-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AJiIXCtpPe21Zo4NSK5lMfgwh3aqyjxHtvxZJxSBLD9Z7F2CBu40HYAxNlhuua0c EvJEWx/TwFLKH2jcgxGWZg== 0000950124-97-001646.txt : 19970321 0000950124-97-001646.hdr.sgml : 19970321 ACCESSION NUMBER: 0000950124-97-001646 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970320 SROS: CSX SROS: NASD SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MOTORS CORP CENTRAL INDEX KEY: 0000040730 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380572515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00143 FILM NUMBER: 97560165 BUSINESS ADDRESS: STREET 1: 767 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10153-0075 BUSINESS PHONE: 3135565000 10-K 1 FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549-1004 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-143 GENERAL MOTORS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) STATE OF DELAWARE 38-0572515 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 100 RENAISSANCE CENTER, DETROIT, MICHIGAN 48243-7301 3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202-3091 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (313) 556-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- COMMON, $1 2/3 PAR VALUE (743,213,618 SHARES OUTSTANDING AS OF FEBRUARY 28, 1997)..................................... NEW YORK STOCK EXCHANGE, INC. CLASS H COMMON, $0.10 PAR VALUE (100,831,170 SHARES OUTSTANDING AS OF FEBRUARY 28, 1997....................... NEW YORK STOCK EXCHANGE, INC. PREFERENCE, $0.10 PAR VALUE, SERIES B 9 1/8% DEPOSITARY SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE (20,020,586 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY 28, 1997)................................................. NEW YORK STOCK EXCHANGE, INC. PREFERENCE, $0.10 PAR VALUE, SERIES D 7.92% DEPOSITARY SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE (6,069,909 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY 28, 1997)................................................. NEW YORK STOCK EXCHANGE, INC. PREFERENCE, $0.10 PAR VALUE, SERIES G 9.12% DEPOSITARY SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE (10,079,899 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY 28, 1997)................................................. NEW YORK STOCK EXCHANGE, INC.
NOTE: THE $1 2/3 PAR VALUE COMMON STOCK OF THE REGISTRANT IS ALSO LISTED FOR TRADING ON: CHICAGO STOCK EXCHANGE, INC. ........................... CHICAGO, ILLINOIS PACIFIC STOCK EXCHANGE, INC. ........................... SAN FRANCISCO, CALIFORNIA PHILADELPHIA STOCK EXCHANGE, INC. ...................... PHILADELPHIA, PENNSYLVANIA MONTREAL STOCK EXCHANGE................................. MONTREAL, QUEBEC, CANADA TORONTO STOCK EXCHANGE.................................. TORONTO, ONTARIO, CANADA BORSE FRANKFURT AM MAIN................................. FRANKFORT ON THE MAIN, GERMANY BORSE DUSSELDORF........................................ DUSSELDORF, GERMANY BOURSE DE BRUXELLES..................................... BRUSSELS, BELGIUM COURTIERS EN VALEURS MOBILIERES......................... PARIS, FRANCE THE LONDON STOCK EXCHANGE............................... LONDON, ENGLAND
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X . NO ___ . INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. ( ) THE AGGREGATE MARKET VALUE (BASED UPON THE AVERAGE OF THE HIGHEST AND LOWEST SALES PRICES ON THE COMPOSITE TAPE ON FEBRUARY 28, 1997) OF GENERAL MOTORS CORPORATION $1 2/3 PAR VALUE, CLASS H COMMON STOCKS HELD BY NONAFFILIATES ON FEBRUARY 28, 1997 WAS APPROXIMATELY $42.7 BILLION AND $5.9 BILLION, RESPECTIVELY. DOCUMENTS INCORPORATED BY REFERENCE:
PART AND ITEM NUMBER OF FORM 10-K DOCUMENT INTO WHICH INCORPORATED -------- --------------------------------- GENERAL MOTORS NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 23, 1997...................................... PART III, ITEMS 10 THROUGH 13
================================================================================ 2 PART I GENERAL MOTORS CORPORATION AND SUBSIDIARIES THE CORPORATION General Motors Corporation, incorporated in 1916 under the laws of the State of Delaware, is hereinafter sometimes referred to as the "Registrant" or the "Corporation" and, together with its subsidiaries, is hereinafter sometimes referred to as "General Motors" or "GM." ITEM 1. BUSINESS GENERAL The following information is incorporated herein by reference to the indicated pages in Part II:
ITEM PAGE - ---- ---- Wholesale Sales............................................. II-48 and 50 Employment and Payrolls..................................... II-68 Note 22 of Notes to Consolidated Financial Statements (Segment Reporting)....................................... II-37
While the major portion of General Motors' operations is derived from the automotive products industry segment, General Motors also has a financing and insurance industry segment and produces products and provides services in other industry segments. The automotive products segment consists of the design, manufacture, assembly, and sale of automobiles, trucks and related parts and accessories. The financing and insurance operations, primarily General Motors Acceptance Corporation (GMAC), assist in the merchandising of General Motors' products as well as other products. GMAC offers financial services and certain types of insurance to dealers and customers. In addition, GMAC is engaged in mortgage banking services. The other products segment consists of satellite construction, ownership and operation, communications services, ground equipment, direct-to-home satellite television entertainment services, missile systems, command and control systems, torpedoes and sonar systems, electro-optical systems, airborne radar and communication systems, military training and simulation systems, air traffic control systems, information systems, and guidance and control systems; as well as the design, development, and manufacture of locomotives. Substantially all of the products in the automotive segment are marketed through retail dealers and through distributors and jobbers in the United States, Canada, and Mexico, and through distributors and dealers overseas. At December 31, 1996, there were approximately 8,300 General Motors vehicle dealers in the United States, 1,000 in Canada and Mexico, and approximately 5,500 outlets overseas. BACKLOG OF ORDERS Shipments of General Motors' automotive products are made as promptly as possible after receipt of firm sales orders; therefore, no significant backlog of unfilled orders accumulates. Hughes Electronics Corporation had a $15.1 billion and $14.9 billion backlog of defense and commercial contracts at the end of 1996 and 1995, respectively. RAW MATERIALS AND SERVICES General Motors purchases materials, parts, supplies, freight transportation, energy, and other services from numerous unaffiliated firms. Interruptions in production or delivery of these goods or services could adversely affect General Motors. COMPETITIVE POSITION General Motors' principal competitors in passenger cars and trucks in the United States and Canada include Ford Motor Company, Chrysler Corporation, Toyota Corporation, Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd., Mazda Motor Corporation, Mitsubishi Motors Corporation, Fuji Heavy I-1 3 Industries, Ltd. (Subaru), Volkswagen A.G., Hyundai Motor Company, Ltd., Daimler-Benz A.G. (Mercedes), Bayerische Motoren Werke AG (BMW), and Volvo AB. All but Volkswagen and Mercedes currently operate vehicle manufacturing facilities in the United States or Canada, however, Mercedes currently has an assembly plant under construction in the United States. Toyota and GM operate the New United Motor Manufacturing, Inc. facility in Fremont, California as a joint venture which currently builds passenger cars and light-duty trucks. Wholesale unit sales of General Motors passenger cars and trucks during the three years ended December 31, 1996 are summarized in Management's Discussion and Analysis in Part II. Total industry new motor vehicle (passenger cars, trucks, and buses) registrations of domestic and foreign makes and General Motors' competitive position during the three years ended December 31, 1996 were as follows:
1996(1) 1995 1994 ------- ---- ---- (UNITS IN THOUSANDS) Total industry registrations In the United States............................... 15,586 15,219 15,257 In Canada and Mexico............................... 1,531 1,343 1,839 In other countries................................. 34,718 32,853 31,429 ------ ------ ------ Total industry registrations -- all countries........ 51,835 49,415 48,525 ====== ====== ======
1996(1) 1995 1994 ------- ---- ---- (PERCENT OF TOTAL INDUSTRY) General Motors' registrations In the United States............................... 31% 32% 33% In Canada and Mexico............................... 30 32 28 In other countries................................. 9 9 9 Total General Motors' registrations -- all countries.......................................... 16 17 17
- ------------------------- (1) Preliminary The above information on registrations of new cars, trucks, and buses was obtained from outside sources and that pertaining to General Motors' registrations includes units which are manufactured overseas by other companies and which are imported and sold by General Motors and affiliates. RESEARCH AND DEVELOPMENT In 1996, General Motors spent $8.9 billion for research, manufacturing engineering, product engineering, and development activities related primarily to the development of new products or services or the improvement of existing products or services, including activities related to vehicle emissions control, improved fuel economy, and the safety of persons using General Motors products. In addition, $1.6 billion was spent for customer-sponsored activities, the majority of which were government related. Comparable data for 1995 were $8.2 billion for company-sponsored activities and $1.4 billion for customer-sponsored activities and for 1994 were $6.9 billion for company-sponsored activities and $1.5 billion for customer-sponsored activities, respectively. ENVIRONMENTAL MATTERS AUTOMOTIVE EMISSIONS CONTROL Both the Federal and California governments currently impose stringent emission control requirements on motor vehicles sold in their respective jurisdictions. These requirements include pre-production testing of vehicles, testing of vehicles after assembly, the imposition of emission defect and performance warranties, and the obligation to recall and repair customer-owned vehicles determined to be non-compliant with emissions requirements. Both the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) continue to place great emphasis on compliance testing of customer-owned vehicles. Failure to comply with the emission standards or defective emission control hardware discovered during such testing can I-2 4 lead to substantial cost for General Motors related to emissions recalls. New CARB and Federal requirements will increase the time and mileage periods over which manufacturers are responsible for a vehicle's emission performance. Both the EPA and the CARB emission requirements will become even more stringent in the future. A new tier of exhaust emission standards for cars and light-duty trucks, the "Tier 1" standards began phasing in for California