liability adjustment (906) (334) (572) 2,013 767 1,246 (1,900) (712) (1,188)
--- ---- --- ----- --- ----- ----- --- -----
Other comprehensive (loss) income $(2,026) $(760) $(1,266) $1,288 $448 $840 $(967) $(351) $(616)
===== === ===== ===== === === === === ===
Stockholders' Equity - Subsequent Events (Unaudited)
Common Stock Repurchases
In February 1998, the GM Board of Directors approved a $4 billion stock
repurchase program. The stock repurchases are expected to be made over a
12-month period principally through open market transactions and represent
about 10 percent of the outstanding shares of $1-2/3 par value common stock,
based on the NYSE's closing price on Friday, February 6, 1998, of $60.56 per
share. The new stock repurchase program began in mid-March, upon the
completion of GM's second $2.5 billion stock repurchase program. Upon
completion of the $4 billion stock repurchase program, GM's stock repurchases
since January 1997 will total $9 billion.
II-28
43
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 18. STOCKHOLDERS' EQUITY (CONCLUDED)
Stockholders' Equity - Subsequent Events (Unaudited) (concluded)
Voting and Liquidation Rights for Recapitalized Class H Common Stock
The Trading Period for the recapitalized Class H common stock ended
February 2, 1998 and the voting and liquidation rights were set at 0.6 votes
per share and 0.6 liquidation units per share compared to 0.5 votes per share
and 0.5 liquidation units per share prior to the recapitalization of the Class
H common stock.
NOTE 19. EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS
Earnings per share attributable to each class of GM common stock was
determined based on the attribution of earnings to each such class of common
stock for the period divided by the weighted-average number of common shares
for each such class outstanding during the period. Diluted earnings per share
attributable to each class of GM common stock considers the impact of potential
common shares, unless the inclusion of the potential common shares would have
an antidilutive effect.
The assumed exercise of stock options has no effect on Class H common
stock earnings per share, because to the extent that shares of Class H common
stock deemed to be outstanding would increase, such increased shares would also
increase the numerator of the fraction used to determine Available Separate
Consolidated Net Income (ASCNI).
The attribution of earnings to each class of common stock was as follows
(in millions):
Years Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
Earnings attributable to common stocks
$1-2/3 par value
Continuing operations $6,276 $4,589 $5,404
Discontinued operations - (5) 105
Cumulative effect of accounting change - - (52)
----- ----- -----
Earnings attributable to $1-2/3 par value $6,276 $4,584 $5,457
===== ===== =====
Income from discontinued operations attributable to Class E $- $15 $795
-- -- ---
Earnings attributable to Class H (prior to its
recapitalization on December 17, 1997) (Note 22) $322 $283 $265
--- --- ---
Earnings attributable to Class H (subsequent to its
recapitalization on December 17, 1997) (Note 22) $2 $- $-
-- -- --
Earnings attributable to $1-2/3 par value common stock for the period
represent the earnings attributable to all GM common stocks for the period,
reduced by the ASCNI of EDS (Note 1), former Hughes, and Hughes for the period
(Note 22).
During the period that EDS was an indirect wholly-owned subsidiary of the
Corporation, the earnings attributable to Class E common stock for the period
represented the ASCNI of EDS for the period. 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 weighted-average
number of shares of Class E common stock outstanding for 1996 reflects shares
outstanding through June 30, 1996.
Earnings attributable to Class H common stock for the period prior to the
December 17, 1997 recapitalization of Class H common stock represented the
ASCNI of former Hughes. The ASCNI of former Hughes was determined quarterly in
amounts equal to the separate consolidated net income of former Hughes for each
respective quarter, excluding the effects of purchase accounting adjustments
arising at the time of the Corporation's acquisition of HAC, calculated for
such period and multiplied by a fraction, the numerator of which was a number
equal to the weighted-average number of shares of Class H common stock
outstanding during the quarter (103 million, 99 million, and 97 million in the
fourth quarter of 1997, 1996, and 1995, respectively) and the denominator of
which was 400 million during the fourth quarters of 1997, 1996, and 1995.
II-29
44
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 19. EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS (CONTINUED)
Earnings attributable to Class H common stock for the period subsequent to
the recapitalization of Class H common stock represent the ASCNI of Hughes for
the period December 18, 1997 through December 31, 1997, excluding the effects
of purchase accounting adjustments arising at the time of the Corporation's
acquisition of HAC, calculated for such period and multiplied by a fraction,
the numerator of which was a number equal to the weighted-average number of
shares of Class H common stock outstanding during the period (104 million) and
the denominator of which was 400 million.
The denominators used in determining the ASCNI of EDS and former Hughes
were adjusted from time-to-time as deemed appropriate by the GM Board to
reflect subdivisions or combinations of the Class E common stock and Class H
common stock, respectively, and to reflect certain transfers of capital to or
from EDS and former Hughes, respectively. The denominator used in determining
the ASCNI of Hughes may be adjusted from time-to-time as deemed appropriate by
the GM Board 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.
II-30
45
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 19. EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS (CONCLUDED)
The reconciliation of the amounts used in the basic and diluted
earnings per share computations for income from continuing operations
was as follows (in millions except per share amounts):
Class H Common Stock -
Prior to its recapitalization
$1-2/3 Par Value Common Stock on December 17,1997
----------------------------- -----------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------ ---------- ------ ------ ----------
YEAR ENDED DECEMBER 31, 1997
Income from continuing operations $6,374 $322
Less:Premium on exchange of preference
stocks 26 -
Dividends on preference stocks 72 -
-----
BASIC EPS
Income from continuing operations
available to common stockholders 6,276 721 $8.70 322 101 $3.17
---- ----
EFFECT OF DILUTIVE SECURITIES
Assumed exercise of dilutive stock options (11) 6 11 4
----- --- --- ---
DILUTED EPS
Adjusted income from continuing operations
available to common stockholders $6,265 727 $8.62 $333 105 $3.17
===== === ---- === === ----
YEAR ENDED DECEMBER 31, 1996
Income from continuing operations $4,670 $283
Less: Dividends on preference stocks 81 -
----- ---
BASIC EPS
Income from continuing operations
available to common stockholders 4,589 756 $6.07 283 98 $2.88
---- ----
EFFECT OF DILUTIVE SECURITIES
Assumed exercise of dilutive stock options (9) 4 9 3
----- --- ---- --
DILUTED EPS
Adjusted income from continuing operations
available to common stockholders $4,580 760 $6.03 $292 101 $2.88
===== === ---- === --- ----
YEAR ENDED DECEMBER 31, 1995
Income from continuing operations $5,768 $265
Less: Preference stocks tender offer premium 153 -
Dividends on preference stocks 211 -
----- ---
BASIC EPS
Income from continuing operations before
cumulative effect of accounting change
available to common stockholders 5,404 750 $7.21 265 96 $2.77
---- ----
EFFECT OF DILUTIVE SECURITIES
Assumed exercise of dilutive stock options (9) 6 9 3
----- --- --- --
DILUTED EPS
Adjusted income from continuing operations
before cumulative effect of accounting change
available to common stockholders $5,395 756 $7.14 $274 99 $2.77
===== === ---- === ==
Class H Common Stock -
Subsequent to its recapitalization
on December 17, 1997
-----------------------------------
Per Share
Income Shares Amount
------- ------ ---------
YEAR ENDED DECEMBER 31, 1997
Income from continuing operations $2
Less:Premium on exchange of preference
stocks -
Dividends on preference stocks -
BASIC EPS
Income from continuing operations
available to common stockholders 2 104 $0.02
----
EFFECT OF DILUTIVE SECURITIES
Assumed exercise of dilutive stock options - 3
-- ---
DILUTED EPS
Adjusted income from continuing operations
available to common stockholders $2 107 $0.02
== === ----
YEAR ENDED DECEMBER 31, 1996
Income from continuing operations
Less: Dividends on preference stocks
BASIC EPS
Income from continuing operations
available to common stockholders
EFFECT OF DILUTIVE SECURITIES
Assumed exercise of dilutive stock options
DILUTED EPS
Adjusted income from continuing operations
available to common stockholders
YEAR ENDED DECEMBER 31, 1995
Income from continuing operations
Less: Preference stocks tender offer premium
Dividends on preference stocks
BASIC EPS
Income from continuing operations before
cumulative effect of accounting change
available to common stockholders
EFFECT OF DILUTIVE SECURITIES
Assumed exercise of dilutive stock options
DILUTED EPS
Adjusted income from continuing operations
before cumulative effect of accounting change
available to common stockholders
II-31
46
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 20. DIVIDENDS ON COMMON STOCK
In connection with the consummation of the Hughes Transactions (Note 22),
the GM Board determined that the amount available for the payment of dividends
on outstanding shares of $1-2/3 par value common stock would be the cumulative
amount available for the payment of dividends on $1-2/3 par value common stock
immediately prior to the closing of the Hughes Transactions, reduced by a pro
rata portion of the net reduction in GM's total stockholders' equity resulting
from the Hughes Transactions. In addition, the GM Board determined that the
amount initially available for the payment of dividends on shares of Class H
common stock would be the cumulative amount available for the payment of
dividends on Class H common stock immediately prior to the closing of the
Hughes Transactions, reduced by a pro rata portion of the net reduction in GM's
total stockholders' equity resulting from the Hughes Transactions. The pro
rata allocation of the net reduction in GM's total stockholders' equity
resulting from the Hughes Transactions was based on the fraction used in
determining the ASCNI of former Hughes immediately prior to the consummation of
the Hughes Transactions.
Dividends may be paid on $1-2/3 par value common stock to the extent of
the amount determined to be available for the payment of dividends on $1-2/3
common stock in connection with the consummation of the Hughes Transactions,
plus all of the earnings of GM after the consummation of the Hughes
Transactions, other than the earnings attributed to the Class H common stock.
Dividends may be paid on Class H common stock to the extent of the amount
initially determined to be available for the payment of dividends on Class H
common stock, plus the portion of earnings of GM after the closing of the
Hughes Transactions attributed to Class H common stock. The amount available
for the payment of dividends on each class of common stock will be reduced from
time-to-time by dividends paid on that class and will be adjusted from
time-to-time for changes to the amount of surplus attributed to the class
resulting from the repurchase or issuance of shares of that class.
As of December 31, 1997, the amount available for the payment of dividends
on $1-2/3 par value and Class H common stock was $17.1 billion and $3.7
billion, respectively. 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 GM Board
does not currently intend to pay cash dividends on the Class H common stock,
which was recapitalized on December 17, 1997 as part of the Hughes
Transactions.
Cash dividends per share of $1-2/3 par value common stock were $2.00,
$1.60, and $1.10 for 1997, 1996, and 1995, respectively. Cash dividends per
share of Class E common stock were $0.30 and $0.52 in 1996 and 1995,
respectively. Cash dividends per share for Class H common stock, prior to its
recapitalization on December 17, 1997, were $1.00, $0.96, and $0.92 in 1997,
1996, and 1995, respectively.
NOTE 21. STOCK INCENTIVE PLANS
Stock-Based Compensation
GM previously 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.
If compensation cost for stock options and other stock-based employee
compensation awards had been determined based on the fair value at the grant
date, consistent with the method prescribed by SFAS No. 123, GM's pro forma net
income, earnings attributable to common stocks, and basic and diluted earnings
per share attributable to common stocks would have been as follows: (in
millions except per share amounts):
1997 1996 1995
------ ------ ------
Net income - as reported $6,698 $4,963 $6,881
- Pro forma $6,558 $4,904 $6,842
Earnings attributable to common stocks
$1-2/3 - as reported $6,276 $4,584 $5,457
- Pro forma $6,147 $4,528 $5,418
Class H (prior to recapitalization)
- as reported $322 $283 $265
- Pro forma $315 $280 $264
Class H (subsequent to recapitalization)
- as reported $2 $- $-
- Pro forma $(2) $- $-
II-32
47
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 21. STOCK INCENTIVE PLANS (CONTINUED)
1997 1996 1995
---- ---- ----
Basic earnings per share attributable to
common stocks
$1-2/3 - as reported $8.70 $6.06 $7.28
- Pro forma $8.52 $5.98 $7.23
Class H (prior to recapitalization)
- as reported $3.17 $2.88 $2.77
- Pro forma $3.10 $2.85 $2.76
Class H (subsequent to recapitalization)
- as reported $0.02 $- $-
- Pro forma ($0.02) $- $-
Diluted earnings per share attributable to
common stocks
$1-2/3 - as reported $8.62 $6.02 $7.21
- Pro forma $8.44 $5.94 $7.16
Class H (prior to recapitalization)
- as reported $3.17 $2.88 $2.77
- Pro forma $3.10 $2.85 $2.76
Class H (subsequent to recapitalization)
- as reported $0.02 $- $-
- Pro forma ($0.02) $- $-
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option- pricing model with the following weighted-average
assumptions:
1997 1996 1995
--------------- --------------- ----------------
GMSIP Class H GMSIP Class H GMSIP Class H
----- ------- ----- ------- ----- -------
Interest rate 6.2% 6.8% 5.3% 6.6% 7.8% 7.0%
Expected life (years) 5.0 7.0 5.8 7.0 5.8 7.0
Expected volatility 26.3% 20.7% 27.3% 20.6% 31.4% 20.0%
Dividend yield 3.4% 2.1% 3.1% 1.6% 3.7% 2.3%
The effect of the Hughes Transactions adjustment on the number of options
and related exercise prices, as described below, is considered, under SFAS No.
123, a modification of the terms of the outstanding options. Accordingly, the
1997 pro forma disclosure includes compensation cost for the incremental fair
value, under SFAS No. 123, resulting from such modification. The pro forma
amounts for compensation cost are not indicative of the effects on operating
results for future periods.
GM's stock incentive plans consist of the General Motors 1997 Stock
Incentive Plan, formerly the General Motors Amended 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
GM Board. The Hughes Plan is administered by the Executive Compensation
Committee of the Board of Directors of Hughes.
Under the GMSIP, 60 million shares of $1-2/3 par value and 2.5 million
shares of Class H common stocks may be granted from June 1, 1997 through May 31,
2002 substantially all of which were available for grants at December 31, 1997.
Options granted prior to 1997 under the GMSIP generally are exercisable one-half
after one year and one-half after two years from the dates of grant. Stock
option grants awarded during 1997 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 25.8 million shares of Class H common stock through December 31,
1997, none of which were available for grant at December 31, 1997. Option prices
are 100% of fair market value on the dates of grant and the options generally
vest over two to four years and expire 10 years from the dates of grant, subject
to earlier termination under certain conditions.
II-33
48
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 21. STOCK INCENTIVE PLANS (CONCLUDED)
In connection with the Hughes Transactions (Note 22), the number of options
and related exercise prices for outstanding options under the GMSIP and Hughes
Plan were adjusted to reflect the change in the fair market value of $1-2/3 par
value and Class H common stocks that resulted from the Hughes Defense Class A
common stock distribution. The number of shares under option and the exercise
price were adjusted such that the aggregate intrinsic value of the options
immediately before and immediately after the transaction remained unchanged.