vehicles in the 1993 model year and for Federal vehicles in the 1994 model year. The phase-in of these "Tier 1" standards was completed in the 1997 model year. In addition to the Tier 1 standards is the CARB Low Emission Vehicle (LEV) Program that began with the 1994 model year and defines requirements through model year 2003 and beyond. This program sets even more stringent exhaust emission standards for cars and trucks sold in California. General Motors will have to meet the LEV Program requirements by marketing a mix of vehicles complying with the Tier 1 standards, Transitional Low Emission Vehicles (TLEVs), Low Emission Vehicles (LEVs), Ultra-Low Emission Vehicles (ULEVs), or Zero Emission Vehicles (ZEVs). From model years 2003 and later, 10% of cars and small light-duty trucks (up to 3,750 lb Loaded Vehicle Weight) sold in California must be ZEVs. Also, GM and six other major vehicle manufacturers signed Memorandum of Agreements (MOAs) with CARB to provide for a more market driven-introduction of ZEVs. The MOAs include provisions for an advanced battery ZEV demonstration program of 3,750 vehicles in the 1998-2000 time frame, a National LEV program or an alternative that provides equivalent emission benefits in California, the capability to produce specified numbers of ZEVs as warranted by demand, and continued research and development of advanced batteries. The Clean Air Act permits states that have areas with air quality problems to adopt the California car and truck emission standards in lieu of the Federal requirements and six states have done so. In addition, the Ozone Transport Commission (OTC), representing twelve Northeast states and the District of Columbia, asked the EPA to require the OTC jurisdictions to impose the California LEV program requirements throughout the Northeast Ozone Transport Region (OTR). The EPA granted this request on January 24, 1995. This could mean that vehicles designed for the California LEV program, including ZEVs, would have to be offered for sale in that region of the country. As an alternative, the auto industry has proposed a National LEV program, which would require the phase-in of TLEVs and LEVs in the northeast starting in 1997, and vehicles in all states outside California meeting LEV standards on average starting in 2001. The EPA has proposed rulemaking which would implement the National LEV program as a voluntary alternative available to automakers. In addition to the above-mentioned exhaust emission programs, onboard diagnostic (OBD) devices, far more complex than those currently used to diagnose problems with emission control systems, are required both Federally and in California effective with the 1996 model year. This new system has the potential of increasing warranty costs and the chance for recall. New evaporative emission control requirements for cars and trucks begin phasing in with the 1995 model year in California and the 1996 model year Federally. Systems will need to be further modified to accommodate Federal onboard refueling vapor recovery (ORVR) control standards. ORVR phases in on passenger cars in the 1998 through 2000 model years and on light-duty trucks in the 2001 through 2006 model years. Starting in the 2000 model year, today's test procedure for exhaust emissions will become more complex with vehicles required to meet two additional test requirements: 1) measuring exhaust emissions over a new test cycle with the air conditioner operating; and 2) measuring exhaust emissions over a new high speed (80 mph) and high load cycle. Both of these requirements have the potential of adding hardware (and thus costs) to many vehicles. INDUSTRIAL ENVIRONMENTAL CONTROL General Motors is subject to various laws relating to the protection of the environment, and is in various stages of investigation or remediation for sites where contamination has been alleged. GM has recorded an I-3 5 accrued liability of $646 million at December 31, 1996 and $692 million at December 31, 1995 for worldwide environmental cleanup as summarized below: - - GM has been identified as a potentially responsible party at sites identified by the EPA and state regulatory agencies for cleanup under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar state statutes. GM voluntarily and actively participates in cleanup activity where such involvement is verified. The foreseeable total liability for 1997 and beyond for sites involving GM is estimated to be $209 million, which was recorded at December 31, 1996. This compares to $227 million at December 31, 1995. - - For closed or closing plants owned by the Corporation, an estimated liability for environmental cleanup is typically recognized at the time the closure decision is made for actions which are not specifically required by regulations or government action but which serve to minimize future liability. Such liability, which is based on an environmental assessment of the plant property, is estimated at $121 million, which was recorded at December 31, 1996. This compares to $136 million at December 31, 1995. - - GM is involved in investigations and cleanup activities at additional locations worldwide with a foreseeable liability of approximately $316 million, which was recorded at December 31, 1996. This compares to $329 million at December 31, 1995. The cost impact of the Clean Air Act Amendments under Title V are the annual emission fees of approximately $9 million per year. Additionally, the cost of obtaining Title V permits are approximately $5 million for 1996 and an estimated $2 million for 1997, not including any internal labor costs. Additional programs under the Clean Air Act, including Hazardous Air Pollutant standards, and Compliance Assurance Monitoring requirements are estimated to cost $500 to $700 million through the year 2003. Expenditures by General Motors in the United States for industrial environmental control facilities during the three years ended December 31, 1996 were (in millions): 1996-$117; 1995-$116; and 1994-$118. The Corporation currently estimates that future expenditures for industrial environmental control facilities through 2000 will be (in millions): 1997-$129; 1998-$106; 1999-$88; and 2000-$62. Specific environmental expenses are difficult to isolate since expenditures may be made for more than one purpose, making precise classification difficult. VEHICULAR NOISE CONTROL The Federal Truck Regulation preempts all state/local noise regulations for trucks over 10,000 lb Gross Vehicle Weight Rating (GVWR). All jurisdictions regulating noise levels of school buses which are built on medium-duty truck chassis have adopted standards compatible with Federal regulations for medium-duty trucks. The Federal Truck Regulations contain label and owner's manual requirements. Passenger cars and light-duty trucks are subject to state and local motor vehicle noise regulations. The current standard for vehicles in these classes is 80 dB as measured at 50 feet. Future implementation of more stringent exhaust emission regulations and more stringent fuel economy regulations will require an assessment of increased costs of noise control. SAFETY AFFAIRS AND REGULATIONS Expenditures to maintain the operational safety, occupant protection, and vehicle theft deterrence capability of new GM models continue. These expenditures include amounts for the study of alternative approaches for meeting the needs of all three areas. A final rule allowing use of Daytime Running Lamps (DRL) as an option was issued by the National Highway Traffic Safety Administration (NHTSA). As a result, GM announced its intent to provide DRL starting in 1995 on selected models. Daytime Running Lamps (DRL) are standard on all GM 1997 model year cars and light trucks, with the exception of the Oldsmobile 'W' car (Cutlass Supreme). The new Olds 'W' car (Intrigue) will be a 1998 model year vehicle introduced mid-year 1997, and will be equipped with DRL. I-4 6 GM is meeting the government requirement for passive restraints by installing driver and passenger supplemental inflatable restraints (air bags) on all passenger cars and selected light trucks and vans. Driver air bags have been approved for all remaining light trucks and vans during the 1997 and 1998 model years, with a phase-in of dual front passenger air bags in these same vehicles through the 1999 model year. This will meet the requirements of NHTSA's final rule specifying that air bags be the only means used to meet the automatic restraint requirements for passenger cars and light trucks and vans on a phased-in basis beginning September 1, 1996 and culminating Sept. 1, 1998. GM is working with NHTSA and suppliers to introduce less aggressive air bags in order to address concerns about inflation injuries, particularly to children and smaller adult passengers who are not properly restrained. New dynamic side impact protection requirements similar to those for cars will apply to certain light trucks and vans beginning September 1, 1998. Side structure and interior trim designs of future models will continue to be affected. Additional market pressure and future model design effects are likely regarding side impact performance at higher crash speeds. This will result as the federal government begins its consumer information side impact crash test program at an elevated impact speed, starting with 1997 model passenger cars. A new government requirement for vehicle interior impact protection was proposed in 1993. The final rule, similar to the proposal, was promulgated in August 1995. This rule will significantly affect upper body structure and interior trim designs of future model passenger cars and light trucks and vans. The phase-in for this rulemaking begins in the 1999 model year and will apply to all these vehicles in the 2003 model year. The NHTSA currently is considering the effects of fuel system crash integrity requirements of the Federal Motor Vehicle Safety Standard 301. If any of the considerations ultimately are adopted as final rules, some undetermined redesign, cost, and weight increase could be expected for most of GM's vehicles. See Item 3, Legal Proceedings, Other Matters. With the passage of the Anti-Car Theft Act of 1992, implementation costs affect approximately 22 passenger car assembly plants and 4 light-duty truck plants. For the affected truck plants, the major expenditures were for new label printer installations and additional stamping equipment. AUTOMOTIVE FUEL ECONOMY The Energy Policy and Conservation Act passed in 1975 provided for production-weighted average fuel economy standards for passenger cars for 1978 and thereafter. Based on EPA combined city-highway test data, the General Motors 1996 model year domestic passenger car fleet is projected to attain a Corporate Average Fuel Economy (CAFE) of 28.3 miles per gallon (mpg) versus the standard of 27.5 mpg. The CAFE estimate for 1997 model year passenger cars is projected at 28.1 mpg versus the standard of 27.5 mpg. Fuel economy standards for light-duty trucks became effective in 1979. General Motors' light truck CAFE fleet average for the 1995 model year reached 20.1 mpg versus the standard of 20.6 mpg. For the 1996 model year, GM's truck CAFE is projected to be 20.7 mpg which is also the standard. GM's 1997 model year truck CAFE is projected at 20.4 mpg versus a standard of 20.7 mpg. Projected shortfalls to the standard are expected to be offset by credits from future model years. GM's ability to meet increased CAFE standards is contingent on various future economic, consumer, legislative, and regulatory factors that GM cannot control and cannot predict with certainty. If GM could not comply with any new CAFE standards, GM could be subject to sizable civil penalties and could have to close plants or severely restrict product offerings to remain in compliance. I-5 7 SEASONAL NATURE OF BUSINESS In the automotive business, there are retail sales fluctuations of a seasonal nature, so that production varies from month to month. In addition, the changeover period related to the annual new model introduction has traditionally occurred in the third quarter of each year. For this reason, third quarter operating results are, in general, less favorable than those in the other three quarters of the year, depending on the magnitude of the changeover needed to commence production of new models incorporating, for example, design modifications related to more fuel-efficient vehicle packaging, stricter government standards for safety and emission controls, and consumer-oriented improvements in performance, comfort, convenience, and style. SEGMENT REPORTING DATA Industry segment and geographic segment data for 1996, 1995, and 1994 are summarized in Note 22 of Notes to Consolidated Financial Statements in Part II. ****** The Registrant makes no attempt herein to predict the future trend of its business and earnings or the effect thereon of the results of changes in general economic, industrial, regulatory, and international conditions. ITEM 2. PROPERTIES The Corporation, excluding General Motors Acceptance Corporation, has 309 locations operating in 36 states and 165 cities in the United States. Of these, 25 are engaged in the final assembly of GM cars and trucks; 30 are service parts operations responsible for distribution or warehousing; 30 major plants, offices, and research facilities relate to the operations of Hughes Electronics Corporation; and the remainder are offices or involved primarily in the testing of vehicles or the manufacture of automotive components and power products. In addition, the Corporation has 18 locations in Canada and assembly, manufacturing, distribution, or warehousing operations in 54 other countries, including equity interests in associated companies which conduct assembly, manufacturing, or distribution operations. The major facilities outside the United States and Canada, which are principally vehicle manufacturing and assembly operations, are located in Germany, the United Kingdom, Brazil, Mexico, Austria, Belgium, and Spain. Most facilities are owned by the Corporation or its subsidiaries. Leased properties consist primarily of warehouses and administration, engineering, and sales offices. The leases for warehouses generally provide for an initial period of five years and contain renewal options. Leases for sales offices are generally for shorter periods. Properties of the Registrant and its subsidiaries include facilities which, in the opinion of management, are suitable and adequate for the manufacture, assembly, and distribution of their products. Additional information regarding worldwide expenditures for plants and equipment is presented under Management's Discussion and Analysis in Part II. ITEM 3. LEGAL PROCEEDINGS (a) Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation became, or was, a party during the year ended December 31, 1996, or subsequent thereto, but before the filing of this report are summarized below. Reference should also be made to Note 18 to Consolidated Financial Statements in Part II. ENVIRONMENTAL MATTERS In November, 1996, the Wayne County Department of Health Air Pollution Division ("Wayne County") informed General Motors that it was seeking fines in excess of $100,000 in connection with allegations that intermittent emissions of offensive odors have occurred since 1993 at GM's Oil Reclamation I-6 8 Facility at Clark Street in Detroit, Michigan. General Motors and Wayne County are continuing discussions to resolve this matter. * * On March 1, 1993, the U.S. Environmental Protection Agency ("EPA") Region V issued a civil administrative complaint alleging that stormwater from the Chevrolet-Pontiac-GM of Canada Group's Pontiac Fiero plant in Pontiac, Michigan exceeded the facility's National Pollutant Discharge System Permit from May 1989 through May 1992. On March 26, 1993, the Region V office of the EPA issued a Civil Administration Complaint against the Corporation alleging that 65 petroleum and hazardous substance underground storage tanks (USTs), which it has operated at its Technical Center in Warren, Michigan, have been in violation of certain of the EPA UST regulations. The EPA has proposed a civil penalty of $267,447. Based upon its current evaluation of this matter, General Motors believes that the operations cited by the EPA's complaint have been and remain in substantial compliance with applicable UST regulations. On June 28, 1996, an EPA Administrative Law Judge ("ALJ") made a determination that General Motors is liable for stormwater discharges from the closed Fiero assembly plant in Pontiac, Michigan which exceed the 1988 permit limits for copper, lead and zinc. The ALJ rejected General Motors' arguments that the permit (a) was void by Act of Congress, (b) had expired in 1990, and (c) in any event, did not apply because the source of the metals is not industrial operations but rather from (1) ambient rainfall and (2) dissolving by acid rain of copper gutters, lead solder and flashing, and galvanized roof decking. Ruling that copper, lead and zinc are pollutants for which dischargers are strictly responsible regardless of their source, the ALJ found General Motors liable for 92 permit exceedances. General Motors came into compliance in 1992 by coating the metal on the roof. The EPA sought the $125,000 maximum administrative penalty; the ALJ supervised negotiations between the EPA and General Motors regarding the amount of the penalty and recommended a penalty of $62,500. General Motors is appealing the amount of the penalty and the determination of strict liability before the EPA Board of Appeals. * * In March 1993, the Michigan Department of Natural Resources (MDNR) notified the Corporation's Powertrain Division (PD) that MDNR was making a referral to the Michigan Attorney General for resolution of allegations by MDNR that a PD facility in Saginaw, Michigan had failed to conduct a timely environmental investigation to MDNR's satisfaction of a landfill and certain other areas at the facility's property, and that PD's on-site water recycling basins were improperly discharging contaminants into the groundwater and the Saginaw River. * * On June 28, 1994, the Attorney General for the State of Michigan, on behalf of the MDNR, filed a complaint in Circuit Court of the 30th Judicial Circuit in Ingham County, Michigan alleging that several of GM's plants released polychlorinated biphenyls (commonly referred to as "PCBs") into the Saginaw River thereby causing damage to natural resources in the river and Saginaw Bay. The State has not asserted that it is seeking fines or penalties and no amount is specified in the complaint as damages, but the State is seeking reimbursement of all its past and future response costs, including enforcement costs, and natural resource damages relating to the Saginaw River and Bay. In this regard, representatives of the State have indicated that the State will be seeking "tens of millions of dollars" in damages as well as several million dollars in past response costs. GM is currently in discussions with representatives of the Michigan Attorney General and the MDNR regarding this matter. GM has also been advised that the U.S. Department of Interior ("DOI") may be conducting an investigation of these matters and any related damage to the environment, and that DOI may pursue independent claims against GM, the City of Saginaw and Bay City. I-7 9 * * OTHER MATTERS In October, 1994, as previously reported, a California jury awarded a total of $89.5 million in damages against Hughes, including punitive damages of $40 million to each of two former Hughes employees, Lane (race discrimination/retaliation) and Villalpando (retaliation), based on claims of mistreatment and denials of promotions. The trial court granted Hughes' motion to set aside the verdicts because of insufficient evidence. On January 6, 1997, the Court of Appeal reversed the trial court's decision to set aside the verdicts, reinstated the jury verdicts, but reduced the two $40 million punitive damage awards to $5 million and $2.83 million, resulting in an aggregate judgment of $17.33 million. Hughes has filed a petition for review by the California Supreme Court, which was supported by various amicus briefs. Because review by the California Supreme Court is in the discretion of that court, no assurance can be given that the case will be accepted for review, or that if accepted, the Supreme Court's decision will be favorable to Hughes. * * On April 26 and 27, 1996, two purported class actions, Keith McGill v. General Motors Corporation and Richard Dolowich v. General Motors Corporation, were filed against General Motors in the Supreme Court of the State of New York, Counties of Bronx and Suffolk, alleging defective rear disc brake caliper pins in the "GM W-Body car". These actions have been consolidated in the Supreme Court of the State of New York, County of Bronx. The Dolowich suit is brought on behalf of all persons and entities in the United States who currently own or lease or previously owned or leased a 1988-1993 Buick Regal, Oldsmobile Cutlass Supreme, Pontiac Grand Prix or Chevrolet Lumina. The McGill suit includes the same model year vehicles, but is brought on behalf of persons and entities residing in the State of New York who purchased or leased such vehicles and still own them. Three additional purported nationwide class actions, brought on behalf of current and previous owners of the same vehicles, have been filed in Federal courts in New Jersey, Garcia v. General Motors, and Pennsylvania, Neff v. General Motors and Marcel v. General Motors. Two additional purported class actions involving the same vehicles were filed, one in the Superior Court of New Jersey for Burlington County, Bishop v. General Motors Corporation and another in the United States District Court for the Eastern District of Pennsylvania, Cohen v. General Motors Corporation. Together, the complaints allege violation of state consumer protection laws, fraud, negligent misrepresentation, and breach of express and implied warranty, and seek unspecified amounts of economic damages, punitive damages not less than $20 million, attorneys' fees and costs, and injunctive relief. The Neff, Marcel and Cohen actions have been consolidated in Pennsylvania State Court. The Garcia and Bishop actions have been consolidated in New Jersey State Court. On November 11, 1996, the New Jersey state court rendered a decision certifying a class of all past and present owners of 1988 through 1993 model year Buick Regals, Chevrolet Luminas, Oldsmobile Cutlass Supremes and Pontiac Grand Prix. The New Jersey Appellate Division denied GM's motion for leave to appeal, but noted that the trial court