Changes in the status of outstanding options were as follows:
GMSIP Hughes Plan
$1-2/3 Par Value Common Class H Common
------------------------------------------------------------------------
Shares under Weighted- Average Shares under Weighted-
Option Exercise Price Option Average Exercise
Price
------------------------------------------------------------------------
Options outstanding at
January 1, 1995 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
--------------------------------------------------------------------------------------------------------
Granted 8,989,460 $58.81 5,750,600 $54.90
Exercised 9,273,674 $42.95 2,158,728 $30.21
Terminated 330,727 $57.05 2,694,982 $42.56
Hughes Transactions
adjustment 3,023,651 5,897,936
--------------------------------------------------------------------------------------------------------
Options outstanding at
December 31, 1997 32,366,657 $51.40 13,961,615 $29.08
--------------------------------------------------------------------------------------------------------
Options exercisable at
December 31, 1997 19,191,431 $44.13 3,603,063 $20.98
--------------------------------------------------------------------------------------------------------
The following table summarizes information about GMSIP and Hughes Plan
stock options outstanding at December 31, 1997:
--------------------------------------------------------------------------------------------------------------
Weighted-Average
Range of Options Remaining Weighted-Avg. Options Weighted-Average
Exercise Prices Outstanding Contractual Life (yrs.) Exercise Price Exercisable Exercise Price
--------------------------------------------------------------------------------------------------------------
GMSIP $1-2/3
Par Value
Common
$15.00 to $39.99 9,347,476 5.5 $36.59 9,347,476 $36.59
40.00 to 49.99 7,885,925 7.4 $47.67 4,339,013 $47.26
50.00 to 65.00 15,133,256 8.0 $54.08 5,504,942 $54.45
--------------------------------------------------------------------------------------------------------------
$15.00 to $65.00 32,366,657 7.1 $51.40 19,191,431 $44.13
Hughes Plan
Class H
Common
$9.00 to $15.99 787,450 4.2 $13.66 787,450 $13.66
16.00 to 29.99 2,315,562 6.3 $20.35 2,315,562 $20.35
30.00 to 40.00 10,858,603 8.9 $32.06 500,051 $35.41
--------------------------------------------------------------------------------------------------------------
$9.00 to $40.00 13,961,615 8.2 $29.08 3,603,063 $20.98
II-34
49
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 22. HUGHES BUSINESS MATTERS
Hughes Transactions
On December 17, 1997, GM and former Hughes completed a series of related
transactions (Hughes Transactions) that were designed to address strategic
challenges facing the three principal businesses of former Hughes and unlock
stockholder value in GM. The Hughes Transactions included the tax-free spin-off
of the defense electronics business of former Hughes (Hughes Defense) to holders
of $1-2/3 par value and Class H common stocks, which was then followed
immediately by the merger of Hughes Defense with Raytheon Company (Raytheon).
Concurrently, Delco, the automotive electronics subsidiary of former Hughes, was
transferred from former Hughes to GM's Delphi Automotive Systems unit. Finally,
Class H common stock was recapitalized into a GM tracking stock, Class H common
stock, that is linked to the telecommunications and space businesses of Hughes.
The spin-off of Hughes Defense and merger with Raytheon had a total value
to GM and its stockholders of approximately $9.8 billion that consisted of
approximately $4.0 billion cash retained by Hughes from debt proceeds incurred
by Hughes Defense prior to its spin-off and $5.8 billion of Hughes Defense Class
A common stock distributed to holders of $1-2/3 par value and Class H common
stock. Substantially all of the proceeds from the debt obligation of Hughes
Defense were made available to Hughes. The distribution of Hughes Defense to the
$1-2/3 par value and Class H common stockholders was recorded by GM at fair
value and resulted in the recognition of a $4.3 billion gain that was included
in other income. In addition, GM's total stockholders' equity was reduced by
approximately $1.5 billion as a result of the Hughes Transactions.
GM distributed a total of 102,630,503 shares of Class A common stock of
Hughes Defense, 44,308,316 shares or 43.2% to $1-2/3 par value stockholders and
58,322,187 shares or 56.8% to Class H stockholders, which represented
approximately 30% of the total equity of the newly combined Hughes
Defense/Raytheon Company. The distribution to Class H common stockholders, which
had a total value of approximately $3.3 billion, accounted for their tracking
stock interest in Hughes Defense valued at approximately $1.5 billion, plus an
additional amount to compensate them for the elimination of their tracking stock
interest in Delco and other factors valued at approximately $1.8 billion.
The following table summarizes the 1997 operating results of Hughes for
the period prior to and subsequent to the completion of the Hughes Transactions
(in millions):
January 1 to December 18 to
December 17(1) December 31(2) Total
----------- ----------- -----
Total revenues $17,392 $334 $17,726
Total costs and expenses 15,686 318 16,004
Income taxes 595 6 601
Minority interests 41 (3) 38
------ - ------
Net earnings $ 1,152 $7 $1,159
====== = =====
Earnings used for
computation of ASCNI (3) $ 1,268 $8 $1,276
------ - -----
- ----------------
(1) Amounts include the results of Hughes Defense, Delco, and the
telecommunications and space businesses.
(2) Amounts include the results of the telecommunications and space businesses
only.
(3) Excludes amortization of purchase accounting adjustments associated with
GM's purchase of Hughes Aircraft Company of approximately $117 million
through December 17 and $1 million from December 18 to December 31.
Merger of Satellite Service Operations
In May 1997, former Hughes and PAS completed the merger of their respective
satellite service operations into a new publicly-held company. Former Hughes
contributed its Galaxy(R) satellite services business in exchange for a 71.5%
interest in the new company. Existing PAS stockholders received a 28.5%
interest in the new company and $1.5 billion in cash.
For accounting purposes, the merger was treated by former Hughes as an
acquisition of 71.5% of PAS and was accounted for using the purchase method.
Accordingly, the purchase price was allocated to the net assets acquired,
including intangible assets, based on estimated fair values at date of
acquisition. In addition, the merger was treated as a partial sale of the Galaxy
business by former Hughes and resulted in a one-time pre-tax gain of $490
million ($318 million after-tax or $0.33 per share of $1-2/3 par value common
stock and $0.80 per share of Class H common stock).
II-35
50
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 23. OTHER INCOME AND OTHER DEDUCTIONS
Other income and other deductions included the following (in millions):
Years Ended December 31,
-----------------------------
1997 1996 1995
-------- ------ ------
Other income
Interest income $ 2,127 $ 1,679 $ 1,586
Gain on Hughes Defense spin-off (Note 22) 4,269 -- --
Gain on PAS merger (Note 22) 490 -- --
Insurance premiums 1,161 947 867
Mortgage operations investment income 796 432 323
Mortgage servicing and processing fees 729 489 375
Claims and commissions 584 670 604
Income from sales of receivables programs 571 625 744
Other 1,002 1,156 425
------ ------ ------
Total other income $11,729 $ 5,998 $ 4,924
====== ====== ======
Other deductions
Insurance losses and loss adjustment expenses $ 747 $ 622 $ 621
Provision for financing losses 523 669 449
Other 241 792 608
------ ------ ------
Total other deductions $ 1,511 $ 2,083 $ 1,678
====== ====== ======
NOTE 24: SEGMENT REPORTING
GM adopted SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, during the fourth quarter of 1997. SFAS No. 131 established
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services, and geographic areas. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. GM's chief operating decision making
group is the President's Council, which is comprised of the Chairman, Vice
Chairman and the lead executives of each of GM's operating segments. The lead
executive for each operating segment is also a member of a Strategy Board that
manages the profitability and cash flow of each respective segment's various
product lines and businesses. The operating segments are managed separately
because each operating segment represents a strategic business unit that offers
different products and serves different markets.
GM's reportable operating segments include GM-NAO, Delphi, GMIO, GMAC,
former Hughes, and Hughes. GM-NAO designs, manufactures, and markets vehicles
primarily in North America under the following nameplates: Chevrolet, Pontiac,
GMC, Oldsmobile, Buick, Cadillac, and Saturn. Delphi is a diverse supplier of
automotive systems and components. Delphi offers products and services in the
areas of chassis, interior, lighting, electronics, power and signal
distribution, energy and engine management, steering, and thermal systems. GMIO
meets the demands of customers outside North America with vehicles designed,
manufactured, and marketed under the following nameplates: Opel, Vauxhall,
Holden, Isuzu, Saab, Chevrolet, GMC, and Cadillac. GMAC provides a broad range
of financial services, including consumer vehicle financing, full-service
leasing and fleet leasing, dealer financing, car and truck extended service
contracts, residential and commercial mortgage services, and vehicle and
homeowners insurance. Former Hughes and Hughes includes activities relating to
designing, manufacturing, and marketing advanced technology electronic systems,
products, and services for the telecommunications and space, automotive
electronic, and aerospace and defense industries (see Note 22). The Other
segment includes the design, manufacturing and marketing of locomotives and
heavy-duty transmissions and the elimination of intersegment transactions.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
disaggregated financial results for GM's automotive operating segments (GM-NAO,
Delphi and GMIO) have been prepared using a management approach, which is
consistent with the basis and manner in which GM management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. GM evaluates performance based on stand alone
operating segment net income and generally accounts for intersegment sales and
transfers as if the sales or transfers were to third parties, that is, at
current market prices. Revenues are attributed to geographic areas based on the
location of the assets producing the revenues.
II-36
51
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 24: SEGMENT REPORTING (CONTINUED)
OPERATING SEGMENTS(A):
GM-NAO Delphi(b) GMIO GMAC Hughes(c) Other(d) Total
------ ------ ---- ---- ------ ----- -----
1997 (in millions)
Net sales and revenues from
external customers $ 99,435 $ 5,021 $ 34,686 $ -- $ 12,171 $ 2,468 $ 153,781
Intersegment net sales
and revenues 821 21,295 973 -- 5,013 (28,102) --
-------- -------- -------- -------- -------- -------- --------
Total net sales and revenues $ 100,256 $ 26,316 $ 35,659 $ -- $ 17,184 $ (25,634) $ 153,781
======== ======== ======== ======== ======== ======== ========
Depreciation and
amortization (e) $ 7,116 $ 1,750 $ 2,106 $ -- $ 683 $ 148 $ 11,803
Interest income $ 593 $ 261 $ 726 $ -- $ 106 $ (549) $ 1,137
Interest expense $ 690 $ 230 $ 535 $ -- $ 88 $ (572) $ 971
Income tax (credit) expense $ (357) $ (83) $ 136 $ -- $ 601 $ (142) $ 155
Earnings (losses) of
nonconsolidated affiliates $ (35) $ 15 $ 13 $ 1,301 $ (60) $ 6 $ 1,240
Net (loss) income (e) $ (86) $ (60) $ 481 $ 1,301 $ 1,276 $ 3,786 $ 6,698
Investments in nonconsolidated
affiliates $ 559 $ 330 $ 1,077 $ -- $ 98 $ 8,100 $ 10,164
Segment assets $ 67,253 $ 23,671 $ 24,837 $ -- $ 12,316 $ 4,606 $ 132,683
Expenditures for property (f) $ 5,387 $ 1,262 $ 2,448 $ -- $ 547 $ 157 $ 9,801
1996
Net sales and revenues from
external customers $ 92,659 $ 4,793 $ 34,930 $ -- $ 10,661 $ 2,384 $ 145,427
Intersegment net sales
and revenues 723 21,209 321 -- 5,083 (27,336) --
-------- -------- -------- -------- -------- -------- --------
Total net sales and revenues $ 93,382 $ 26,002 $ 35,251 $ -- $ 15,744 $ (24,952) $ 145,427
======== ======== ======== ======== ======== ======== ========
Depreciation and
amortization (e) $ 4,348 $ 567 $ 1,486 $ -- $ 560 $ 184 $ 7,145
Interest income $ 380 $ 212 $ 776 $ -- $ 66 $ (384) $ 1,050
Interest expense $ 563 $ 218 $ 566 $ -- $ 11 $ (499) $ 859
Income tax (credit) expense $ (85) $ 134 $ 307 $ -- $ 606 $ (77) $ 885
Earnings (losses) of
nonconsolidated affiliates $ 37 $ 47 $ 52 $ 1,240 $ (25) $ 18 $ 1,369
Net income (loss) (e) $ 730 $ 526 $ 1,532 $ 1,240 $ 1,151 $ (216) $ 4,963
Investments in nonconsolidated
affiliates $ 481 $ 254 $ 1,218 $ -- $ 124 $ 7,778 $ 9,855
Segment assets $ 63,527 $ 21,244 $ 25,476 $ -- $ 13,757 $ 11,258 $ 135,262
Expenditures for property (f) $ 5,177 $ 981 $ 2,669 $ -- $ 652 $ 127 $ 9,606
1995
Net sales and revenues from
external customers $ 95,714 $ 4,509 $ 32,112 $ -- $ 9,529 $ 1,890 $ 143,754
Intersegment net sales
and revenues 222 21,917 -- -- 5,186 (27,325) --
-------- -------- -------- -------- -------- -------- --------
Total net sales and revenues $ 95,936 $ 26,426 $ 32,112 $ -- $ 14,715 $ (25,435) $ 143,754
======== ======== ======== ======== ======== ======== ========
Depreciation and
amortization (e) $ 4,042 $ 622 $ 1,364 $ -- $ 488 $ 271 $ 6,787
Interest income $ 471 $ 125 $ 863 $ -- $ 94 $ (425) $ 1,128
Interest expense $ 311 $ 103 $ 444 $ -- $ 8 $ (522) $ 344
Income tax expense (credit) $ 569 $ 377 $ 162 $ -- $ 646 $ (191) $ 1,563
Earnings (losses) of
nonconsolidated affiliates $ 22 $ 42 $ 205 $ 1,031 $ (9) $ 21 $ 1,312
Cumulative effect of
accounting change $ (52) $ -- $ -- $ -- $ -- $ -- $ (52)
Net income (e) $ 1,472 $ 916 $ 1,644 $ 1,031 $ 1,108 $ 710 $ 6,881
Investments in nonconsolidated
affiliates $ 275 $ 244 $ 1,687 $ -- $ 121 $ 7,656 $ 9,983
Segment assets $ 61,465 $ 19,261 $ 22,829 $ -- $ 13,129 $ 13,960 $ 130,644
Expenditures for property (f) $ 5,128 $ 885 $ 2,086 $ -- $ 546 $ 8 $ 8,653
II-37
52
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 24: SEGMENT REPORTING (CONTINUED)
- ------------------
(a) Calculated with financing and insurance operations on an equity basis which
is the basis upon which such operations are evaluated.
(b) Includes Delco's assets as of December 31, 1997 and operating results for
the period December 18, 1997 through December 31, 1997 (see Note 22).
(c) Represents Hughes as of December 31, 1997 and includes the combined
operating results for former Hughes for the period of January 1, 1997 to
December 17, 1997 and Hughes for the period of December 18, 1997 to
December 31, 1997 (see Note 22).
(d) Other includes the $4.3 billion gain resulting from the Hughes Transactions
for the year ended December 31, 1997, income from discontinued operations
of $10 million and $900 million for the years ended December 31, 1996 and
1995, respectively, and net assets of discontinued operations of $5.1
billion at December 31, 1995.
(e) The amount reported for Hughes excludes amortization of GM purchase
accounting adjustments of approximately $118 million, $122 million, and
$160 million, for 1997, 1996, and 1995, respectively, related to GM's
acquisition of Hughes Aircraft Company. Such amortization was allocated to
GM's Other segment which is consistent with the basis upon which the
segments are evaluated.
(f) Excludes expenditures related to telecommunications and other equipment
amounting to $575 million, $188 million, and $275 million in 1997, 1996,
and 1995, respectively.