is required to monitor compliance with the requirements to maintain a class. General Motors had requested the New Jersey Supreme Court to review the class certification. * * Two suits, Stephen A. Solomon v. General Motors Corporation, et al. and TRV Holding Company v. General Motors Corporation, et al., (collectively "Solomon/TRV"), were filed in Delaware Chancery Court on May 13 and 18, 1994, respectively. Such actions have been consolidated and a consolidated amended complaint was filed on April 2, 1996. In addition, on May 10, 1996, a second amended and supplemental consolidated complaint (the "Second Amended Complaint") was filed by plaintiffs in this action. Another lawsuit, Ward et al., as Trustees for the Eisenberg Children's Irrevocable Trust II v. General Motors Corporation, et al. ("Ward"), was filed in Delaware Chancery Court on November 15, 1995. On May 17, 1996, Solomon/TRV and Ward (collectively, "Solomon/TRV/Ward") were consolidated and the Second Amended Complaint was adopted as the complaint for the consolidated action. Solomon/TRV/Ward purports to be a class action brought on behalf of former holders of Class E common stock, $0.10 par value per share (the "Class E Common Stock"), of General Motors Corporation, a Delaware corporation ("General Motors"), against certain present and former directors of General Motors, as I-8 10 well as a double derivative action brought on behalf of EDS against certain present and former directors of General Motors and certain former directors of EDS (all of whom are also directors or officers of General Motors). EDS is named in the complaint only as a nominal defendant with respect to the double derivative action. The Second Amended Complaint alleges that defendants have breached and are continuing to breach their fiduciary duties in connection with their conduct with respect to EDS and the proposed split-off of EDS from General Motors (the "Split-Off"). In particular, the complaint alleges that the process of establishing terms for the Split-Off, including the consideration of alternatives to such transaction and the negotiating process in connection therewith, was unfairly dominated and controlled by General Motors and that the resulting terms unfairly benefit General Motors and its continuing shareholders, including the holders of common stock, $1 2/3 par value per share (the "$1 2/3 Common Stock"), and the Class H common stock, $0.10 par value per share (the "Class H Common Stock"), of General Motors, to the detriment of EDS and the former holders of Class E Common Stock. The complaint also alleges that the Split-Off would unfairly effect a disposition of EDS because it would not provide for a recapitalization of the Class E Common Stock into $1 2/3 Common Stock at a 120% exchange ratio, as had been provided in the General Motors Certificate of Incorporation upon a disposition by General Motors of substantially all of the business of EDS. Furthermore, the complaint alleges that the solicitation of consents by General Motors with respect to the proposed Split-Off is wrongfully coercive and the solicitation statement being used in connection therewith is materially deficient. The Second Amended Complaint seeks monetary damages from the defendants, as well as an injunction against further action in connection with the Split-Off. In addition, the complaint seeks an order appointing independent representatives to act on behalf of and protect the interests of EDS and the former holders of Class E Common Stock. The complaint also seeks an order requiring the defendants to disseminate completely all material information to the former holders of Class E Common Stock in connection with the Split-Off. On May 10, 1996, the plaintiffs in the consolidated action filed a motion for expedited proceedings, including a request for a hearing on their application for a preliminary injunction against further action in connection with the Split-Off. As a result of such application, a hearing on the plaintiffs' application for a preliminary injunction had been scheduled for May 30, 1996. On May 23, 1996, after limited discovery, the plaintiffs' counsel informed the court that plaintiffs had concluded that adequate relief could be afforded to the plaintiff class members after the Split-Off is consummated and were withdrawing their application for expedited proceedings including a preliminary injunction hearing. Thus, plaintiffs abandonded their pursuit of an injunction to prevent consummation of the Split-Off. On June 7, 1996, having received consent of a majority of the holders of each class of its common stock, General Motors Split-Off EDS to former General Motors Class E stockholders. (See Tabulation of consents at Item 4, page 36 of the Form 10-Q filed by General Motors for the Quarter Ended June 30, 1996). Since the date of the Split-Off, plaintiffs have not filed a further amended complaint. * * In September 1973, Hughes Aircraft Company ("HAC") filed suit against the U.S. Government in the U.S. Court of Claims seeking reasonable and entire compensation for the unauthorized manufacture or use by the United States of the invention claims in a HAC patent (the "Williams Patent") covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites. In late 1983, the United States Court of Appeals for the Federal Circuit (the U.S. Court with appellate jurisdiction for patent cases) ruled that the Williams Patent was valid and that the Government had infringed that patent. The compensation which HAC is entitled to recover as a result of the Government's infringement is now being determined by the U.S. Court of Claims, as well as whether additional U.S. Government satellites also infringe. The trial concluded in December 1988. HAC contended that its recovery should be calculated in accordance with either of two methods for computing delay compensation and introduced evidence to support an award of approximately $4.8 billion or $1.5 billion depending upon the methods used. The Government sought to demonstrate to the Court that any damages awarded to HAC in this case should not exceed $20-30 million. In August 1993, the Court determined that approximately $4 billion in satellite purchases infringed the patent. On June 17, 1994, the U.S. Court of Claims awarded Hughes damages of $114 million. Because Hughes believed that the record supported a higher royalty rate, it appealed that decision. The U.S. I-9 11 Government, contending that the award was too high, also appealed. On June 19, 1996, the Court of Appeals for the Federal Circuit affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the Court of Appeals for the Federal Circuit for a rehearing. That petition was denied in October of 1996. The U.S. Government has filed a petition with the U.S. Supreme Court seeking certiorari. In the opinion of management of Hughes, there is a reasonable possibility that this matter could be resolved in the near term. While no amount has been recorded in the financial statements of Hughes to reflect the $114 million award, a resolution of this matter could result in a gain that would be material to the earnings of General Motors attributable to Class H Common Stock. * * As previously reported, thirty-eight class actions have been filed in state and Federal courts against the Corporation, claiming that 1973-1987 model Chevrolet and GMC full-size pickup trucks are defective because their fuel tanks are mounted below the cab and outside the frame rails. Twenty-four Federal court class actions were transferred to the Federal court in Philadelphia, Pennsylvania by the Judicial Panel on Multidistrict Litigation. In these actions, plaintiffs claimed that the fuel tank locations make the vehicles unreasonably susceptible to fuel-fed fires following side-impact collisions. Plaintiffs alleged breach of contract and warranty, negligence, fraud and negligent misrepresentation, as well as violation of various state consumer protection laws. The lawsuits seek compensatory and punitive damages and injunctions requiring notice to owners, repairs, retrofitting and "disgorgement" of revenues. An agreement for a nationwide settlement of the class actions pending in federal and state courts received final court approval on December 19, 1996, by a state court in Louisiana. The settlement, which is not expected to have a material effect on the consolidated financial statements of General Motors, provides for owners of 1973 to 1991 full-size pickup trucks and cab chassis with outside-the-frame fuel tanks, as of July 3, 1996, to receive certificates for $1,000 toward the purchase of any new General Motors passenger car or light truck, except Saturns. The certificates can be used for the first 15 months at $1,000 or transferred one time, whereupon the transferee would be able to use the certificate for $500 ($250 if used with a General Motors rebate) toward the purchase of an eligible vehicle until expiration of the 15-month period. After the first 15 months, original recipients of the certificates may use them for an additional 18 months at $500 or transfer them, whereupon the transferee would be able to use the certificates for $250 towards the purchase of an eligible vehicle. For fleets and governmental entities, after the first 15 months, the certificates are reduced to $250 for an additional 35 months, but are not transferable, except to other departments or agencies of the same governmental entity. The settlement also provides for $4.1 million to fund motor vehicle fire safety research. Research funds will be used to benefit motor vehicle safety generally, and research will not be done on the pickup trucks. The court ordered General Motors to pay plaintiffs' attorneys' fees and costs totaling $27.875 million. Various appeals have been filed, including an appeal by General Motors seeking to reduce the award of fees and costs to plaintiffs' attorneys. Certificates will not be issued until appeals are concluded and the approval of the settlement is final. General Motors cannot estimate the amount of time required to resolve the various appeals. There are also pending individual product liability claims and lawsuits involving allegations of defects in the design of such vehicles resulting in fuel-fed fires following side-impact collisions. GM intends to defend these cases vigorously. * * On December 2, 1996, a purported class action, Alma Rose Rangel, et al. v. General Motors Corporation, was filed in District Court, Webb County, Texas, claiming that the Type III door latches used in approximately 40 million 1978 to 1986 model GM passenger cars and light trucks are defective. Plaintiffs allege breaches of express and implied warranties, negligence and gross negligence and seek compensatory and punitive damages and attorneys' fees. No determination has been made that the case can proceed as a class action. GM has removed the case to the United States District Court, Southern District of Texas, Laredo Division and intends to oppose certification of a class and defend the case vigorously. Separately, a petition to I-10 12 open a defect investigation of the Type III door latches was denied by the National Highway Safety Traffic Administration. * * Eight suits, denominated by plaintiffs as class actions, were filed in Delaware Chancery Court, Jules Levine v. General Motors Corporation, et al., on February 6, 1997; Steven