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is as follows (in
millions):
1997 1996 1995
---- ---- ----
NET SALES AND REVENUES
Total revenues for reportable segments $ 153,781 $ 145,427 $ 143,754
GMAC revenues 12,577 12,644 11,664
Other financial services revenues 185 30 --
Other income 11,729 5,998 4,924
Eliminations (98) (86) (88)
-------- -------- --------
Total consolidated net sales and revenues $ 178,174 $ 164,013 $ 160,254
======== ======== ========
ASSETS
Total assets for reportable segments $ 132,683 $ 135,262 $ 130,644
GMAC assets 109,319 98,578 95,648
Eliminations and other (13,114) (11,698) (12,629)
-------- -------- --------
Total consolidated assets $ 228,888 $ 222,142 $ 213,663
======== ======== ========
Segment Eliminations Consolidated
OTHER SIGNIFICANT ITEMS Total GMAC and Other Total
----- ---- --------- -----
1997
Depreciation and amortization $11,803 $ 4,746 $ 67 $16,616
Interest income $ 1,137 $ 1,127 $ (137) $ 2,127
Interest expense $ 971 $ 5,256 $ (114) $ 6,113
Income taxes $ 155 $ 913 $ 1 $ 1,069
Expenditures for property $ 9,801 $ 238 $ 281 $10,320
1996
Depreciation and amortization $ 7,145 $ 4,676 $ 19 $11,840
Interest income $ 1,050 $ 743 $ (114) $ 1,679
Interest expense $ 859 $ 4,938 $ (102) $ 5,695
Income taxes $ 885 $ 837 $ 1 $ 1,723
Expenditures for property $ 9,606 $ 121 $ 222 $ 9,949
1995
Depreciation and amortization $ 6,787 $ 4,427 $ (1) $11,213
Interest income $ 1,128 $ 643 $ (185) $ 1,586
Interest expense $ 344 $ 4,936 $ (98) $ 5,182
Income taxes $ 1,563 $ 752 $ 1 $ 2,316
Expenditures for property $ 8,653 $ 133 $ - $ 8,786
II-38
53
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
NOTE 24: SEGMENT REPORTING (CONCLUDED)
Information concerning principal geographic areas was as follows (in
millions):
1997 1996 1995
-------------------- ------------------- -------------------
Net Sales Net Sales Net Sales
& Net & Net & Net
Revenues Property Revenues Property Revenues Property
-------- -------- -------- -------- -------- --------
North America
United States $127,128 $ 20,778 $113,013 $ 22,821 $113,994 $ 21,542
Canada and Mexico 12,202 3,171 9,681 3,582 8,091 3,443
------- ------- ------- ------- ------- -------
Total North America 139,330 23,949 122,694 26,403 122,085 24,985
Europe
France 1,972 424 2,680 390 2,349 351
Germany 10,725 3,083 12,365 3,821 12,376 3,919
Spain 1,760 611 1,730 805 1,638 905
United Kingdom 5,409 1,183 5,063 1,103 4,926 917
Other 8,995 1,800 8,621 1,797 8,746 1,546
------- ------- ------- ------- ------- -------
Total Europe 28,861 7,101 30,459 7,916 30,035 7,638
Latin America
Brazil 5,462 1,964 5,117 1,910 4,136 1,682
Other Latin America 2,981 466 2,239 328 2,225 104
------- ------- ------- ------- ------- -------
Total Latin America 8,443 2,430 7,356 2,238 6,361 1,786
All Other 1,540 1,087 3,504 947 1,773 160
------- ------- ------- ------- ------- -------
Total $178,174 $ 34,567 $164,013 $ 37,504 $160,254 $ 34,569
======= ======= ======= ======= ======= =======
* * * * * *
II-39
54
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
SELECTED QUARTERLY DATA (UNAUDITED)
1997 Quarters
-----------------------------------------------------
1st(1)(2) 2nd(3)(4)(5) 3rd 4th(6)(7)
(Dollars in Millions Except Per Share Amounts)
Net sales and revenues $42,241 $45,146 $41,890 $48,897
------ ------ ------ ------
Income before income taxes and minority interests 2,766 3,233 1,596 119
Income tax expense (credit) 989 1,153 533 (1,606)(7)
Minority interests 19 18 4 12
------ ------ ------- -------
Net income 1,796 2,098 1,067 1,737
Premium on exchange of preference stocks - - 26 -
Dividends on preference stocks 20 20 16 16
------ ------ ------ -------
Earnings on common stocks $1,776 $2,078 $1,025 $1,721
===== ===== ===== =====
Earnings attributable to common stocks
Earnings attributable to $1-2/3 par value $1,717 $1,941 $964 $1,654
----- ----- --- -----
Earnings attributable to Class H (8) $59 $137 $61 $65
-- --- -- --
Earnings attributable to Class H (9) $ - $ - $ - $2
-- -- -- -
Basic earnings per share attributable to common stocks
Earnings attributable to $1-2/3 par value $2.30 $2.68 $1.35 $2.36
---- ---- ---- ----
Earnings attributable to Class H (8) $0.59 $1.35 $0.60 $0.63
---- ---- ---- ----
Earnings attributable to Class H (9) $ - $ - $ - $0.02
-- -- -- ----
Average number of shares of common stocks
outstanding - basic (in millions)
$1-2/3 par value 747 724 713 702
Class H (8) 100 101 102 103
Class H (9) - - - 104
Diluted earnings per share attributable to common stocks
Earnings attributable to $1-2/3 par value $2.28 $2.67 $1.34 $2.33
---- ---- ---- ----
Earnings attributable to Class H (8) $0.59 $1.35 $0.60 $0.63
---- ---- ---- ----
Earnings attributable to Class H (9) $ - $ - $ - $0.02
-- -- -- ----
Average number of shares of common stocks
outstanding - diluted (in millions)
$1-2/3 par value 752 729 720 709
Class H (8) 103 104 105 106
Class H (9) - - - 107
See notes on next page.
II-40
55
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - CONTINUED
SELECTED QUARTERLY DATA (UNAUDITED) - CONTINUED
1997 Quarters
------------------------------
1st 2nd 3rd 4th
--- --- --- ---
Cash dividends per share of common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Class H (8) $0.25 $0.25 $0.25 $0.25
Class H (9) $-- $-- $-- $--
Price range of common stocks
$1-2/3 par value (10): High $63.75 $59.88 $69.75 $72.44
Low $55.00 $55.00 $53.88 $58.31
Class H (8)(10): High $64.88 $60.25 $67.88 $68.94
Low $54.25 $49.00 $55.88 $61.00
Class H (9)(10): High $-- $-- $-- $40.00
Low $-- $-- $-- $35.75
- --------------
(1) First quarter 1997 results included a pre-tax gain of $88 million,
after deducting certain legal expenses ($55 million after-tax or $0.07
basic earnings per share of $1-2/3 par value common stock) that resulted
from an agreement with Volkswagen A.G. (VW) settling a civil lawsuit which
GM brought against VW.
(2) First quarter 1997 results included the unfavorable impact of a pre-tax
plant closing charge of $80 milion ($50 million after-tax or $0.07 basic
loss per share of $1-2/3 par value common stock) related to the
announcement that Delphi Interior and Lighting Systems will cease
production at its Trenton, New Jersey plant during the 1998 calendar year.
(3) Work stoppages in the United States during the second quarter of 1997
reduced calendar year pre-tax income by approximately $530 million ($330
million after-tax or $0.45 basic loss per share of $1-2/3 par value common
stock), after considering partial recovery of production losses from the
work stoppages.
(4) Second quarter 1997 results included a pre-tax gain of $490 million
($318 million after-tax or $0.33 basic earnings per share of $1-2/3 par
value common stock and $0.80 basic earnings per share of Class H common
stock) related to the merger of the satellite service operations of Hughes
and PanAmSat Corporation.
(5) Second quarter 1997 results included a pre-tax gain of $128 million
($103 million after-tax or $0.14 basic earnings per share of $1-2/3 par
value common stock) related to the sale of GM Europe's equity interest in
Avis Europe.
(6) Fourth quarter 1997 results included a tax-free gain of $4.3 billion
($6.08 basic earnings per share of $1-2/3 par value common stock) related
to the December 17, 1997 completion of the strategic restructuring of GM's
Hughes Electronics subsidiary (Hughes Transactions). The 1997 tax credit
primarily resulted from the effect of the tax-free status of the gain.
(7) Fourth quarter 1997 results included pre-tax charges against income
totaling $6.4 billion ($4 billion after-tax or $5.75 basic earnings per
share of $1-2/3 par value common stock) resulting from GM's competitiveness
studies.
(8) Represents information through December 17, 1997, the date on which GM
recapitalized the Class H common stock ("GM's Recapitalization Date").
(9) Represents information for the period from December 18, 1997, through
December 31, 1997 , which is subsequent to GM's Recapitalization Date.
(10) 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 and Philadelphia stock exchanges and on the Pacific
Exchange. As of December 31, 1997, there were 563,553 holders of record of
$1-2/3 par value common stock and 231,627 holders of record of Class H
common stock.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - CONTINUED
SELECTED QUARTERLY DATA (UNAUDITED) - CONTINUED
1996 Quarters
-----------------------------------------------
1st(1)(2) 2nd 3rd(3) 4th(1)(4)
--- --- --- ---
(Dollars in Millions Except Per Share Amounts)
Net sales and revenues $ 39,242 $ 44,780 $ 39,078 $ 40,913
------- ------- ------- -------
Income from continuing operations before
income taxes and minority interests $ 1,234 $ 3,202 $ 1,498 $ 686
Income tax expense (credit) 432 1,098 258 (65)(5)
Minority interests (2) (8) 31 35
------- ------- ------- -------
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) -- --
------- ------- ------- -------
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) $ -- $ --
------- ------- ------- -------
Earnings attributable to Class H $ 76 $ 75 $ 62 $ 70
------- ------- ------- -------
Basic 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) -- --
------- ------- ------- -------
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) $ -- $ --
------- ------- ------- -------
Earnings attributable to Class H $ 0.78 $ 0.77 $ 0.63 $ 0.70
------- ------- ------- -------
Average number of shares of common stocks
outstanding - basic (in millions)
$1-2/3 par value 755 756 756 756
Class E 463 479 -- --
Class H 97 98 99 99
Diluted earnings per share attributable to common stocks
$1-2/3 par value from continuing operations $ 0.92 $ 2.63 $ 1.56 $ 0.91
Income (loss) from discontinued operations 0.01 (0.02) -- --
------- ------- ------- -------
Earnings attributable to $1-2/3 par value $ 0.93 $ 2.61 $ 1.56 $ 0.91
======= ======= ======= =======
Income (loss) from discontinued operations
attributable to Class E $ 0.45 $ (0.41) $ -- $ --
------- ------- ------- -------
Earnings attributable to Class H $ 0.78 $ 0.77 $ 0.63 $ 0.70
------- ------- ------- -------
Average number of shares of common stocks
outstanding - diluted (in millions)
$1-2/3 par value 761 762 760 761
Class E 463 479 -- --
Class H 101 101 102 102
See notes on next page.
II-42
57
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - CONTINUED
SELECTED QUARTERLY DATA (UNAUDITED) - CONCLUDED
1996 Quarters
----------------------------
1st 2nd 3rd 4th
--- --- --- ---
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
(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-tax or $1.56 basic loss 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-tax or $0.91
basic loss per share of $1-2/3 par value common stock).
(2) First quarter 1996 results included a pre-tax gain of $120 million ($72
million after-tax or $0.07 basic earnings per share of $1-2/3 par value
common stock and $0.18 basic earnings per share of Class H common stock) on
the sale of 2.5% of DIRECTV(R) to AT&T.
(3 ) Third quarter 1996 included a favorable pre-tax plant closings reserve
adjustment of $409 million ($253 million after-tax or $0.34 basic earnings
per share of $1-2/3 par value common stock) associated with a 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 favorable pre-tax plant closings reserve adjustment of $318
million ($197 million after-tax or $0.26 basic earnings 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-tax or $0.21
basic loss 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, Michigan, and Oshawa and Windsor,
Canada, and GM-NAO's Oshawa die-management business.
(c) A pre-tax gain of $105 million ($65 million after-tax or $0.09
basic earnings 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-tax or
$0.22 basic loss per share of $1-2/3 par value common stock).
(5) The income tax credit in the fourth quarter of 1996 was primarily due
to research and experimentation credits in the United States, as well as
certain international tax credits and tax credits 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 and Philadelphia stock exchanges and on the Pacific
Exchange. 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 - CONCLUDED
SELECTED FINANCIAL DATA (UNAUDITED)
Years Ended December 31,
----------------------------------------------------------
1997(1) 1996(2) 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Millions Except Per Share Amounts)
Net sales and revenues $178,174 $164,013 $160,254 $148,467 $132,975
Income from continuing operations before
cumulative effect of accounting changes $6,698 $4,953 $6,033 $4,866 $1,777
Income from discontinued operations -- 10 900 793 689
Cumulative effect of accounting changes -- -- (52)(3) (758)(4) --
----- ------ ------ ----- -----
Net income $6,698 $4,963 $6,881 $4,901 $2,466
===== ===== ===== ===== =====
$1-2/3 par value common stock
Basic earnings per share (EPS) from
continuing operations $8.70 $6.07 $7.14(3) $4.76(4) $1.72
Basic earnings (loss) per share from
discontinued operations $-- $(0.01) $0.14 $0.46 $0.45
Diluted EPS from continuing operations $8.62 $6.03 $7.07 $4.69 $1.68
Diluted earnings (loss) per share from
discontinued operations $-- $(0.01) $0.14 $0.46 $0.45
Cash dividends declared per share $2.00 $ 1.60 $1.10 $0.80 $0.80
Class H common stock (prior to its
recapitalization on December 17, 1997)
Basic EPS from continuing operations $3.17 $2.88 $2.77 $2.62(4) $2.30
Diluted EPS from continuing operations $3.17 $2.88 $2.77 $2.62 $2.30
Cash dividends declared per share $1.00 $0.96 $0.92 $0.80 $0.72
Class H common stock (subsequent to its
recapitalization on December 17, 1997)
Basic EPS from continuing operations $0.02 $-- $-- $-- $--
Diluted EPS from continuing operations $0.02 $-- $-- $-- $--
Cash dividends declared per share $-- $-- $-- $-- $--
Class E common stock
Basic EPS from discontinued operations $-- $0.04 $1.96 $1.71 $1.51
Diluted EPS from discontinued operations $-- $0.04 $1.96 $1.71 $1.51
Cash dividends declared per share $-- $0.30 $0.52 $0.48 $0.40
Total assets $228,888 $222,142 $213,663 $191,145 $182,388
Long-term debt and capitalized leases (5) $5,676 $5,390 $4,280 $5,198 $5,861
GM-obligated mandatorily redeemable preferred
securities of subsidiary trusts $222 $-- $-- $-- $--
- ----------------------
(1) The 1997 results were affected by certain items which are described on
pages II-40 and II-41.
(2) The 1996 results were affected by certain items which are described on
pages II-42 and II-43.
(3) GM adopted the provisions of the EITF consensus on Issue No. 95-1,
effective January 1, 1995, which resulted in an unfavorable cumulative
effect of $52 million after-tax or $0.07 basic loss per share of $1-2/3 par
value common stock.
(4) GM 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 after-tax or $1.05 basic loss per
share of $1-2/3 par value common stock and $7 million after-tax or $0.08
basic earnings per share of Class H common stock.
(5) Calculated with financing and insurance operations on an equity basis.
* * * * * *
II-44
59
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations (MD&A) should be read in conjunction with the Hughes
Electronics Corporation consolidated financial statements and MD&A for the
period ended December 31, 1997, 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, 1997, filed separately with the Securities and Exchange Commission. Hughes
Electronics Corporation, prior to the December 17, 1997 restructuring of the
company, is hereinafter referred to as "former Hughes," and Hughes Electronics
Corporation, subsequent to the December 17, 1997 restructuring of the company,
is hereinafter referred to as "Hughes." All earnings per share amounts included
in the MD&A are reported as basic.
The disaggregated financial results for GM's automotive sectors (GM's
North American Operations (GM-NAO), Delphi Automotive Systems (Delphi) and GM's
International Operations (GMIO)) have been prepared using a management approach,
which is consistent with the basis and manner in which GM management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. In this regard, certain common expenses were
allocated among sectors less precisely than would be required for standalone
financial information prepared in accordance with generally accepted accounting
principles (GAAP) and certain expenses (primarily certain U.S. taxes related to
non-U.S. operations) were included in GM's "Other" sector. The financial results
represent the historical information used by management for internal decision
making purposes; therefore, other data prepared to represent the way in which
the business will operate in the future, or data prepared on a GAAP basis, may
be materially different.
GM-NAO FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
Net sales and revenues $100,256 $93,382 $95,936
------- ------ ------
Pre-tax (loss) income (408) 608 2,071
Income tax (credit) expense (357) (85) 569
Earnings (losses) of nonconsolidated affiliates (35) 37 22
Cumulative effect of accounting change (1) -- -- (52)
--- ----- -----
Net (loss) income $(86)(2) $730 $1,472
=== === =====
Net (loss) profit margin (0.1)%(2) 0.8% 1.5%
- ------------------------
(1) In 1995, the provisions of Issue No. 95-1 of the Emerging Issues Task
Force (EITF) of the Financial Accounting Standards Board, Revenue
Recognition on Sales with a Guaranteed Minimum Resale Value, were adopted
which resulted in an unfavorable after-tax impact of $52 million.
(2) The 1997 results include $2.4 billion of after-tax charges related to
the competitiveness studies at GM (Competitiveness Studies). Excluding the
Competitiveness Studies charges, income was $2.3 billion and net profit
margin was 2.3%.
VEHICLE UNIT DELIVERIES OF CARS AND TRUCKS - GM-NAO
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995
----------------------- -------------------------- -----------------------
GM AS GM AS GM AS
A % OF A % OF A % OF
INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY
-------- -- -------- -------- -- -------- -------- -- --------
(Units in Thousands)
United States
Cars 8,289 2,689 32.4% 8,528 2,786 32.7% 8,636 2,956 34.2%
Trucks 7,210 2,077 28.8% 6,931 2,007 29.0% 6,484 1,939 29.9%
----- ----- ------ ----- ------ -----
Total U.S. 15,499 4,766 30.8% 15,459 4,793 31.0% 15,120 4,895 32.4%
Canada 1,424 451 31.7% 1,203 381 31.6% 1,165 385 33.0%
Mexico 496 143 28.9% 332 89 26.9% 232 48 20.7%
------- ------ ------- ----- ------- ------
Total North America 17,419 5,360 30.8% 16,994 5,263 31.0% 16,517 5,328 32.3%
====== ===== ====== ===== ====== =====
WHOLESALE SALES - GM-NAO
Cars 3,095 2,913 3,352
Trucks 2,454 2,239 2,208
----- ----- -----
Total 5,549 5,152 5,560
===== ===== =====
II-45
60
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM-NAO FINANCIAL REVIEW
Including $2.4 billion of after-tax charges related to the Competitiveness
Studies (see Competitiveness Studies), GM-NAO reported a net loss for 1997 of
$86 million. Excluding the Competitiveness Studies charges, GM-NAO's income for
1997 was $2.3 billion or 2.3% of net sales and revenues. Reported net income was
$730 million or 0.8% of net sales and revenues in 1996 and $1.5 billion or 1.5%
of net sales and revenues in 1995.The increase in 1997 income (excluding the
Competitiveness Studies charges) was primarily due to higher wholesale sales
volumes, continued improvement in the profitability of new vehicles, and lower
material and engineering costs. These factors were partially offset by higher
retail incentives, increased commercial spending to support the numerous vehicle
launches in progress, and the unfavorable impact of $238 million after-tax
related to work stoppage production losses.
The decrease in 1996 net income was almost fully accounted for by lower
wholesale sales caused by three major work stoppages in the U.S. and Canada,
which had a net unfavorable impact of $920 million after-tax. 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. These unfavorable items were partially offset by savings
associated with continued implementation of worldwide purchasing and lean
manufacturing strategies, and the net favorable impact of certain special items
($397 million after-tax). The 1996 special items included 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). The effect
of these favorable special items was partially offset by the unfavorable impact
from retiree lump sum benefit payments ($114 million after-tax).
Net sales and revenues for 1997 were $100.3 billion, which represented an
increase of $6.9 billion compared with 1996. The improvement was primarily due
to a 397,000 unit increase in wholesale sales volumes. Net sales and revenues
for 1996 were $93.4 billion, which represented a decrease of $2.5 billion
compared with 1995. The decrease was largely due to a lower number of wholesale
units sold as a result of the three previously mentioned work stoppages.
GM-NAO's 1997 market share decreased to 30.8% in the intensely competitive
North American market, compared with 31.0% and 32.3% in 1996 and 1995,
respectively. New products, such as Buick's Park Avenue, the Pontiac Grand Prix,
the Oldsmobile Intrigue, and GM's new minivans are being well received in the
marketplace and significantly outselling the models they replaced. In addition,
GM's full-size pickups and sport utility vehicles continue to sell very well
even though they are late in their model cycles. During 1997 and 1996, GM-NAO's
market share increase in Mexico resulted from favorable customer reaction to new
products. In the United States and Canada, 1996 market share decreased primarily
due to the work stoppages and the new vehicle launches, which restricted
availability of certain models.
GM-NAO reported a pre-tax loss for 1997 of $408 million compared with
pre-tax income of $608 million and $2.1 billion for 1996 and 1995, respectively.
Excluding the $3.7 billion pre-tax impact of the Competitiveness Studies
charges, GM-NAO's 1997 pre-tax income was $3.3 billion and increased primarily
due to higher wholesale sales volumes, continued improvement in the
profitability of new vehicles, and lower material and engineering costs. The
decrease in 1996 pre-tax income was primarily due to the impact of lower
wholesale sales resulting from the three work stoppages and the record number of
new vehicle launches, which restricted the availability of certain models,
partially offset by the favorable results of continued efforts to reduce costs
and improve efficiency and the net favorable impact of special items previously
mentioned.
The effective income tax (credit) rate for 1997 was (87.5)%, compared with
(14.0)% and 27.5% for 1996 and 1995, respectively. Excluding the previously
mentioned Competitiveness Studies charges, the effective income tax rate for
1997 was 31.5%. This adjusted rate indicated a return to a more normalized
level. The 1996 credit 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 that was carried
back to prior years subject to higher income tax rates.
II-46
61
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
DELPHI FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
Net sales and revenues $26,316 $26,002 $26,426
-------- -------- --------
Pre-tax (loss) income (167) 610 1,247
Income tax (credit) expense (83) 134 377
Minority interests 9 3 4
Earnings of nonconsolidated affiliates 15 47 42
-------- -------- --------
Net (loss) income $(60)(1) $526 $916
======== ======== ========
Net (loss) profit margin (0.2)%(1) 2.0% 3.5%
- ----------------
(1) The 1997 results include $870 million of after-tax charges related to
the Competitiveness Studies and a $50 million after-tax plant closing
charge. Excluding these charges, income was $860 million and net profit
margin was 3.3%.
DELPHI FINANCIAL REVIEW
Including $870 million of after-tax charges related to the Competitiveness
Studies (see Competitiveness Studies) and a $50 million after-tax plant closing
charge related to the announcement that Delphi will cease production at its
Trenton, New Jersey plant during 1998, Delphi reported a net loss of $60 million
for 1997. Excluding these charges, Delphi's income for 1997 was $860 million or
3.3% of net sales and revenues. Reported net income was $526 million or 2.0% of
net sales and revenues in 1996 and $916 million or 3.5% in 1995.
The increase in 1997 income (excluding the Competitiveness Studies and
plant closing charges) was primarily the result of lower material and
manufacturing costs, the net impact of work stoppages that occurred in 1997 at
OEM customer locations versus three 1996 work stoppages (not related to
Delphi-specific issues), and the unfavorable impact of certain special items
that impacted 1996 net income. These special items included charges for the sale
to Peregrine, Inc. of four Delphi manufacturing facilities, located in Flint and
Livonia, Michigan, and Oshawa and Windsor, Canada ($153 million after-tax), and
retiree lump sum benefit payments ($49 million after-tax). Delphi's net income
for 1996 decreased to $526 million compared with $916 million for 1995 primarily
due to the unfavorable impact of the three work stoppages and the 1996 special
items.
Net sales and revenues for 1997 were $26.3 billion, which represented an
increase of over $300 million compared with the prior year despite the impact of
the sale of the four plants with annual revenues of approximately $1 billion and
continued pricing pressures. Delphi's 1997 sales to customers outside the GM-NAO
vehicle groups continued to increase and represented approximately 38% of total
sales (34% with Delco Electronics on an annualized basis), including all joint
ventures. This increase reflected sales growth despite significant downward
pressure on revenues due to volatility in overseas economies and associated
weaker currencies. Net sales and revenues for 1996 totaled $26 billion compared
with $26.4 billion in 1995 with the decrease primarily due to the three work
stoppages.
Including pre-tax charges of $1.4 billion for the Competitiveness Studies
and $80 million for the Trenton plant closing, Delphi reported a pre-tax loss of
$167 million for 1997. Excluding these charges, Delphi's 1997 pre-tax income
increased to $1.3 billion compared with $936 million for 1996, excluding the
unfavorable $326 million pre-tax impact of the 1996 special items. This increase
was the result of lower material and manufacturing costs, as well as the net
impacts of the work stoppages that occurred in both years.
Delphi's reported 1996 pre-tax income of $610 million represented a
decrease of $637 million from 1995 pre-tax income of $1.2 billion. The decrease
was primarily due to the unfavorable $326 million pre-tax impact of the 1996
special items and the impact of the three work stoppages.
Earnings of nonconsolidated affiliates decreased to $15 million in 1997
compared with $47 million in 1996 and reflected the unfavorable impact of
economic volatility on overseas joint ventures, particularly those based in
Korea.
The effective income tax (credit) rate for 1997 was (49.7)%, compared
with 22.0% and 30.2% for 1996 and 1995, respectively. Excluding the
Competitiveness Studies and plant closing charges, the effective income tax rate
for 1997 was 35.2%, which is a more normalized rate compared with 1996 and 1995.
On December 17, 1997, Delco Electronics (Delco), GM's automotive
electronics business, was made part of the Delphi organization, which
places Delphi in position to lead the component-industry trend toward
integrated automotive systems. As the integration of Delco and Delphi proceeds
and Delphi establishes the competitiveness of its combined operations, GM will
be evaluating the relevant business considerations and interests of GM
stockholders relating to these operations including consideration of a possible
future public offering of some portion of the business operations formed by the
combination of Delphi and Delco. There can be no assurances as to how long the
evaluations may take, what recommendations, if any, management may make to GM's
Board of Directors, or whether or when any such offering may occur.
II-47
62
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMIO FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
Net sales and revenues $35,659 $35,251 $32,112
------ ------ ------
Pre-tax income 561 1,786 1,578
Income tax expense 136 307 162
Minority interests 43 1 23
Earnings of nonconsolidated affiliates 13 52 205
---- ------ -----
Net income (loss)
GM Europe (GME) (17) 778 796
Other International 498 754 848
--- ----- -----
Total net income $481(1) $1,532 $1,644
=== ===== =====
Net profit margin 1.3%(1) 4.3% 5.1%
- -----------------
(1) The 1997 results include $658 million of after-tax charges related to
the Competitiveness Studies and a favorable $158 million after-tax impact
related to other special items. Excluding the Competitiveness Studies
charges and the favorable effect of the other special items, income was
$981 million and net profit margin was 2.8%.
VEHICLE UNIT DELIVERIES OF CARS AND TRUCKS - GMIO
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995
------------------------- -------------------------- ---------------------
(Units in Thousands)
GM AS GM AS GM AS
A % OF A % OF A % OF
INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY
-------- -- -------- -------- -- -------- -------- -- --------
INTERNATIONAL
Europe
Germany 3,790 565 14.9% 3,746 581 15.5% 3,575 581 16.2%
United Kingdom 2,445 339 13.9% 2,282 328 14.4% 2,195 334 15.2%
Other West Europe 8,937 807 9.0% 8,444 780 9.2% 7,847 751 9.6%
------ ----- ------ ------ ----- ------ ------ ----
Total West Europe 15,172 1,711 11.3% 14,472 1,689 11.7% 13,617 1,666 12.2%
Central/East Europe 2,979 133 4.5% 2,405 100 4.2% 2,102 58 2.8%
------ ----- ------ ------ ----- ------ ------ ----
Total Europe 18,151 1,844 10.2% 16,877 1,789 10.6% 15,719 1,724 11.0%
------ ----- ------ ------ ----- ------ ------ ----
Latin America, Africa, and the
Middle East (LAAMO)
Brazil 1,942 410 21.1% 1,731 384 22.2% 1,728 348 20.2%
Venezuela 173 48 27.9% 68 16 23.5% 89 28 31.6%
Other Latin America 1,155 165 14.3% 1,036 143 13.8% 999 127 12.7%
------ ----- ------ ------ ----- ------ ------ ----
Total Latin America 3,270 623 19.0% 2,835 543 19.2% 2,816 503 17.9%
Africa 663 101 15.2% 681 81 11.9% 633 86 13.6%
Middle East 691 52 7.5% 664 66 10.0% 560 58 10.4%
------ ----- ------ ------ ----- ------ ------ ----
Total LAAMO 4,624 776 16.8% 4,180 690 16.5% 4,009 647 16.1%
------ ------ ----- ------ ------ ----
Asia and Pacific
Australia 726 127 17.5% 651 131 20.2% 642 129 20.2%
Other Asia and Pacific 12,624 458 3.6% 13,081 494 3.8% 12,554 490 3.9%
------ ----- ------ ------ ----- ------ ------ ----
Total Asia and Pacific 13,350 585 4.4% 13,732 625 4.6% 13,196 619 4.7%
------ ----- ------ ------ ----- ------ ------ ----
Total International 36,125 3,205 8.9% 34,789 3,104 8.9% 32,924 2,990 9.1%
====== ===== ====== ====== ===== ====== ====== ====
WHOLESALE SALES - GMIO
Cars 2,379 2,331 2,233
Trucks 848 780 774
------ ------ ------
Total 3,227 3,111 3,007
===== ===== =====
II-48
63
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMIO FINANCIAL REVIEW
Including $658 million of after-tax charges related to the Competitiveness
Studies (see Competitiveness Studies), a $103 million after-tax gain related to
the sale of GME's equity interest in Avis Europe, and a $55 million after-tax
gain that resulted from a settlement agreement with Volkswagen, GMIO's 1997 net
income was $481 million. Excluding the Competitiveness Studies charges and the
favorable effect of the other special items, GMIO's income for 1997 was $981
million or 2.8% of net sales and revenues. Reported net income was $1.5 billion
or 4.3% of net sales and revenues in 1996 and $1.6 billion or 5.1% of net sales
and revenues in 1995.
The decrease in 1997 income (excluding the Competitiveness Studies charges
and the favorable effect of the other special items) was primarily due to higher
sales and marketing costs under intensely competitive market conditions,
deterioration of profits in Latin America and Asia related to economic turmoil
in these emerging markets, increased expenses related to ambitious capacity
expansion programs in key growth regions, and the startups of the Holden
Commodore in Australia and the Saab 9-5. The decrease in 1996 net income
compared with 1995 was primarily due to a higher income tax rate.