Verkouteren v. General Motors Corporation, et al., on February 6, 1997; Malcolm Rosenwald v. General Motors Corporation, et al., on February 7, 1997; Richard Strauss v. General Motors Corporation, et al., on February 7, 1997; Jeanette Whited, et al. v. General Motors Corporation, et al., on February 26, 1997; Andrew Carlucci, I.R.A. v. General Motors Corporation, et al., on March 3, 1997; Dr. Joseph Mantel v. General Motors Corporation, et al., on March 5, 1997; and John P. McCarthy Profit Sharing Plan v. General Motors Corporation, et al., on March 6, 1997. On March 19, 1997, a proposed Order of Consolidation of all eight actions was forwarded to the Delaware Chancery Court on behalf of counsel for all plaintiffs. Under the proposed order, the complaint in the Whited suit would be adopted as the complaint in the consolidated action. That complaint purports to be brought against General Motors and its directors on behalf of Class H stockholders who either do not own any $1 2/3 common stock or who own a larger percentage of outstanding Class H common stock than they own of outstanding $1 2/3 common stock. The complaint alleges, essentially, that defendants are breaching their contractual and fiduciary obligations to holders of Class H common stock by structuring the spin-off of Hughes Electronics Corporation's defense business and related transactions (see discussion of Hughes Transactions at pp. II-58 and 59) to benefit General Motors and its $1 2/3 common stockholders at the expense of General Motors Class H common stockholders. It is further alleged, among other things, that Class H common stockholders are being coerced to forfeit the current provisions of GM's Certificate of Incorporation that would result under certain circumstances in a recapitalization of Class H common stock at a 120 percent exchange rate in order to receive the benefits of the transactions. It is also alleged that no independent representative is separately representing the interests of Class H common stockholders. Principally, the complaint seeks monetary damages, an order enjoining the transactions, the implementation of procedural safeguards to protect the interests of Class H stockholders, and the rescission of the transactions if they are consummated. Plaintiffs have advised that they intend to serve a Consolidated Amended Complaint as soon as practicable. GM believes the suits are without merit and intends to defend them vigorously. * * Four separate putative class actions have been filed alleging defects in vehicle paint. One has been dismissed. No determination has been made as to whether any of the three pending cases may proceed as a class action. As previously reported, on March 24, 1995, a purported nationwide class action, Christian Amedee and Louis Fuxan v. General Motors Corporation, et al., was filed in the Civil District Court for the Parish of New Orleans, State of Louisiana, alleging the paint or paint application process used by GM at several unspecified North American assembly plants was defective due to the omission of a surface layer primer, allegedly causing the paint to prematurely delaminate, deteriorate, and peel. Plaintiffs seek unspecified compensatory damages, equitable relief, interest, costs and attorneys' fees. On May 3, 1995, another purported class action, Barney Kizzire v. General Motors Corporation and Bynum Oldsmobile-Pontiac-Cadillac-GMC, Inc., was filed in the Circuit Court for Fayette County, Alabama, on behalf of a proposed class of Alabama residents who purchased 1989 GMC pickup trucks alleging that the paint was defective. That case was subsequently removed to federal court and the named plaintiff's claims were all dismissed with prejudice on November 27, 1996. On July 12, 1996, the Corporation was served with a putative class action filed in the Circuit Court of Greene County, Alabama, Robert J. Reining, et al. v. General Motors Corporation. The complaint alleges that the paint systems used in the 1985 through 1995 model years are defective or potentially defective because GM switched to "water-based primers" which could result in various problems with vehicle finish, and seeks compensatory damages, disgorgement of profits, exemplary damages, costs and a determination that GM is financially responsible for the costs of repair or replacement. On January 29, 1997, the Corporation was served with a putative class action, Karpowicz v. General Motors Corporation, filed in the Circuit Court of the Sixteenth Judicial Circuit in Kane County, Illinois. This I-11 13 case, purportedly brought on behalf of Illinois purchasers of new vehicles which experienced peeling paint, alleges that GM broke a promise to repair paint conditions for six years from the date of purchase and failed to implement fair and uniform corrective measures. The complaint seeks unspecified compensatory damages, statutory damages and penalties; an injunction halting the practices alleged; and attorneys' fees, litigation expenses and costs. * * As previously reported, several actions seeking compensatory and punitive damages in unspecified amounts were filed against Hughes by plaintiffs alleging that they suffered injuries as a result of the migration into the Tucson, Arizona water supply of alleged toxic substances that were disposed of at a facility owned by the United States Government which Hughes operates under a contract with the U.S. Air Force. These actions included a putative class action filed in Arizona State Court, Cordova v. Hughes Aircraft Company, an individual action filed on behalf of approximately 800 plaintiffs in Federal District Court in Arizona, Yslava v. Hughes Aircraft Company, and a class action filed in Federal District Court in Arizona, Lanier v. Hughes Aircraft Company. Other governmental and private entities are known to have also been sources of substances which may have migrated into the Tucson water supply. Hughes believes that it has strong defense to the claims asserted against it and that it may have claims for contribution against the other entities. In July, 1996, the Cordova court denied plaintiffs' motion for class certification and, subsequently, an amended complaint in intervention on behalf of more than 400 plaintiffs asserting individual claims was filed. * * On January 23, 1997, in the matter of Jacobson, et al v. Hughes Aircraft Co. et al, the U.S. Court of Appeals for the 9th Circuit reversed and remanded a decision of the U.S. District Court in Los Angeles in which the District court had dismissed the plaintiff's complaint without leave to amend, for failure to state a claim. The complaint in that action, filed in January, 1992, by five retired employees of Hughes as a putative class action to obtain increased retirement benefits, alleged that the Hughes Non-Bargaining Retirement Plan had been constructively terminated and split into two separate plans by virtue of action by Hughes in 1991 in which it amended the Plan in order to implement a non-contributory benefit formula for newly hired employees. The complaint alleges that an effect of the amendment is that assets of the Plan have been used improperly. On February 20, 1997, Hughes filed a request for rehearing seeking to reinstate the decisions of the District court, all of which was supported by friend of the court briefs by the Pension Benefit Guaranty Corporation, Raytheon, various industry groups, and Hughes retirees and employees associations. Hughes strongly believes that it should prevail in this action and that ultimately it will do so. If the rehearing is not granted by the U.S. Court of Appeals Hughes will seek certiorari from the U.S. Supreme Court. On February 10, 1997, citing the January 16, 1997 announcement by General Motors, Hughes Electronics and Raytheon of the planned spin-off of Hughes Aircraft Company from General Motors, and the planned merger of Hughes Aircraft Company with Raytheon Company, plaintiffs filed a motion with the U.S. Court of Appeals for the 9th Circuit seeking to enjoin Hughes and the Plan from transferring assets, control, or administration of the Plan to any other employer, or from terminating or amending the Plan. Hughes believes there is no basis for the injunctions sought by Plaintiffs. Hughes and the Plaintiffs have filed briefs with the Court of Appeals relating to Plaintiffs motion to enjoin, and await a decision of the Court. Hughes is vigorously contesting the motion. * * (b) Previously reported legal proceedings which have been terminated, either during the quarter ended December 31, 1996, or subsequent thereto, but before the filing of this report are summarized below: In connection with a matter that was reported as terminated in the GM Form 10-Q for the period ended June 30, 1996, specifically, approval by the United States District Court for the District of Columbia, on April 30, 1996 of a consent decree previously signed by the U.S. Environmental Protection Agency ("EPA"), the U.S. Department of Justice, and General Motors to resolve allegations that GM violated the Clean Air Act and EPA emissions regulations with regard to 470,000 1991-1995 model Cadillacs having 4.9 liter engines. I-12 14 GM has entered into a related agreement with the California Air Resources Board ("CARB") under which General Motors will pay $600,000 to the California Air Pollution Control Board, $500,000 to the University of Southern California to fund studies on the effects of air pollution on children's health and provide a number of electric vehicles and advanced electric vehicle batteries to CARB to resolve potential allegations that CARB was considering asserting against General Motors regarding non-compliance of the aforementioned Cadillac 4.9 liter engines under various vehicle emission standards and vehicle certification procedures required by California statutes and regulations. * * ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None during the three months ended December 31, 1996. * * * I-13 15 PART II GENERAL MOTORS CORPORATION AND SUBSIDIARIES CROSS REFERENCE SHEET
10-K ITEM PAGE (AND CAPTION) IN PART II --------- ----------------------------- 5. Market for Registrant's Common Equity and Related Stockholder Matters (a) Market information.................... II-42 -- Selected Quarterly Data (b) Approximate number of holders of common stocks......................... II-43 -- Selected Quarterly Data (c) Dividends (1) History.......................... II-42 -- Selected Quarterly Data (2) Policy........................... II-35 -- Dividends on Common Stocks 6. Selected Financial Data..................... II-45 -- Selected Financial Data 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ II-48 -- Management's Discussion and Analysis 8. Financial Statements and Supplementary Data........................................ II-2 -- Responsibilities for Consolidated Financial Statements II-3 -- Independent Auditors' Report II-4 -- Consolidated Statements of Income for the Years Ended December 31, 1996, 1995, and 1994 II-5 -- Consolidated Balance Sheets, December 31, 1996 and 1995 II-6 -- Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994 II-7 -- Notes to Consolidated Financial Statements II-42 -- Selected Quarterly Data 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................ None
II-1 16 RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS The following consolidated financial statements of General Motors Corporation and subsidiaries were prepared by management, which is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on judgments of management. Financial information elsewhere in this Annual Report is consistent with that in the consolidated financial statements. Management is further responsible for maintaining a system of internal accounting controls that is designed to provide reasonable assurance that the books and records reflect the transactions of the companies and that its established policies and procedures are carefully followed. From a stockholder's point of view, perhaps the most important feature in the system of controls is that it is continually reviewed for its effectiveness and is augmented by written policies and guidelines, the careful selection and training of qualified personnel, and a strong program of internal audit. Deloitte & Touche LLP, an independent auditing firm, is engaged to audit the consolidated financial statements of General Motors Corporation and subsidiaries and issue reports thereon. The audit is conducted in accordance with generally accepted auditing standards that comprehend the consideration of internal accounting controls and tests of transactions to the extent necessary to form an independent opinion on the financial statements prepared by management. The Independent Auditors' Report appears on the next page. The Board of Directors, through the Audit Committee (composed entirely of non-employee Directors), is responsible for assuring that management fulfills its responsibilities in the preparation of the consolidated financial statements. The Committee selects the independent auditors annually in advance of the Annual Meeting of Stockholders and submits the selection for ratification at the Meeting. In addition, the Committee reviews the scope of the audits and the accounting principles being applied in financial reporting. The independent auditors, representatives of management, and the internal auditors meet regularly (separately and jointly) with the Committee to review the activities of each, to ensure that each is properly discharging its responsibilities, and to assess the effectiveness of the system of internal accounting controls. It is management's conclusion that the system of internal accounting controls at December 31, 1996 provides reasonable assurance that the books and records reflect the transactions of the companies and that its established policies and procedures are complied with. To ensure complete independence, Deloitte & Touche LLP has full and free access to meet with the Committee, without management representatives present, to discuss the results of the audit, the adequacy of internal accounting controls, and the quality of the financial reporting. /s/ JOHN F. SMITH, JR. /s/ J. MICHAEL LOSH - ------------------------------------- --------------------------- JOHN F. SMITH, JR. J. MICHAEL LOSH Chairman, Chief Executive Officer, Chief Financial Officer and President
II-2 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, 1996 and 1995 and the related Consolidated Statements of Income and Cash Flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed at Item 14. These financial statements and the financial statement schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of General Motors Corporation and subsidiaries at December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 1 to the financial statements, effective January 1, 1995 the Corporation changed its method of accounting for sales to daily rental car companies. Also, as discussed in Notes 1 and 4 to the financial statements, respectively, effective January 1, 1994 the Corporation changed its methods of accounting for postemployment benefits and certain investments in debt and equity securities. /s/ DELOITTE & TOUCHE LLP - -------------------------------------- DELOITTE & TOUCHE LLP Detroit, Michigan January 28, 1997 II-3 18 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net sales and revenues (Note 1) Manufactured products....................................... $145,341 $143,666 $134,760 Financial services.......................................... 12,674 11,664 9,419 Other income (Note 3)....................................... 6,054 4,942 4,320 -------- -------- -------- Total net sales and revenues.......................... 164,069 160,272 148,499 -------- -------- -------- Costs and expenses Cost of sales and other operating charges, exclusive of items listed below........................................ 123,922 121,300 113,585 Selling, general and administrative expenses................ 14,580 12,550 11,319 Depreciation and amortization expenses (Note 1)............. 11,840 11,213 9,645 Interest expense (Note 11).................................. 5,695 5,182 5,392 Plant closings reserve adjustments (Note 17)................ (727) -- -- Other deductions (Note 3)................................... 2,083 1,678 1,460 -------- -------- -------- Total costs and expenses.............................. 157,393 151,923 141,401 -------- -------- -------- Income from continuing operations before income taxes....... 6,676 8,349 7,098 Income taxes (Note 7)....................................... 1,723 2,316 2,232 -------- -------- -------- Income from continuing operations before cumulative effect of accounting changes..................................... 4,953 6,033 4,866 Income from discontinued operations (Note 2)................ 10 900 793 Cumulative effect of accounting changes (Note 1)............ -- (52) (758) -------- -------- -------- Net Income............................................ 4,963 6,881 4,901 Preference shares tender offer premium (Note 19)............ -- 153 -- Dividends on preference stocks (Note 19).................... 81 211 321 -------- -------- -------- Earnings on common stocks............................. $ 4,882 $ 6,517 $ 4,580 ======== ======== ======== Earnings attributable to common stocks (Note 20) $1 2/3 par value from continuing operations before cumulative effect of accounting changes................. $ 4,589 $ 5,404 $ 4,296 Income (loss) from discontinued operations (Note 2)....... (5) 105 349 Cumulative effect of accounting changes (Note 1).......... -- (52) (751) -------- -------- -------- Net earnings attributable to $1 2/3 par value......... $ 4,584 $ 5,457 $ 3,894 ======== ======== ======== Income from discontinued operations attributable to Class E (Note 2).............................................. $ 15 $ 795 $ 444 ======== ======== ======== Class H before cumulative effect of accounting change..... $ 283 $ 265 $ 249 Cumulative effect of accounting change (Note 1)........... -- -- (7) -------- -------- -------- Net earnings attributable to Class H.................. $ 283 $ 265 $ 242 ======== ======== ======== Average number of shares of common stocks outstanding (in millions) $1 2/3 par value.......................................... 756 750 741 Class E (Notes 2 and 20).................................. 470 405 260 Class H................................................... 98 96 92 Earnings per share attributable to common stocks (Note 20) $1 2/3 par value from continuing operations before cumulative effect of accounting changes................. $6.07 $7.14 $5.74 Income (loss) from discontinued operations (Note 2)....... (0.01) 0.14 0.46 Cumulative effect of accounting changes (Note 1).......... -- (0.07) (1.05) -------- -------- -------- Net earnings attributable to $1 2/3 par value......... $6.06 $7.21 $5.15 ======== ======== ======== Income from discontinued operations attributable to Class E (Note 2).............................................. $0.04 $1.96 $1.71 ======== ======== ======== Class H before cumulative effect of accounting change..... $2.88 $2.77 $2.70 Cumulative effect of accounting change (Note 1)........... -- -- (0.08) -------- -------- -------- Net earnings attributable to Class H.................. $2.88 $2.77 $2.62 ======== ======== ========
Reference should be made to the notes to consolidated financial statements. II-4 19 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------------- 1996 1995 ---- ---- (DOLLARS IN MILLIONS) ASSETS Cash and cash equivalents................................... $ 14,063 $ 10,495 Other marketable securities................................. 8,199 5,523 -------- -------- Total cash and marketable securities (Notes 1 and 4)... 22,262 16,018 Finance receivables -- net (Note 5)......................... 57,550 59,806 Accounts and notes receivable (less allowances)............. 6,557 6,979 Inventories (less allowances) (Note 6)...................... 11,898 11,348 Net assets of discontinued operations (Note 2).............. -- 5,055 Contracts in process (less advances and progress payments of $1,010 and $1,327) (Note 1)............................... 2,507 2,469 Deferred income taxes (Note 7).............................. 19,510 19,720 Equipment on operating leases (less accumulated depreciation of $7,661 and $7,225) (Note 8)............................ 30,112 27,702 Property (Note 1) Real estate, plants, and equipment (Note 9)............... 69,770 67,415 Less accumulated depreciation............................. (41,298) (41,017) -------- -------- Net real estate, plants, and equipment................. 28,472 26,398 Special tools -- net...................................... 9,032 8,171 -------- -------- Total property......................................... 37,504 34,569 Intangible assets -- net (Notes 1 and 10)................... 12,691 10,273 Other assets................................................ 21,551 19,724 -------- -------- Total assets........................................... $222,142 $213,663 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable (principally trade)........................ $ 14,221 $ 12,685 Notes and loans payable (Note 11)........................... 85,300 81,222 Deferred income taxes (Note 7).............................. 3,207 3,108 Postretirement benefits other than pensions (Note 14)....... 43,190 41,596 Pensions (Note 16).......................................... 7,599 6,691 Other liabilities and deferred credits (Note 15)............ 45,207 45,015 -------- -------- Total liabilities...................................... 198,724 190,317 Stockholders' equity (Notes 19 and 20) Preference stocks........................................... 1 1 Common stocks $1 2/3 par value (issued, 756,619,625 and 753,008,273 shares)................................................ 1,261 1,255 Class E (Note 2; issued, 442,812,166 shares in 1995)...... -- 44 Class H (Note 23; issued, 100,075,000 and 97,152,014 shares)................................................ 10 10 Capital surplus (principally additional paid-in capital).... 19,189 18,871 Retained earnings........................................... 6,137 7,185 -------- -------- Subtotal............................................... 26,598 27,366 Minimum pension liability adjustment (Note 16).............. (3,490) (4,736) Accumulated foreign currency translation adjustments........ (113) 223 Net unrealized gains on investments in certain debt and equity securities (Note 4)................................ 423 493 -------- -------- Total stockholders' equity............................. 23,418 23,346 -------- -------- Total liabilities and stockholders' equity............. $222,142 $213,663 ======== ========