Net sales and revenues for 1997 totaled $35.7 billion, an increase of 1.2%
from 1996, while 1996 net sales and revenues of $35.3 billion were 9.8% higher
than 1995. The increase in net sales and revenues for 1997 reflected increased
wholesale sales volumes in Europe and Latin America offset by an unfavorable
impact of year-over-year currency exchange due to the appreciation of the U.S.
dollar. GMIO's vehicle deliveries for calendar year 1997 exceeded 3.2 million
units and, despite the intensely competitive market conditions, GMIO maintained
an 8.9% market share consistent with the prior year. The increase in net sales
and revenues for 1996 reflected increased wholesale sales volumes in Europe,
Latin America, and the Asian and Pacific region.
Pre-tax income for 1997 decreased to $561 million from $1.8 billion in 1996
and included $1 billion in pre-tax charges related to the Competitiveness
Studies, higher sales and marketing costs, as well as spending on growth
programs within Asia, Latin America, and Central Europe. During the fourth
quarter of 1997, GMIO's results were impacted by the Asian economic crisis,
significant economic volatility in Brazil, and the start-up of a new plant in
Rosario, Argentina. These unfavorable items in 1997 were partially offset by a
favorable $216 million pre-tax impact related to the previously mentioned
special items. The increase in pre-tax income for 1996 reflected the favorable
impact of increased net sales and revenues and favorable year-over-year currency
exchange, partially offset by spending on growth programs and new product
development spending.
In 1997, earnings of nonconsolidated affiliates were $39 million lower than
in 1996 primarily due to increased expenses at Saab related to the launch of the
new 9-5 model. Earnings of nonconsolidated affiliates for 1996 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 1997 was 24.2%, compared with
17.2% and 10.3% in 1996 and 1995, respectively. Excluding the previously
mentioned Competitiveness Studies charges and special items, the effective
income tax rate for 1997 was 33.0%. The lower 1996 income tax rate primarily
resulted from income tax credits realized in certain countries and lower
withholding taxes accrued on unremitted earnings. The 1995 income tax rate was
favorably impacted by nonrecurring income tax credits realized in certain
countries.
In 1997, GME reported a net loss of $17 million, compared with net income
of $778 million and $796 million in 1996 and 1995, respectively. The decrease in
1997 earnings was primarily due to $488 million of after-tax charges related to
the Competitiveness Studies, higher sales and marketing costs under intensely
competitive market conditions, and lower equity earnings from Saab related to
the launch of the new 9-5 model, partially offset by a favorable $158 million
after-tax impact from the previously mentioned special items. 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 remainder of GMIO's operations reported 1997 net income of $498
million, which represented a decrease of $256 million compared with 1996. The
decline in 1997 primarily resulted from $170 million of after-tax charges
related to the Competitiveness Studies and a deterioration of profits in Latin
America related to economic turmoil in certain emerging markets. 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.
In 1997, GMIO continued its long-term commitment in the automotive industry
with capital spending of over $2.4 billion, bringing total capital expenditures
for the past three years to over $7 billion.
II-49
64
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
Financing revenue
Retail and lease financing $3,571 $3,822 $3,292
Operating leases 7,260 7,215 6,285
Wholesale and term loans 1,746 1,607 2,087
------ ------ ------
Total automotive financing revenue 12,577 12,644 11,664
Interest and discount 5,256 4,938 4,936
Depreciation on operating leases 4,677 4,627 4,305
------ ----- ------
Net automotive financing revenue 2,644 3,079 2,423
Mortgage revenue 1,499 944 661
Insurance premiums earned 1,360 1,158 1,082
Other income 1,159 1,228 1,456
------ ----- ------
Net financing revenue and other 6,662 6,409 5,622
Expenses 4,448 4,332 3,839
------ ----- ------
Pre-tax income 2,214 2,077 1,783
Income tax expense 913 837 752
------ ----- ------
Net income $1,301 $1,240 $1,031
===== ===== =====
Net income from automotive financing operations $910 $946 $809
Net income from mortgage operations 167 102 59
Net income from insurance operations 224 192 163
----- ----- -----
Net income $1,301 $1,240 $1,031
===== ===== =====
Return on average equity (1) 15.3% 14.8% 12.5%
- -------------------
(1) Return on average equity represents net income as a percentage of average
stockholder's equity outstanding for each month in the period.
II-50
65
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC FINANCIAL REVIEW
GMAC's 1997 consolidated net income increased 4.9% over 1996 to $1.3
billion. Net income from automotive financing operations totaled $910 million,
which was 3.8% below 1996 earnings. The decrease was attributed to reduced net
financing margins partially offset by lower credit losses and loss provisions
and operating expenses. Net income from insurance operations totaled $224
million, which was 16.7% higher than 1996 earnings. The increase was attributed
to favorable underwriting experience and higher realized capital gains. Net
income from mortgage operations totaled $167 million, 63.7% higher than 1996
earnings. The increase was attributed to significant increases in
origination/purchase volumes and the mortgage servicing portfolio.
During 1997, GMAC financed 33.1% of new GM vehicle retail deliveries in the
United States, up from 28.4% and 26.4% in 1996 and 1995, respectively. The 1997
improvement primarily resulted from higher volumes generated through special
rate financing and lease incentive programs sponsored by GM. This improvement
was achieved amid continued competitive pressures in the automotive financing
marketplace.
GMAC's automotive financing revenue totaled $12.6 billion in 1997, compared
with $12.6 billion and $11.7 billion in 1996 and 1995, respectively. Increased
U.S. wholesale financing and Canadian operating lease revenues were offset by a
decline in U.S. and international retail and lease financing revenues, resulting
in the unchanged level of financing revenues during 1997. U.S. wholesale
financing revenues increased during 1997, compared with 1996, primarily from
higher average wholesale receivable balances resulting from a reduction in the
average amount of sold wholesale receivables during the year. Canadian operating
lease revenues increased as a result of a 46% increase in 1997 volume over 1996.
The decline in U.S. and international retail and lease financing revenues from
1996 to 1997 was attributable to continued competitive pressures in these
markets. The increase in 1996 total automotive financing revenue, when compared
to 1995, resulted from higher revenues from the portfolios of operating leases
and retail finance receivables, partially offset by a decline in wholesale
revenue.
GMAC's worldwide cost of borrowing decreased to 6.28% in 1997, compared
with 6.57% and 7.02% in 1996 and 1995, respectively. The cost of borrowings in
the United States was 6.35% in 1997, compared with 6.51% and 6.86% in 1996 and
1995, respectively. The improvements in 1997 were predominantly attributable to
reductions in medium- and long-term debt costs. 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 interest
rates declined.
Net automotive financing revenue combined with mortgage revenue, insurance
premiums, and other income increased in 1997 by $253 million to $6.7 billion,
compared with $6.4 billion and $5.6 billion in 1996 and 1995, respectively. The
1997 increase was primarily due to results from mortgage and insurance
operations, partially offset by reduced net automotive financing margins.
Expenses increased by $116 million and $493 million in 1997 and 1996,
respectively. The 1997 increase was due to higher costs for salaries and
benefits, increased insurance losses, and other operating charges incidental to
expanding mortgage and insurance business activities. The 1996 increase over
1995 reflected higher general operating costs incidental to expanded financing
business activities, principally at the mortgage operations, as well as higher
data processing costs, increased credit losses on operating leases, and higher
collection and repossession costs.
GMAC's effective income tax rate for 1997 was 41.2%, compared with 40.3% in
1996 and 42.2% in 1995. The unfavorable change in 1997 was primarily
attributable to increases in accruals from prior years based on periodic
assessment of the adequacy of such accruals and higher state and local income
taxes. The favorable change in 1996 compared with 1995 was attributable to lower
effective income tax rates for international financing operations.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
HUGHES FINANCIAL HIGHLIGHTS (INCLUDING FORMER HUGHES)
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ----- ----
(Dollars in Millions
Except Per Share Amounts)
Net sales
Outside customers $12,171 $10,661 $9,529
GM and affiliates 5,013 5,083 5,186
----- ----- -----
Total net sales 17,184 15,744 14,715
Other income - net 542 117 48
----- ----- ------
Total revenues 17,726 15,861 14,763
----- ----- -----
Income before income tax expense and minority interests 1,722 1,578 1,585
Income tax expense 601 606 646
Minority interests 38 57 9
----- ----- -----
Net income $1,159 $1,029 $948
===== ===== ===
Earnings Used for Computation of Available
Separate Consolidated Net Income (1) $1,276 $1,151 $1,108
===== ===== =====
Net earnings per share attributable to Class H
common stock, prior to its recapitalization $3.17 $2.88 $2.77
Net earnings per share attributable to Class H
common stock, subsequent to its recapitalization $0.02 $ - $ -
Cash dividends per share of Class H common stock $1.00 $0.96 $0.92
- ------------------
(1) Excludes amortization and adjustment of GM purchase accounting
adjustments of approximately $118 million, $122 million, and $160 million
for 1997, 1996, and 1995, respectively, related to GM's acquisition of
Hughes Aircraft Company.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
HUGHES FINANCIAL REVIEW (INCLUDING FORMER HUGHES)
On December 17, 1997, GM and former Hughes completed a series of related
transactions (Hughes Transactions) that were designed to address strategic
challenges facing the three principal businesses of former Hughes and unlock
stockholder value in GM. The Hughes Transactions included the tax-free spin-off
of the defense electronics business of former Hughes (Hughes Defense) to holders
of $1-2/3 par value and Class H common stocks, which was then followed
immediately by the merger of Hughes Defense with Raytheon Company (Raytheon).
Concurrently, Delco was transferred from former Hughes to Delphi. Finally, Class
H common stock was recapitalized into a GM tracking stock, Class H common stock,
that is linked to the telecommunications and space businesses of Hughes. As a
result of the Hughes Transactions, the 1997 operating results for Hughes
Electronics Corporation include the results of Hughes Defense and Delco through
December 17, 1997, and the results of the telecommunications and space
businesses for the entire year.
Net income was $1.16 billion in 1997, compared with $1.03 billion and $948
million in 1996 and 1995, respectively. Excluding amortization and adjustment of
purchase accounting adjustments relating to GM's acquisition of Hughes Aircraft
Company, earnings used for computation of available separate consolidated net
income was $1.28 billion in 1997, compared with $1.15 billion in 1996, and $1.11
billion in 1995. Contributing to the 1997 increase in net income was the $318
million after-tax gain recognized in the second quarter related to the PanAmSat
Corporation (PAS) merger, the $63 million after-tax gain recognized in the
fourth quarter from the sale of Hughes-Avicom International, Inc. to Rockwell
Collins, Inc., net income from PAS, continued DIRECTV(R) subscriber growth, and
increased sales of commercial satellites. Partially offsetting these increases
were lower earnings from the defense business resulting from provisions taken on
certain air traffic control and training contracts and increased losses from
equity investments. The 1996 increase in net income resulted from higher
operating profit in the telecommunications and space businesses, 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 to AT&T. Partially offsetting these increases was the
impact on Delco's operating profit of lower GM production volumes due to the
three major work stoppages.
Total revenues increased to $17.7 billion in 1997, compared with $15.9
billion in 1996 and $14.8 billion in 1995. This revenue growth was propelled by
the telecommunications and space businesses where revenues for 1997 increased to
$5.6 billion, compared with $4.1 billion and $3.2 billion in 1996 and 1995,
respectively. The 1997 increase in the telecommunications and space businesses
resulted from strong DIRECTV subscriber growth, higher sales of commercial
satellites, and completion of the PAS merger. The increase in 1996 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. Also contributing
to the 1997 revenue increase were modest increases at both Delco and Hughes
Defense. For 1996, Hughes Defense revenues increased primarily due to the
acquisition of Hughes Defense Communications. This increase in revenues,
however, was mostly offset by decreased revenues at Delco caused by 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.
Operating profit, excluding amortization of purchase accounting adjustments
related to GM's acquisition of Hughes Aircraft Company, was $1.5 billion in
1997, compared with $1.6 billion and $1.7 billion in 1996 and 1995,
respectively. Operating profit margins on the same basis were 8.5%, 10.1%, and
11.3%, in 1997, 1996, and 1995, respectively. The decline in 1997 operating
profit and operating profit margin was due to lower margins at Delco resulting
from price reductions, provisions taken on certain defense contracts, start-up
costs related to DIRECTV service in Latin America, and lower wireless
telecommunications equipment sales and margins. The decline in 1996 operating
profit and operating profit margin was due mainly to the unfavorable impact of
lower GM production volumes at Delco as a result of the previously mentioned
work stoppages.
The effective income tax rate was 34.9% in 1997, compared with 38.4% and
40.8% in 1996 and 1995, respectively. The decrease in the effective income tax
rate in 1997 was primarily related to research and development credits. The
decrease in the effective income tax rate in 1996 was due primarily to the
favorable resolution of certain tax contingencies.
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68
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
To facilitate analysis, the following sections present GM's financial
statements with its financing and insurance operations (primarily GMAC)
reflected on an equity basis.
CONSOLIDATED STATEMENTS OF INCOME WITH FINANCING AND INSURANCE OPERATIONS ON AN
EQUITY BASIS
Years Ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
NET SALES AND REVENUES $153,781 $145,427 $143,754
------- ------- -------
COSTS AND EXPENSES
Cost of sales and other operating charges,
exclusive of items listed below 130,042 123,239 121,312
Selling, general, and administrative expenses 13,254 11,827 10,195
Depreciation and amortization expenses 11,803 7,145 6,787
------- ------- -------
TOTAL COSTS AND EXPENSES 155,099 142,211 138,294
------- ------- -------
OPERATING (LOSS) INCOME (1,318) 3,216 5,460
Other income less income deductions 7,836 2,056 1,150
Interest expense 971 859 344
----- ----- -----
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES, MINORITY INTERESTS, AND EARNINGS OF
NONCONSOLIDATED AFFILIATES 5,547 4,413 6,266
Income taxes 155 885 1,563
----- ----- -----
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY
INTERESTS, EARNINGS OF NONCONSOLIDATED AFFILIATES,
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 5,392 3,528 4,703
Minority interests 66 56 18
Earnings of nonconsolidated affiliates 1,240 1,369 1,312
----- ----- -----
INCOME FROM CONTINUING OPERATIONS BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 6,698 4,953 6,033
Income from discontinued operations -- 10 900
Cumulative effect of accounting change (1) -- -- (52)
----- ----- -----
NET INCOME $6,698 $4,963 $6,881
===== ===== =====
NET PROFIT MARGIN (2) 4.4% 3.4% 4.8%
(1) Effective January 1, 1995, GM adopted EITF Issue No. 95-1.
(2) Net profit margin represents net income as a percentage of net sales and
revenues.
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69
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
(CONTINUED)
In 1997, GM's income from continuing operations before cumulative effect of
accounting change totaled $6.7 billion or $8.70 per share of $1-2/3 par value
common stock, compared with $5 billion or $6.07 per share of $1-2/3 par value
common stock and $6 billion or $7.21 per share of $1-2/3 par value common stock
in 1996 and 1995, respectively. Two significant items impacted 1997 financial
results: a $4.3 billion tax-free gain, or $5.91 per share of $1-2/3 par value
common stock, resulting from the December 17, 1997 completion of the strategic
restructuring of former Hughes (see Hughes Transactions); and charges of $4.0
billion after-tax, or $5.59 per share of $1-2/3 par value common stock,
resulting from GM's Competitiveness Studies (see Competitiveness Studies).
Excluding the impact of these two items and the $426 million after-tax impact of
other special items that occurred during 1997, income from continuing operations
was $6 billion, or $7.90 per share of $1-2/3 par value common stock.