Reference should be made to the notes to consolidated financial statements. II-5 20 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Cash flows from operating activities Income from continuing operations before cumulative effect of accounting changes................................... $ 4,953 $ 6,033 $ 4,866 Adjustments to reconcile income from continuing operations before cumulative effect of accounting changes to net cash provided by operating activities Depreciation and amortization expenses................ 11,840 11,213 9,645 Provision for ongoing postretirement benefits other than pensions, net of cash payments................ 1,575 1,684 2,253 Pension expense, net of cash contributions............ 801 (2,932) (5,018) Plant closings reserve adjustments.................... (727) -- -- Pre-tax loss (gain) on sale of business units......... 253 116 (18) Originations and purchases of mortgage loans.......... (19,455) (12,086) (10,136) Proceeds on sales of mortgage loans................... 18,157 11,613 10,719 Provision for financing losses........................ 669 449 177 Change in other operating assets and liabilities Accounts receivable................................ (178) (331) (1,991) Inventories........................................ (757) (1,214) (1,656) Accounts payable................................... 1,530 980 1,267 Deferred taxes and income taxes payable............ (562) 1,892 968 Other liabilities.................................. 227 31 2,573 Other................................................. 394 (899) (2,523) --------- --------- --------- Net cash provided by operating activities................... 18,720 16,549 11,126 --------- --------- --------- Cash flows from investing activities Expenditures for property................................. (9,949) (8,786) (6,023) Special inter-company payment from EDS (Note 2)........... 500 -- -- Investments in other marketable securities -- acquisitions............................................ (27,431) (17,794) (14,236) Investments in other marketable securities -- liquidations............................................ 24,966 17,254 13,583 Finance receivables -- acquisitions....................... (155,477) (163,033) (156,580) Finance receivables -- liquidations....................... 120,253 134,265 136,151 Proceeds from sales of finance receivables................ 36,657 25,389 20,248 Operating leases -- acquisitions.......................... (18,494) (15,125) (14,938) Operating leases -- liquidations.......................... 10,507 6,268 4,698 Other..................................................... 778 (495) 888 --------- --------- --------- Net cash used in investing activities....................... (17,690) (22,057) (16,209) --------- --------- --------- Cash flows from financing activities Net increase in loans payable............................. 660 6,227 3,900 Increase in long-term debt................................ 15,933 11,242 12,351 Decrease in long-term debt................................ (12,810) (9,580) (14,111) Proceeds from the sale of minority interest in DIRECTV(R).............................................. 138 -- -- Repurchases of common and preference stocks............... (251) (1,681) -- Proceeds from issuing common stocks....................... 480 453 1,017 Cash dividends paid to stockholders....................... (1,530) (1,328) (1,112) --------- --------- --------- Net cash provided by financing activities................... 2,620 5,333 2,045 --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents............................................... (185) 146 (14) --------- --------- --------- Net cash provided by (used in) continuing operations........ 3,465 (29) (3,052) Net cash provided by (used in) discontinued operations...... 103 193 (24) --------- --------- --------- Net increase (decrease) in cash and cash equivalents........ 3,568 164 (3,076) Cash and cash equivalents at beginning of the year.......... 10,495 10,331 13,407 --------- --------- --------- Cash and cash equivalents at end of the year................ $ 14,063 $ 10,495 $ 10,331 ========= ========= =========
Reference should be made to the notes to consolidated financial statements. II-6 21 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of General Motors Corporation (hereinafter referred to as the Corporation) and domestic and foreign subsidiaries that are more than 50% owned (Note 2), principally General Motors Acceptance Corporation and Subsidiaries (GMAC) and Hughes Electronics Corporation and Subsidiaries (Hughes) (collectively referred to as General Motors or GM). General Motors' share of earnings or losses of associates, in which at least 20% of the voting securities is owned, is included in the consolidated operating results using the equity method of accounting (Note 3). GM encourages reference to the GMAC Annual Report on Form 10-K for the period ended December 31, 1996, filed with the Securities and Exchange Commission, and the Hughes consolidated financial statements included as Exhibit 99 to the GM Annual Report on Form 10-K for the period ended December 31, 1996. Certain amounts for 1995 and 1994 have been reclassified to conform with the 1996 classifications. USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates. REVENUE RECOGNITION Sales are generally recorded when products are shipped or when services are rendered to independent dealers or other third parties. Provisions for normal dealer sales incentives, returns and allowances, and GM Card rebates are made at the time of vehicle sale. Costs related to special sales incentive programs are recognized as reductions to sales when determinable. The Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached a consensus in November 1995 on Issue No. 95-1, Revenue Recognition on Sales with a Guaranteed Minimum Resale Value, and concluded that a manufacturer must account for the sale of equipment as an operating lease if it guarantees the resale value of the equipment to the purchaser. The Corporation modified its revenue recognition policy on sales to daily rental car companies, effective January 1, 1995, to conform to the consensus. Adoption of this consensus resulted in an unfavorable cumulative effect of $52 million after-tax, or $0.07 per share, attributable to $1 2/3 par value common stock. Sales under long-term contracts, primarily in the defense business, are generally recorded using the percentage-of-completion (cost-to-cost) method of accounting. Sales under certain long-term commercial contracts are recorded using the units-of-delivery method. Profits expected to be realized on contracts are based on estimates of total sales value and costs at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts and adjustments to profits resulting from such revisions are recorded in the accounting period in which the revisions are made. Estimated losses on contracts are recorded in the period in which they are identified. Income on finance receivables in which the face amount includes the finance charge (principally retail financing) is recorded over the terms of the receivables using the interest method. Interest on finance receivables in which the face amount represents the principal (including retail, wholesale, leasing and lease financing, and term loans to dealers) is recorded using the simple interest method. Certain loan origination costs are deferred and amortized to financing revenue over the lives of the related loans using the interest method. II-7 22 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION (CONCLUDED) Income from operating lease assets is recognized as scheduled payments become due. Certain operating lease origination costs are deferred and amortized to financing revenue over the lives of the related operating leases using the straight-line method. Insurance premiums are earned on a basis related to coverage provided over the terms of the policies. Commission costs and premium taxes incurred in acquiring new business are deferred and amortized over the terms of the related policies on the same basis as premiums are earned. The liability for losses represents estimates from reported losses and also includes a provision for unreported losses, based on past experience, net of the estimated salvage and subrogation recoverable. PRODUCT-RELATED EXPENSES Advertising and sales promotion, research and development, and other product-related costs are charged to expense as incurred; provisions for estimated expenses related to product warranty are made at the time the products are sold. Advertising expense amounted to $3.4 billion in 1996, $3.1 billion in 1995, and $2.8 billion in 1994. Research and development expense was $8.9 billion in 1996, $8.2 billion in 1995, and $6.9 billion in 1994. DEPRECIATION AND AMORTIZATION Depreciation is provided based on estimated useful lives of groups of property generally using accelerated methods, which accumulate depreciation of approximately two-thirds of the depreciable cost during the first half of the estimated useful lives. Leasehold improvements are amortized over the period of the lease or the life of the property, whichever is shorter, with the amortization applied directly to the asset account. Depreciation on capitalized leases with a term of five years or less is provided using the straight-line method; leases with a term in excess of five years are depreciated using the foregoing accelerated methods. Depreciation of vehicles and other equipment on operating leases or in General Motors' use is provided generally on a straight-line basis. The difference between the net book value and the proceeds of sale or salvage on items disposed of is accounted for as a charge against or credit to the provision for depreciation. Expenditures for special tools are amortized over their estimated useful lives, primarily using the units of production method. Amortization is applied directly to the asset account. Replacement of special tools for reasons other than changes in products is charged directly to cost of sales. Depreciation and amortization expenses were as follows (in millions):
YEARS ENDED DECEMBER 31, ---------------------------- 1996 1995 1994 ---- ---- ---- Depreciation................................................ $ 8,825 $ 7,746 $6,547 Amortization of special tools............................... 2,856 3,212 2,901 Amortization of intangible assets (Note 10)................. 159 255 197 ------- ------- ------ Total..................................................... $11,840 $11,213 $9,645 ======= ======= ======
II-8 23 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FOREIGN CURRENCY TRANSLATION Exchange and translation (losses) gains on an after-tax basis included in consolidated net income in 1996, 1995, and 1994 amounted to $(380) million, $(381) million, and $207 million, respectively. CASH AND CASH EQUIVALENTS Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less. Cash paid for interest and income taxes was as follows (in millions):
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 1994 ---- ---- ---- Interest.................................................... $5,792 $5,927 $5,056 Income taxes................................................ $2,338 $ 447 $1,510