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 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 $7.28 per share of $1-2/3 par value common
stock for 1995. Additional information regarding the split-off of EDS is
contained in Note 1 to the GM consolidated financial statements.
Highlights of financial performance by GM's major business sectors were as
follows (in millions):
1997 1996 1995
---- ---- ----
GM-NAO $(86) $730 $1,472
Delphi (60) 526 916
GMIO 481 1,532 1,644
GMAC 1,301 1,240 1,031
Hughes(including former Hughes) 1,276 1,151 1,108
Other 3,786 (226) (190)
----- ----- -----
Income from continuing operations $6,698 $4,953 $5,981
Discontinued operations (EDS) -- 10 900
----- ----- -----
NET INCOME $6,698 $4,963 $6,881
===== ===== =====
Reference should be made to the GM-NAO, Delphi, GMIO, GMAC, and Hughes
(Including Former Hughes) Financial Reviews that are presented on pages II-45
through II-53 and incorporated by reference to supplement the information
presented herein.
In 1997, net sales and revenues increased $8.4 billion to $153.8 billion,
compared with $145.4 billion and $143.8 billion in 1996 and 1995, respectively.
The 1997 increase primarily resulted from higher wholesale sales volumes for
both GM-NAO and GMIO. The 1996 increase resulted from higher net sales and
revenues for GMIO and former Hughes, partially offset by lower wholesale sales
in North America.
The gross margin was 15.4% for 1997, compared with 15.3% and 15.6% in 1996
and 1995, respectively. The 1997 increase in the gross margin was realized
despite the unfavorable impact of the Competitiveness Studies and reflected the
favorable impact of higher wholesale sales and savings associated with continued
implementation of worldwide purchasing and lean manufacturing strategies,
partially offset by increased retail incentives in the highly competitive North
American market. The gross margin in 1996, which included the favorable impact
of $789 million related to plant closing reserve adjustments, decreased compared
with 1995 primarily due to lower wholesale sales, increased safety and emissions
costs, and spending for new product launches and new product development. The
higher costs in 1996 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 1997 and
1996 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 and Europe.
Depreciation and amortization expenses increased in 1997 by approximately
$4.7 billion compared with the 1996 amount primarily due to $4.1 billion of
charges related to the Competitiveness Studies. The remainder of the increase in
1997, as well as the increase in 1996 compared with 1995, was related to
increased expenditures for production and quality improvements worldwide.
Other income less income deductions was $7.8 billion in 1997, compared with
$2.1 billion in 1996 and $1.2 billion in 1995, respectively. The increase in
1997 was primarily due to the $4.3 billion gain related to the completion of the
Hughes Transactions and a $490 million pre-tax gain related to the merger of the
satellite service operations of former Hughes and PAS. 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.
Interest expense totaled $971 million in 1997, compared with $859 million
and $344 million in 1996 and 1995, respectively. The higher interest expense in
1997 was due primarily to additional interest related to a higher long-term debt
level at former Hughes. The lower 1995 interest expense resulted from the
reversal of interest related to income tax issues resolved in 1995, the
re-evaluation of the remaining reserve, and lower 1995 accrued interest on
outstanding tax issues.
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70
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
(CONCLUDED)
In 1997, the effective income tax rate was 2.8%, compared with 20.1% and
24.9% in 1996 and 1995, respectively. The lower 1997 tax rate primarily resulted
from the effect of the tax-free status of the gain related to the completion of
the Hughes Transactions. The 1996 tax rate included 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
tax rate included 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 National Car Rental System (NCRS).
HUGHES TRANSACTIONS
On December 17, 1997, GM and former Hughes completed a series of related
transactions (Hughes Transactions) that were designed to address strategic
challenges facing the three principal businesses of former Hughes and unlock
stockholder value in GM. The Hughes Transactions included the tax-free spin-off
of the defense electronics business of former Hughes (Hughes Defense) to holders
of $1-2/3 par value and Class H common stocks, which was then followed
immediately by the merger of Hughes Defense with Raytheon Company (Raytheon).
Concurrently, Delco was transferred from former Hughes to Delphi. Finally, Class
H common stock was recapitalized into a GM tracking stock, Class H common stock,
that is linked to the telecommunications and space businesses of Hughes.
Additional information regarding the Hughes Transactions is contained in
Note 22 to the GM consolidated financial statements.
COMPETITIVENESS STUDIES
The global automotive industry, including the automotive components and
systems market, has become increasingly competitive and is presently undergoing
significant restructuring and consolidation activities. All of the major
industry participants are continuing to increase their focus on efficiency and
cost improvements, while announced capacity increases for the North American
market and excess capacity in the European market have led to continuing price
pressures. As a result, GM-NAO, Delphi, Delco, and GMIO initiated studies in
1997 concerning the long-term competitiveness of all facets of their businesses
(Competitiveness Studies). These studies were performed in conjunction with GM's
current business planning cycle and were substantially completed in December
1997. Additional information regarding the Competitiveness Studies is contained
in Note 2 to the GM consolidated financial statements.
Based on the results of these Competitiveness Studies, GM recorded pre-tax
charges against income totaling $6.3 billion ($4.0 billion after-tax, or $5.59
per share of $1-2/3 par value common stock). The charges were comprised of $3.7
billion ($2.4 billion after-tax) for GM-NAO, $1.4 billion ($870 million
after-tax) for Delphi and Delco, $1 billion ($658 million after-tax) for GMIO,
and $205 million ($128 million after-tax) for GM's other sector. Overall, these
charges had the effect of reducing net sales and revenues by $459 million and
increasing cost of sales, depreciation and amortization, and other deductions by
$1.7 billion, $4.1 billion, and $72 million, respectively. Going forward, GM's
future cash requirements relating to these charges are expected to total
approximately $2.1 billion over the next five years.
The Competitiveness Studies charges included amounts for underperforming
assets, including both vehicle and component manufacturing assets, pursuant to
GM's policy for the valuation of long-lived assets. Future investments relating
to underperforming product lines will be expensed.
GM will continue to monitor the competitiveness of all aspects of its
businesses and further competitiveness studies will be undertaken when and as
market conditions warrant. Future charges may result from Delphi's
fix/close/sell strategy and cost reduction programs in Europe.
FOREIGN CURRENCY
During the years ended December 31, 1997, 1996, and 1995, GM recorded the
financial performance of operations in Brazil using the U.S. dollar as the
functional currency due to GM's classification of the Brazilian economy as
highly inflationary. Accordingly, translation gains and losses were recognized
as incurred in the consolidated income statement. Statement of Financial
Accounting Standards No. 52, Foreign Currency Translation, defines a highly
inflationary economy as one that has cumulative inflation of approximately 100%
or more over a three-year period. In mid-1997, the Brazilian three-year
cumulative inflation rate fell below the 100% level. As a result, GM evaluated
historical inflation rate trends and certain other factors and determined that
it should no longer classify the Brazilian economy as highly inflationary. As a
result, beginning January 1, 1998, GM will record the financial performance for
operations in Brazil using the local currency as the functional currency with
translation gains and losses recorded in the stockholders' equity section of the
consolidated balance sheet.
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71
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
YEAR 2000
Certain GM information systems have potential operational
problems in connection with applications that contain a date and/or use a date
in a comparative manner as the date transitions into the Year 2000. GM has a
comprehensive worldwide program to identify and remediate potential problems
related to the Year 2000 in its information systems, infrastructure, and
production and manufacturing facilities. In addition, GM has initiated formal
communications with all of its significant external interfaces to determine the
extent to which GM is vulnerable to third parties' failures to remediate their
own potential problems related to the Year 2000. The inability of GM or
significant external interfaces of GM to adequately address Year 2000 issues
could cause disruption of GM's business operations.
Many of GM's systems are Year 2000 compliant, or have been scheduled for
replacement in GM's ongoing systems plans. GM has incurred and expensed
approximately $40 million during the year ended December 31, 1997 related to the
assessment of, and preliminary efforts in connection with, its Year 2000 program
and remediation plan. Future spending for software modifications and testing
required for Year 2000 are currently estimated to be approximately $360 million
to $500 million with the majority expected to be incurred in 1998. GM's target
date for completing its Year 2000 modifications is December 31, 1998 with
additional testing and refinements to identified systems planned for 1999.
LIQUIDITY AND CAPITAL RESOURCES WITH FINANCING AND INSURANCE OPERATIONS ON AN
EQUITY BASIS
Total cash and marketable securities at December 31, 1997 were $14.5
billion compared with $17 billion at December 31, 1996. During 1997, GM elected
to pre-fund part of its other postretirement benefits liability, which is
primarily related to postretirement health care expenses, by creating a
Voluntary Employees' Beneficiary Association (VEBA) trust to which it
contributed $3 billion of its cash reserves. The VEBA assets had the effect of
reducing GM's postretirement benefits liability on the consolidated balance
sheet. 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 lines of credit with various financial
institutions. Additional information on GM's available credit facilities is
contained in Note 10 to the GM consolidated financial statements.
Net liquidity, calculated as cash and marketable securities less the total
of loans payable, long-term debt, and capitalized leases, was $8.2 billion at
December 31, 1997, a decrease of $2.2 billion from the prior year. GM previously
indicated that it had a goal of maintaining $13 billion of cash and marketable
securities in order to continue funding product development programs throughout
the next downturn in the business cycle. This $13 billion target includes cash
to pay certain costs that were pre-funded in part by the $3 billion VEBA
contribution. Separately, approximately $2 billion of cash at December 31, 1997
relates to the Hughes Transactions that will be used to fund future growth
initiatives for Hughes over the next several years.
Long-term debt was $5.5 billion at December 31, 1997, an increase of
approximately $300 million from the prior year. The ratio of long-term debt and
capitalized leases to the total of long-term debt, capitalized leases, and
stockholders' equity was 24.5% and 18.7% at December 31, 1997 and 1996,
respectively. The ratio of long-term debt, capitalized leases, and short-term
loans payable to the total of this debt and stockholders' equity was 26.6% and
22.0% at December 31, 1997 and 1996, respectively.
In February 1998, the GM Board of Directors approved a $4 billion stock
repurchase program. The stock repurchases are expected to be made over a
12-month period principally through open market transactions and represent about
10 percent of the outstanding shares of $1-2/3 par value common stock, based on
the NYSE's closing price on Friday, February 6, 1998, of $60.56 per share. The
new stock repurchase program began in mid-March, upon the completion of GM's
second $2.5 billion stock repurchase program. Upon completion of the $4 billion
stock repurchase program, GM's stock repurchases since January 1997 will total
$9 billion.
Book value per share of $1-2/3 par value common stock decreased to $22.26
from $27.95 at December 31, 1997 and 1996, respectively. Book value per share of
Class H common stock decreased to $13.36 at December 31, 1997 from $13.97 at
December 31, 1996. 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, 1997, GMAC owned assets and serviced automotive receivables
for others totaling $120.7 billion compared with $108.1 billion at year end
1996. Earning assets totaled $104.5 billion and $95.7 billion at December 31,
1997 and 1996, respectively. The increase in earning assets was primarily
attributable to an increase in the investments in securities portfolio, higher
wholesale and real estate mortgage outstandings and continued growth of
operating leases, partially offset by a decline in the retail finance
receivables portfolio. Cash and cash equivalents totaled $759 million and $742
million at December 31, 1997 and 1996, respectively.
Consolidated finance receivables, net of unearned income, totaled $60.5
billion and $59.3 billion at December 31, 1997 and 1996, respectively. The
higher outstanding balance was primarily attributable to a $2.2 billion increase
in the U.S. and Canadian wholesale receivables portfolios, offset by a $0.9
billion decline in European finance receivables.
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72
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY
BASIS
December 31,
------------
1997 1996
---- ----
ASSETS (Dollars in Millions)
Cash and cash equivalents $10,685 $13,320
Other marketable securities 3,826 3,642
------ ------
Total cash and marketable securities 14,511 16,962
Accounts and notes receivable (less allowances)
Trade 5,164 4,909
Nonconsolidated affiliates 836 927
Inventories (less allowances) 12,102 11,898
Equipment on operating leases (less accumulated depreciation) 4,677 3,918
Deferred income taxes and other 6,278 5,327
------ ------
Total current assets 43,568 43,941
Equity in net assets of nonconsolidated affiliates 10,164 9,855
Deferred income taxes 20,721 20,075
Other investments and miscellaneous assets 13,564 11,712
Property - net 33,914 37,156
Intangible assets - net 10,752 12,523
------- -------
TOTAL ASSETS $132,683 $135,262
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $12,474 $11,527
Loans payable 656 1,214
Accrued expenses and customer deposits 33,459 29,822
------ ------
Total current liabilities 46,589 42,563
Long-term debt 5,491 5,192
Capitalized leases 185 198
Postretirement benefits other than pensions 38,388 40,578
Pensions 4,271 5,966
Other liabilities and deferred income taxes 19,336 17,255
------- -------
TOTAL LIABILITIES 114,260 111,752
------- -------
Minority interests 695 92
General Motors - obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely junior
subordinated debentures of General Motors
Series D 79 --
Series G 143 --
Stockholders' equity 17,506 23,418
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $132,683 $135,262
======= =======
LIQUIDITY AND CAPITAL RESOURCES FOR GMAC (CONCLUDED)
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, term notes, and underwritten
issuances. GMAC's borrowings outstanding at December 31, 1997 totaled $86.7
billion compared with $78.7 billion at December 31, 1996. GMAC's ratio of debt
to total stockholder's equity at December 31, 1997 was 9.9:1, up from 9.5:1 at
December 31, 1996. The higher year-to-year debt levels were principally used to
fund increased asset levels. 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 $12.4 billion and $9.7 billion at December 31, 1997 and
1996, respectively.
GMAC and its subsidiaries maintain substantial bank lines of credit, which
totaled $39.8 billion and $40.7 billion at December 31, 1997 and 1996,
respectively. The unused portion of these credit lines totaled $30.4 billion at
December 31, 1997, which was $200 million lower than at December 31, 1996.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS WITH FINANCING AND INSURANCE OPERATIONS ON
AN EQUITY BASIS
Years Ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations before
cumulative effect of accounting change $6,698 $4,953 $6,033
Adjustments to reconcile income from continuing
operations before cumulative effect of accounting
change to net cash provided by operating activities
Depreciation and amortization expenses 11,803 7,145 6,787
Gain on Hughes Defense spin-off (4,269) -- --
Postretirement benefits other than pensions,
net of payments and VEBA contribution (1,448) 1,549 1,659
Pensions expense, net of contributions 240 801 (2,932)
Change in other operating assets and liabilities
Accounts receivable (1,067) 1,196 (137)
Prepaid expenses and other deferred charges 604 (426) 11
Inventories (716) (757) (1,214)
Accounts payable 1,163 898 (288)
Deferred taxes and income taxes payable (2,651) (303) 1,077
Accrued expenses and other liabilities 4,292 517 576
Other (751) 1,133 (470)
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,898 16,706 11,102
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property (9,801) (9,606) (8,653)
Investments in other marketable securities - acquisitions (13,167) (14,340) (5,581)
Investments in other marketable securities - liquidations 12,984 11,891 5,496
Operating leases - acquisitions (5,680) (4,090) (1,090)
Operating leases - liquidations 3,711 3,819 506
Proceeds from borrowings of Hughes Defense prior to
the Hughes Defense spin-off 4,006 -- --
Investments in companies, net of cash acquired (1,875) (166) (381)
Special inter-company payment from EDS -- 500 --
Other 476 847 310
----- ------ -----
NET CASH USED IN INVESTING ACTIVITIES (9,346) (11,145) (9,393)
----- ------ -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in loans payable (558) (971) 1,383
Increase in long-term debt 398 1,937 646
Decrease in long-term debt (1,143) (871) (1,597)
Repurchases of common and preference stocks (4,365) (251) (1,681)
Proceeds from issuing common stocks 614 480 453
Cash dividends paid to stockholders (1,620) (1,530) (1,328)
----- ----- -----
NET CASH USED IN FINANCING ACTIVITIES (6,674) (1,206) (2,124)
----- ----- -----
Effect of exchange rate changes on cash and cash equivalents (513) (185) 146
------ ----- ----
NET CASH (USED IN) PROVIDED BY CONTINUING OPERATIONS (2,635) 4,170 (269)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS -- 103 193
------ ----- ---
Net (decrease) increase in cash and cash equivalents (2,635) 4,273 (76)
Cash and cash equivalents at beginning of the year 13,320 9,047 9,123
------ ------ -----
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $10,685 $13,320 $9,047
====== ====== =====
CASH FLOWS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
Net cash provided by operating activities was $13.9 billion, $16.7 billion,
and $11.1 billion in 1997, 1996, and 1995, respectively. The decrease in net
cash provided by operating activities in 1997 primarily resulted from the $3
billion VEBA contribution previously discussed, and a $3.5 billion increase in
deferred tax assets, partially offset by a $500 million year-over-year increase
in other operating assets and liabilities and a $1.7 billion year-over-year
increase in income from continuing operations. Depreciation and amortization
expenses increased by $4.7 billion in 1997 primarily due to the Competitiveness
Studies charges. 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
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CASH FLOWS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
(CONCLUDED)
and amortization expenses, and a $1 billion income tax refund related to the
carryback of a 1995 net operating loss - for tax purposes only, partially offset
by an increase in deferred tax assets. Cash pension contributions for 1996
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 in 1995.
Net cash used in investing activities decreased to $9.3 billion in 1997,
compared with $11.1 billion and $9.4 billion in 1996 and 1995, respectively. The
decrease in 1997 was primarily due to GM's receipt of $4.0 billion in proceeds
from borrowings of Hughes Defense prior to the spin-off of Hughes Defense (see
Hughes Transactions), partially offset by a $1.7 billion increase in investments
in companies, net of cash acquired, which primarily related to the completion of
the merger of the satellite service operations of former Hughes and PAS. 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. Worldwide property expenditures in 1997, of which 63% were in the U.S.
(60% in 1996 and 65% in 1995), 7% in Canada and Mexico (10% in 1996 and 8% in
1995) and 30% overseas (30% in 1996 and 27% in 1995), have been devoted
primarily to improve efficiency and quality, to increase truck assembly
capacity, and to increase GM's global presence. Capital expenditures for 1998
are estimated to be approximately $10.5 billion with outstanding commitments of
$7.8 billion at December 31, 1997.
In 1997, net cash used in financing activities increased to $6.7 billion,
compared with $1.2 billion and $2.1 billion in 1996 and 1995, respectively.
During 1997, GM used $3.8 billion to acquire 63.5 million shares of $1-2/3 par
value common stock, which completed the $2.5 billion stock repurchase program
announced in January 1997 and represented 50 percent of GM's second $2.5 billion
stock repurchase program announced in August 1997. GM also used approximately
$600 million to repurchase shares of $1-2/3 par value common stock for certain
employee benefit plans during 1997. Also in 1997, net cash flows used in
association with changes in long-term debt increased by approximately $1.8
billion compared with 1996 and reflected a combination of refinancing and
retirement using GM's new commercial paper program and cash received in
connection with the Hughes Transactions. Cash used in financing activities in
1995 included $1.3 billion to repurchase preference stocks.
Dividends may be paid on common stocks only when, as and if declared by the
GM Board of Directors (GM Board) in its sole discretion. 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 February 1998, the GM Board
declared a quarterly cash dividend of $0.50 per share on $1-2/3 par value common
stock, payable March 10, 1998. The GM Board also declared quarterly dividends on
the Series B, Series D, and Series G Depositary Shares of $0.57, $0.495, and
$0.57 per share, respectively, payable May 1, 1998. With respect to Class H
common stock, which was recapitalized on December 17, 1997, the GM Board
determined that it will not pay any cash dividends at this time in order to
allow the earnings of Hughes to be retained for investment in its
telecommunications and space businesses.
CASH FLOWS FOR GMAC
In 1997, cash provided by operating and financing activities totaled $4.1
billion and $8.3 billion, respectively. Cash used in investing activities,
principally for expanding the investments in securities, finance receivables and
operating lease portfolios, totaled $12.3 billion.
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 finance receivables and operating lease portfolios,
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.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
HEALTH CARE EXPENSE AND OTHER POSTRETIREMENT BENEFITS
The cost of postretirement medical, dental, vision, and life insurance
benefits provided to retirees and eligible dependents are recognized in the
consolidated financial statements during the period in which employees provide
services to GM. Costs for medical, dental, vision, and life insurance benefits
provided to employees during active service are expensed as incurred
(pay-as-you-go). The components of postretirement benefits 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' and former Hughes' non-automotive
employees, but including GMAC).
GM is committed to reducing the burden of continuing health care cost
increases. During 1997, GM elected to pre-fund part of its other postretirement
benefits liability by creating a VEBA trust to which it contributed $3 billion
of its cash reserves. The VEBA assets had the effect of reducing GM's
postretirement benefits liability on the consolidated balance sheet.
Year Ended December 31, 1997
----------------------------------------
Postretirement Health Pay-As-You-Go
Benefits Care Cost Cost*
----------------------------------------
(Dollars in Millions)
GM U.S. operations health care
Postretirement medical, dental, and vision $3,083 $3,083 $ --
Retired employees pay-as-you-go -- -- 1,862
Active employees pay-as-you-go -- 1,737 1,737
----- ----- -----
Total health care 3,083 $4,820 $3,599
----- ===== =====
Life insurance 436
Other subsidiaries - health care and life insurance 202
-----
Total postretirement benefits expense $3,721
=====
- ----------------------
* Pay-as-you-go amounts for 1996 were $1.7 billion for retirees, $1.8 billion
for active employees, and $3.5 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.
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, Chile 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. 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 1997, 1996, and 1995 were $656 million,
$443 million, and $299 million, respectively. Cardholder rebates available
worldwide for future redemption when the cardholder purchases or leases a new GM
vehicle amounted to $3.5 billion and $3.2 billion (net of deferred program
income) at December 31, 1997 and 1996, 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.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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 A- BBB+ A-
GM commercial paper P-2 A-1 D-1+ F-1
GMAC commercial paper P-1 A-1 D-1 F-1
GM Capital Trust D TOPrS(sm) Baa1 A- BBB+ A-
GM Capital Trust G TOPrS(sm) Baa1 A- BBB+ A-
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
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.
Moody's Investors Services (Moody's)
The long-term debt of GM, GMAC and Hughes are rated A.3 by Moody's, which
is the seventh highest within the ten investment grade ratings available and
signifies "upper-medium grade" quality. The rating for GM preference stocks and
GM's Capital Trust D and Capital Trust G Trust Originated Preferred
Securities(sm) (TOPrS(sm)) is Baa1 which is the fourth highest within the six
investment grade ratings available and signifies "medium-grade" quality. For
additional information regarding GM's TOPrS(sm) see Note 17 to the GM
consolidated financial statements.
GMAC's commercial paper is rated P-1, which is the highest of three
investment grade ratings available and indicates that an issuer's ability to
repay is superior relative to other issuers. GM and Hughes' commercial paper is
rated P-2, which is the second highest investment grade rating available and
indicates that the issuer has a strong ability for repayment relative to other
issuers.
Standard and Poor's Ratings Services (S&P)
In January 1998, S&P, a division of McGraw-Hill Companies, Inc., raised its
long-term debt ratings from A- to A and its commercial paper ratings from A-2 to
A-1 for both GM and GMAC. S&P also raised its preference stock rating on GM from
BBB+ to A- and indicated that the ratings outlook was revised to stable from
positive based on the intensively competitive automotive industry conditions
limiting further upgrade potential for this rating. The long-term debt and
commercial paper ratings on various overseas GMAC affiliates were also raised by
S&P. At the same time, S&P affirmed its ratings of A- and A-2 on the long-term
debt and commercial paper of Hughes and indicated that the outlook remains
developing.
S&P's A and A- credit ratings for long-term debt are the sixth and seventh
highest within the ten investment grade ratings available and indicate 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. The preference stock and
TOPrS(sm) rating of A- is the seventh highest within the ten investment grade
ratings available and indicates that the issue is backed by a sound capacity to
pay the related obligations The A-1 commercial paper rating is the second
highest of four categories available and indicates the degree of safety
regarding timely payment is strong. The A-2 commercial paper rating is the third
highest category available and indicates the degree of safety regarding timely
payment is satisfactory.
Duff & Phelps Credit Rating Co. (D&P)
The long-term debt of GM and GMAC are rated A- by D&P, which is the seventh
highest within the ten investment grade ratings available and indicates adequate
likelihood of timely payment of principal and interest with average, but
adequate, protection factors. Risk factors, however, are more variable and
greater in periods of economic stress.
GM's preference stocks and TOPrS(sm) are rated BBB+, which is the eighth
highest of ten investment grade ratings available and indicates they are
considered to be reasonably safe. Securities assigned this rating by D&P have
below average protection factors, but are still considered sufficient for
prudent investment.
GM's and GMAC's commercial paper are rated D-1+ and D-1 respectively, which
are the first and second highest of five investment grade ratings available and
signify a very high certainty of timely payment based on excellent liquidity
factors and good fundamental protection factors.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SECURITY RATINGS (CONCLUDED)
Fitch Investors Service, Inc. (Fitch)
In June 1997, Fitch raised its long-term debt ratings for GM and GMAC from
A- to A, and its preference stock rating on GM from BBB+ to A-. Fitch also
affirmed its F-1 commercial paper ratings and revised its outlook for GM and
GMAC to stable from improving.
The long-term debt rating of A by Fitch is the sixth highest within the ten
investment grade ratings available. Fitch's A rating is considered to be high
credit quality based on the obligor's strong ability to pay interest and repay
principal, but may be more vulnerable to adverse changes in economic conditions
and circumstances than debt with higher ratings.
GM's preference stocks and TOPrS(sm) rating of A- is the seventh highest of
ten investment grade ratings available and indicates they are considered to be
of good quality with both asset protection and coverage of related dividends.
GM's and GMAC's commercial paper are rated F-1, which is the second highest
of four investment grade ratings available and indicates these short-term issues
possess very strong credit qualities from holding sufficient liquidity to meet
obligations in a timely manner.
- -------------------
(sm) "Trust Originated Preferred Securities" and "TOPrS" are service trademarks
of Merrill Lynch & Co.
DEFERRED INCOME TAXES
At December 31, 1997, GM's consolidated balance sheet included a net
deferred tax asset of approximately $20.3 billion related to net future
deductible temporary differences (see Note 6 to the GM consolidated financial
statements) in the United States of which approximately $15.5 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 assets including:
. The operating results of GM-NAO and Delphi over the most recent three
year period and overall financial forecasts of book and taxable income
for the 1998-2002 period. Further improvements are expected by
continuing efforts to maintain GM's competitiveness, including actions
relating to reducing material costs through global sourcing and
increasing efficiency through lean manufacturing.
. Operating results of GMAC which generated U.S. pre-tax income of
approximately $2.2 billion, $2.1 billion, and $1.8 billion in 1997,
1996, and 1995, respectively.
. 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 assets can be utilized.
Postretirement benefits become tax deductions over periods up to 50
years.
. The fact that GM has never lost deferred federal tax credits 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 $3 billion, $1.2 billion, and $182 million in
1997, 1996, and 1995, respectively. In 1995, the reduced level of dividends
resulted from tax planning strategies related to GM's U.S. net operating loss
carryback position - for tax purposes only.
PENSIONS
At December 31, 1997, GM's total worldwide net unfunded pension position
increased to $5.0 billion ($0.5 billion for the U.S. automotive sector's
qualified hourly/salary plans and $4.5 billion for all other plans worldwide)
from $4.8 billion a year ago ($1.9 billion for the U.S. automotive sector's
qualified hourly/salary plans and $2.9 billion for all other plans worldwide).
Excluding the impact related to the Hughes Transactions, GM's 1996 total
worldwide net unfunded pension liability would have been $6.2 billion
($1.9 billion for the U.S. automotive sector's qualified hourly/salary plans
and $4.3 billion for all other plans worldwide). Major factors contributing to
the decrease in the unfunded position of the U.S. automotive sector's
qualified hourly/salary plans included asset returns in excess of the assumed
10% asset earnings rate and contributions during the year, partially offset by
the 50 basis point decrease in the discount rate used to measure the pension
obligation at the end of 1997 compared with 1996. During 1997 and 1996
respectively, GM contributed $1.5 billion and $0.8 billion in cash to its U.S.
hourly pension plans.
On an economic basis, GM continues to maintain a fully-funded status for
its U.S. hourly and salaried pension plans at December 31, 1997. The economic
basis of measuring the U.S. hourly and salaried pension liability differs from
the Statement of Financial Accounting Standards (SFAS) No. 87, Employers'
Accounting for Pensions, basis required by GAAP, but GM believes it to be a
better measure of GM's ongoing economic exposure for pension obligations and as
such uses this as a measure to determine its funding. The economic basis
discounts pension liabilities at the long-term asset earnings rate assumption
(currently 10.0%) rather than at a year-end market rate as required by SFAS No.
87 (currently 7.0%). 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.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ENVIRONMENTAL MATTERS
GM is subject to various laws relating to the protection of the environment
including laws regulating air emissions, water discharges, waste management, and
environmental cleanup. GM is also in various stages of investigation and
remediation for sites where contamination has been alleged.
The liability for worldwide environmental cleanup was $610 million and $646
million at December 31, 1997 and 1996, 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.
The process of estimating environmental 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 1997, 1996, and 1995, GM expensed $88 million, $94 million, and $134
million, respectively, for environmental investigation, remediation, and waste
management. In addition, worldwide capital expenditures, as discussed
previously, included $115 million, $122 million, and $133 million in 1997, 1996,
and 1995, respectively, for various environmental matters.
EMPLOYMENT AND PAYROLLS
WORLDWIDE EMPLOYMENT AT DECEMBER 31, (in thousands) 1997 1996 1995
---- ---- ----
GM-NAO 237 245 255
Delphi 210 179 179
GMIO 116 111 103
GMAC 21 18 17
Hughes 15 86 84
Other 9 8 11
--- --- ---
Employees associated with continuing operations 608 647 649
Discontinued operations (EDS) - - 96
--- --- ---
Total 608 647 745
=== === ===
Worldwide payrolls - continuing operations (in billions) $30.4 $29.8 $29.8
U.S. hourly payrolls (in billions) (1)(2) $13.5 $13.3 $13.7
Average labor cost per active hour worked - U.S. hourly (1) $45.06 $44.19 $43.13
- ---------------------
(1) Excludes EDS, Hughes' and former Hughes' non-automotive employees, Saturn,
and NCRS.
(2) Includes employees "at work" (excludes laid-off employees
receiving benefits).
FORWARD-LOOKING STATEMENTS
Following are the principal important factors which may cause actual
results to differ materially from those expressed in forward-looking statements
made by the managements of GM and Hughes:
. Changes in economic conditions, currency exchange rates, or political
stability in the major markets where GM procures material, components,
and supplies for the production of its principal products or where its
products are produced, distributed, or sold (i.e., North America,
Europe, Latin America and Asia-Pacific), including the effects of
current economic problems in Asia and political problems in the Far
East.
. Shortages of fuel or interruptions in transportation systems, labor
strikes, work stoppages, or other interruptions to or difficulties in
the employment of labor in the major markets where GM purchases
material, components, and supplies for the production of its products or
where its products are produced, distributed or sold.
. Significant changes in the competitive environment in the major markets
where GM purchases material, components and supplies for the production
of its products or where its products are produced, distributed, or
sold.
. Changes in the laws, regulations, policies or other activities of
governments, agencies and similar organizations where such actions may
affect the production, distribution or sale of GM products, the cost
thereof or applicable tax rates.
. The ability of GM to achieve reductions in cost and employment levels,
to realize production efficiencies, and to implement capital
expenditures, all at the levels and times planned by management.
. The ability of GM to achieve the sale of assets held for disposal by
Delphi within the timing and revenue levels and upon the terms
contemplated by management.
. With respect to GM's Hughes subsidiary, additional risk factors include:
the ability to achieve subscriber growth in its Direct-To-Home
businesses, ability to sustain technological competitiveness, failure of
planned satellite launches, and access to capital and financial
flexibility in order to take advantage of new market opportunities,
respond to competitive pressures, and react quickly to other major
changes in the marketplace.
* * * * * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General Motors (GM) is exposed to market risk from changes in foreign
currency exchange rates, interest rates and certain commodity and equity
security prices. In order to manage the risk arising from these exposures, GM
enters into a variety of foreign exchange, interest rate, and commodity forward
contracts and options.
A discussion of GM's accounting policies for derivative instruments is
included in Note 1 to the GM consolidated financial statements and further
disclosure is provided in Notes 10, 11, and 12 to the GM consolidated financial
statements.
GM maintains risk management control systems to monitor foreign exchange,
interest rate, commodity and equity price risks, and related hedge positions.
Positions are monitored using a variety of analytical techniques including
market value, sensitivity analysis, and value-at-risk models. The following
analyses are based on sensitivity analysis tests which assume instantaneous,
parallel shifts in exchange rates, interest rate yield curves, and commodity and
equity prices. For options and instruments with non-linear returns, models
appropriate to the instrument are utilized to determine the impact of
sensitivity shifts.
Foreign Currency Exchange Rate Risk
GM has foreign currency exposures related to buying, selling, and financing
in currencies other than the local currencies in which it operates. More
specifically, GM is exposed to foreign currency risk related to uncertainty to
which future earnings or assets and liability values are exposed due to
operating cash flows and various financial instruments that are denominated in
foreign currencies. GM's 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. As of December
31, 1997, the net fair value liability of financial instruments with exposure to
foreign currency risk was approximately $1.9 billion. The potential loss in fair
value for such financial instruments from a hypothetical 10% adverse change in
quoted foreign currency exchange rates would be approximately $190 million.
The model assumes a parallel shift in the foreign currency exchange rates.
Exchange rates rarely move in the same direction. The assumption that exchange
rates change in a parallel fashion may overstate the impact of changing exchange
rates on assets and liabilities denominated in a foreign currency.
Interest Rate Risk
GM is subject to market risk from exposure to changes in interest rates
based on its financing, investing, and cash management activities. GM enters
into various financial instrument transactions to maintain the desired level of
exposure to the risk of interest rate fluctuations and to minimize interest
expense. More specifically, General Motors Acceptance Corporation (GMAC) and its
affiliates have also entered into contracts to provide commercial and retail
financing, retain mortgage servicing rights, and to retain various assets
related to mortgage securitization. Certain exchange traded future and option
contracts, interest rate caps and floors, along with various investments, have
been entered into to reduce the interest rate risk related to these activities
and manage potential prepayment activity associated with mortgage servicing
rights. The GMAC Mortgage Group (GMACMG) manages prepayment risk associated with
its capitalized mortgage servicing rights with U.S. Treasury options and
futures. Since the derivative instruments do not have identical characteristics
to the underlying mortgage servicing rights, GM is exposed to basis risk. GMACMG
mitigates this risk through a historical review of value change in various
interest rate scenarios when establishing and maintaining its hedge program. As
of December 31, 1997, the net fair value liability of all financial instruments
with exposure to interest rate risk was approximately $1.6 billion. The
potential decrease in fair value resulting from a hypothetical 10% shift in
interest rates would be approximately $257 million.
The SEC disclosures on market risk requires that all financial instruments,
as defined by Statement of Financial Accounting Standards (SFAS) No. 107,
Disclosures about Fair Value of Financial Instruments, should be included in the
quantitative disclosure calculation. Operating leases are not required to be
disclosed by SFAS No. 107, and have not been presented as part of the
sensitivity analysis. This is a significant limitation to the analysis
presented. While the sensitivity analysis will show a fair market value change
for the debt which funds GM's operating lease portfolio, a corresponding change
for GM's operating lease portfolio, which has a book value of $26 billion, was
not considered by the model. As a result, the overall impact to the fair market
value of financial instruments from a hypothetical change in interest rates may
be overstated.
There are certain shortcomings inherent to the sensitivity analyses
presented. The model assumes interest rate changes are instantaneous parallel
shifts in the yield curve. In reality, changes are rarely instantaneous.
Although certain assets and liabilities may have similar maturities or periods
to repricing, they may not react correspondingly to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate with changes in market interest rates,
II-65
80
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Interest Rate Risk (concluded)
while interest rates on other types of assets may lag behind changes in market
rates. Finance receivables are less susceptible to prepayments when interest
rates change, while prepayments on many mortgage related instruments are
directly affected by a change in interest rates. As such, GM's model does not
address prepayment risk for automotive related finance receivables, but does
consider prepayment risk for mortgage related instruments that are highly
sensitive to prepayment risk. However, in the event of a change in interest
rates, actual loan prepayments may deviate significantly from assumptions used
in the model. Further, certain assets, such as adjustable rate loans, have
features, such as annual and lifetime caps, that restrict changing the interest
rates both on a short-term basis and over the life of the asset. Finally, the
ability of certain borrowers to make scheduled payments on their adjustable rate
loans may decrease in the event of an interest rate increase.
Commodity Price Risk
GM enters into commodity forward and option contracts. Such contracts are
executed to offset GM's exposure to the potential change in prices mainly for
various non-ferrous metals used in the manufacturing of automotive components.
The net fair value liability of such contracts, excluding the underlying
exposures, as of December 31, 1997 was approximately $42 million. The potential
change in the fair value of commodity forward and option contracts, assuming a
10% change in the underlying commodity price, would be approximately $111
million at December 31, 1997. This amount excludes the offsetting impact of the
price risk inherent in the physical purchase of the underlying commodities.
Equity Price Risk
GM holds investments in various available-for-sale equity securities which
are subject to price risk. The fair value of such investments, as of December
31, 1997 was approximately $899 million. The potential change in the fair value
of these investments, assuming a 10% change in prices would be approximately $90
million.
Forward-Looking Statements
The above discussion and the estimated amounts generated from the
sensitivity analyses referred to above include forward-looking statements of
market risk which assume for analytical purposes that certain adverse market
conditions may occur. Actual future market conditions may differ materially from
such assumptions because the amounts noted previously are the result of analyses
used for the purpose of assessing possible risks and the mitigation thereof.
Accordingly, the forward-looking statements should not be considered projections
by GM of future events or losses.
* * * * * *
II-66
81
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, 1998 and their positions and offices with the Registrant on that date are as
follows:
NAME AND (AGE) POSITIONS AND OFFICES
- -------------- ---------------------
John F. Smith, Jr. (59) Chairman of the Board; Chief Executive Officer;
President; Member, Finance Committee and
Chairman, The President's Council
Harry J. Pearce (55) Vice Chairman of the Board; Member, The
President's Council
J. Michael Losh (51) Executive Vice President; Chief Financial
Officer; Member, The President's Council
G. Richard Wagoner, Jr. (45) Executive Vice President; Member, The
President's Council
Louis R. Hughes (49) Executive Vice President; Member, The
President's Council
J. T. Battenberg III (54) 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.
III-1
82
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
EXECUTIVE OFFICERS OF THE REGISTRANT - CONCLUDED
Mr. John F. Smith, Jr. has been associated with General Motors since 1961.
He was elected Executive Vice President in charge of International Operations in
1988. Effective August 1990, he was elected Vice Chairman of the Board of
Directors. On April 6, 1992, Mr. Smith was elected President and Chief Operating
Officer. Effective November 1992, he was elected Chief Executive Officer and
President. 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 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.
Mr. Battenberg has been associated with General Motors since 1961. In 1986,
he was appointed product manager for the former Buick-Oldsmobile-Cadillac
Group's Flint Automotive Division. He later served as vice president of the
division, and then vice president and group executive for the
Buick-Oldsmobile-Cadillac Group. He was named Vice President and Group Executive
of the former Automotive Components Group (ACG) Worldwide in 1992. Two years
later, he was elected a Senior Vice President and President of ACG Worldwide. In
July 1995, he was elected Executive Vice President and President of Delphi
Automotive Systems (formerly ACG Worldwide).
III-2
83
PART IV
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K PAGE
NUMBER
------
(a) 1. All Financial Statements See Part II
2. Financial Statement Schedule II - Allowances for the Years Ended December 31,
1997, 1996, and 1995 IV-3
3. Exhibits (Including Those Incorporated by Reference)
Exhibit
Number
(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)* 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
(2)(d) Agreement and Plan of Merger by and between General Motors
Corporation and GM Mergeco Corporation, dated as of October 17,
1997, included as Appendix A to the Solicitation Statement /
Prospectus dated as of November 10, 1997, which is a part of the
Registration Statement on Form S-4 of General Motors Corporation
(Registration No. 333-37215) 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 December 17, 1997, 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%
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
IV-1
84
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART IV - CONTINUED
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(CONTINUED)
EXHIBIT PAGE
NUMBER NUMBER
- ------ ------
(3)(b) By-Laws, as amended, filed as Exhibit 3(ii) to the Current Report
on Form 8-K of General Motors Corporation dated March 2, 1998. 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
(4)(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
(4)(c) Form of Indenture relating to the $377,377,000 7.75% Debentures
Due March 15, 2036 dated as of December 7, 1995 between General
Motors Corporation and Citibank, N.A., Trustee, filed as Exhibit
4(a) to Amendment No. 1 to Form S-3 Registration Statement No.
33-64229. N/A
(4)(d) Instruments defining the rights of holders of nonregistered debt
of the Registrant have been omitted from this exhibit index
because the amount of debt authorized under any such instrument
does not exceed 10% of the total assets of the Registrant and its
subsidiaries. The Registrant agrees to furnish a copy of any such
instrument to the Commission upon request. N/A
(4)(e)(i) Amended and Restated Declaration of Trust of General Motors
Capital Trust D, incorporated by reference to Exhibit 4(c)(i) to
the Current Report on Form 8-K of General Motors Corporation
dated July 1, 1997. N/A
(4)(e)(ii) Amended and Restated Declaration of Trust of General Motors
Capital Trust G, incorporated by reference to Exhibit 4(c)(ii) to
the Current Report on Form 8-K of General Motors Corporation
dated July 1, 1997. N/A
4(f)(i) Indenture between General Motors Corporation and Wilmington Trust
Company, incorporated by reference to Exhibit 4(d)(i) to the
Current Report on Form 8-K of General Motors Corporation dated
July 1, 1997. N/A
4(f)(ii) First Supplemental Indenture between General Motors Corporation
and Wilmington Trust Company With Respect To The Series D Junior
Subordinated Debentures, incorporated by reference to Exhibit
4(d)(ii) to the Current Report on Form 8-K of General Motors
Corporation dated July 1, 1997. N/A
4(f)(iii) Second Supplemental Indenture between General Motors Corporation
and Wilmington Trust Company With Respect To The Series G Junior
Subordinated Debentures, incorporated by reference to Exhibit
4(d)(iii) to the Current Report on Form 8-K of General Motors
Corporation dated July 1, 1997. N/A
4(g)(i) Series D Preferred Securities Guarantee Agreement, General Motors
Capital Trust D, incorporated by reference to Exhibit 4(g)(i) to
the Current Report on Form 8-K of General Motors Corporation
dated July 1, 1997. N/A
4(g)(ii) Series G Preferred Securities Guarantee Agreement, General Motors
Capital Trust G, incorporated by reference to Exhibit 4(g)(ii) to
the Current Report on Form 8-K of General Motors Corporation
dated July 1, 1997. N/A
(10)(a)** 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
(10)(b)** 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
(10)(c)** 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
(10)(d)** 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
(12) Computation of Ratios of Earnings to Fixed Charges for the
Years Ended December 31, 1997, 1996, and 1995. IV-7
IV-2
85
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART IV - CONTINUED
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(CONCLUDED)
EXHIBIT PAGE
NUMBER NUMBER
- ------ ------
(21) Subsidiaries of the Registrant as of December 31, 1997 IV-8
(23) Consent of Independent Auditors IV-15
(99) Hughes Electronics Corporation and Subsidiaries Consolidated
Financial Statements and Management's Discussion and Analysis IV-16
(27) Financial Data Schedule (for SEC information only) N/A
- ---------------------
* 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.
(b) Reports on Form 8-K
Five reports on Form 8-K, dated October 6, 1997, October 13, 1997, November
21, 1997, November 24, 1997, and December 17, 1997 were filed during the
quarter ended December 31, 1997 reporting matters under Item 5, Other
Events.
IV-3
86
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES
Additions Additions
Balance at charged to charged to
beginning costs and other Balance at
of year expenses accounts Deductions end of year
------- -------- -------- ---------- -----------
Description (Dollars in Millions)
FOR THE YEAR ENDED DECEMBER 31, 1997
Allowances Deducted from Assets
Finance receivables (unearned income) $3,547 $- $3,124 $3,287 $3,384
Allowance for financing losses 922 523 62(a) 604(b) 903
Accounts and notes receivable (for doubtful
receivables) 151 41 41(a) 52(b) 181
Inventories (principally for obsolescence of
service parts) 303 - - 44(c) 259
Other investments and miscellaneous assets
(receivables and other) 12 - 1 - 13
Miscellaneous allowances (mortgage) 138 106 6 48 202
----- --- ----- ----- -----
Total Allowances Deducted from Assets $5,073 $670 $3,234 $4,035 $4,942
===== === ===== ===== =====
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 9(a) 45(b) 151
Inventories (principally for obsolescence of
service parts) 229 74(c) - - 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 $3,105 $4,113 $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(a) 75(b) 138
Inventories (principally for obsolescence of
service parts) 178 51(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 $561 $3,707 $3,515 $5,189
===== === ===== ===== =====
- ---------------------
Notes: (a) Primarily reflects the recovery of accounts previously written-off.
(b) Accounts written off.
(c) Represents net change of inventory allowances.
Reference should be made to the notes to consolidated financial statements.
IV-4
87
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
GENERAL MOTORS CORPORATION
(Registrant)
Date: March 2, 1998 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 2nd day of March 1998 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 President
(John F. Smith, Jr.)
/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 )
(J. Michael Losh) )Principal
)Financial
/s/ERIC A. FELDSTEIN )Officers
- ---------------------- Vice President and Treasurer )
(Eric A. Feldstein) )
/s/WALLACE W. CREEK Comptroller )
- ---------------------- )Principal
(Wallace W. Creek) )Accounting
)Officers
/s/PETER R. BIBLE Chief Accounting Officer )
- ---------------------- )
(Peter R. Bible) )
IV-5
88
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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/KAREN KATEN Director
- --------------------
(Karen Katen)
/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/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