With respect to noncash transactions, approximately 3 million Series C Preference shares were converted into 45 million Class E shares in 1996 (Notes 2 and 19) and 173 million shares of Class E common stock were contributed to the U.S. pension plans in 1995 (Notes 2 and 16). Also, General Motors entered into capital lease agreements totaling $132 million, $267 million, and $25 million, in 1996, 1995, and 1994, respectively. ALLOWANCE FOR FINANCING LOSSES An allowance for financing losses is generally established during the period in which receivables are acquired and is maintained in amounts considered by management to be appropriate in relation to receivables outstanding. Losses arising from the sale of repossessed collateral are charged to the allowance for financing losses. Where repossession has not been effected, losses are charged off as soon as it is determined that the collateral cannot be repossessed, generally not more than 150 days after default. REPOSSESSED PROPERTY AND IMPAIRED LOANS Losses arising from repossession of the collateral supporting doubtful accounts and property supporting defaulted operating leases are recognized upon repossession. Repossessed assets are recorded at the lower of historical cost or estimated realizable value in other assets and the related adjustments to the valuation allowance are included in operating expense. Nonretail finance receivables are reduced to the estimated fair value of collateral when determined to be impaired or uncollectible. CONTRACTS IN PROCESS Contracts in process are stated at costs incurred plus estimated profit, less amounts billed to customers and advances and progress payments applied. Engineering, tooling, manufacturing, and applicable overhead costs, including administrative, research and development, and selling expenses are charged to costs and expenses when incurred. Contracts in process also include estimates relating to claims, requests for equitable adjustments and amounts withheld pending negotiation or settlement with customers. Under certain contracts with the U.S. Government, progress payments are received based on costs incurred on the respective contracts. Title to the inventories related to such contracts (included in contracts in process) vests with the U.S. Government. II-9 24 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) VALUATION OF LONG-LIVED ASSETS Effective January 1, 1996, General Motors adopted Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In accordance with this standard, General Motors periodically evaluates the carrying value of long-lived assets to be held and used, including goodwill and other intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. The adoption of this new accounting standard did not have a material effect on General Motors' consolidated operating results or financial position. DERIVATIVE INSTRUMENTS General Motors is party to a variety of foreign exchange, interest rate, and commodity forward contracts and options entered into in connection with the management of its exposure to fluctuations in foreign exchange rates, interest rates, and certain commodities prices. These financial exposures are managed in accordance with corporate policies and procedures. Foreign exchange forward and option contracts are accounted for as hedges to the extent they are designated, and are effective as, hedges of firm foreign currency commitments. Additionally, certain foreign exchange option contracts receive hedge accounting treatment to the extent such contracts hedge certain anticipated foreign currency transactions. Other such foreign exchange contracts and options are marked to market on a current basis. Interest rate swaps that are designated, and effective as, hedges of underlying debt obligations are not marked to market, but are used to adjust interest expense recognized over the lives of the underlying debt agreements. Gains and losses from terminated contracts are deferred and amortized over the remaining period of the original contract. Open interest rate swaps are reviewed regularly to ensure that they remain effective as hedges of interest rate exposure. Written options (including swaptions, interest rate caps and collars, and swaps with embedded options) and other swaps that do not qualify for hedge accounting are marked to market on a current basis. General Motors also enters into commodity forward and option contracts. Since General Motors has the discretion to settle these transactions either in cash or by taking physical delivery, these contracts are not considered financial instruments for accounting purposes. Commodity forward contracts and options are accounted for as hedges to the extent they are designated, and are effective as, hedges of firm or anticipated commodity purchase contracts. Other commodity forward contracts and options are marked to market on a current basis. POSTEMPLOYMENT BENEFITS Effective January 1, 1994, General Motors adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits. SFAS No. 112 requires accrual of the costs of benefits provided to former or inactive employees after employment, but before retirement. The unfavorable cumulative effect of adopting SFAS No. 112, determined on a discounted basis, was $1.2 billion ($758 million after-tax), or $751 million ($1.05 per share) attributable to $1 2/3 par value common stock and $7 million ($0.08 per share) attributable to II-10 25 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED) POSTEMPLOYMENT BENEFITS (CONCLUDED) GM Class H common stock. The noncash charge was primarily related to General Motors' extended-disability benefit program in the U.S., which under SFAS No. 112, is accrued on a service-driven basis. ENVIRONMENTAL LIABILITIES General Motors recognizes environmental liabilities when a loss is probable and can be reasonably estimated. Such liabilities are generally not subject to insurance coverage. The cost of each environmental liability is estimated by engineering, financial, and legal specialists within General Motors based on current law. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that other potentially responsible parties (PRPs) will be able to fulfill their commitments at the sites where General Motors may be jointly and severally liable. At sites being addressed under the U.S. Comprehensive Environmental Response, Compensation and Liability Act or similar state laws (the Superfund Sites), General Motors typically recognizes a loss once it has been named as a PRP and has determined that some loss is probable and estimable. The Superfund Sites are primarily multi-PRP sites not owned or operated by General Motors. For General Motors' operating plants, an estimated liability is typically recognized either upon completion of an environmental assessment or when General Motors proposes an agreement with the appropriate regulatory agency to take action at a site. For closed or closing plants owned by General Motors and properties being sold, an estimated liability is typically recognized at the time the closure decision is made or sale is recorded and is based on an environmental assessment of the plant property. General Motors' estimates for environmental obligations are dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, uncertainty as to what remedy and technology will be required, the outcome of discussions with regulatory agencies and other PRPs at multi-party sites, the number and financial viability of other PRPs, and the timing of expenditures; accordingly, such estimates could change materially as General Motors periodically evaluates and revises such estimates based on expenditures against established reserves and the availability of additional information. STOCK INCENTIVE PLANS Effective January 1, 1996, General Motors adopted SFAS No. 123, Accounting for Stock-Based Compensation, and as permitted by this standard, will continue to apply the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25 to its stock options and other stock-based employee compensation awards. General Motors has determined that the differences between SFAS No. 123 and APB Opinion No. 25, when applied to its options and awards, are not significant in relation to reported net income and earnings per share. LABOR FORCE General Motors, on a worldwide basis, has a concentration of its labor supply in employees working under union collective bargaining agreements, which represent approximately 86% of its hourly workforce and 8% of its salaried workforce. Of these represented employees, approximately 86% of hourly and 37% of salaried employees are working under agreements that will expire in 1999. Although new national collective bargaining agreements were completed with the United Auto Workers and Canadian Auto Workers during 1996, several local union agreements have expired and currently are under negotiation. Certain of General Motors suppliers also have represented work forces. Work stoppages by represented employees could disrupt the assembly of vehicles. II-11 26 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 2. EDS SPLIT-OFF On June 7, 1996 General Motors split-off Electronic Data Systems Corporation (EDS) to General Motors Class E stockholders on a tax-free basis for U.S. federal income tax purposes. Under the terms of the split-off, each share of General Motors former Class E common stock was exchanged for one share of EDS common stock. In addition, General Motors and EDS entered into a new 10-year agreement, under which EDS will continue to be General Motors' principal provider of information technology services and EDS made a special inter-company payment of $500 million to General Motors. The financial data related to EDS prior to the June 7, 1996 split-off from General Motors are classified as discontinued operations. The financial results of EDS, including assets and liabilities, subsequent to the split-off are not included in General Motors' consolidated financial statements. EDS systems and other contracts revenues from outside customers included in income from discontinued operations totaled $4.3 billion, $8.5 billion, and $6.4 billion for the years ended December 31, 1996, 1995, and 1994, respectively. Income from discontinued operations of $10 million, $900 million, and $793 million for the years ended December 31, 1996, 1995, and 1994, is reported net of income tax expense of $14 million, $528 million, and $462 million, respectively. Prior to the split-off, General Motors approved certain EDS actions to maintain and improve operating efficiencies and accelerate its move to "user-centered" computing. As a result, income from discontinued operations for 1996 includes a one-time charge of $328 million after-taxes related to these actions. Income from discontinued operations for 1996 also includes split-off expenses attributable to $1 2/3 par value common stock of $15 million after-taxes or $0.02 per share of $1 2/3 par value common stock. Income from discontinued operations for 1995 and 1994 includes $39 million, $0.05 per share of $1 2/3 par value common stock, and $29 million, $0.04 per share of $1 2/3 par value common stock, respectively, of expense associated with purchase accounting adjustments made at the time of General Motors' purchase of EDS. The net assets of EDS were as follows (in millions):
DECEMBER 31, 1995 ------------ Current assets.............................................. $ 4,382 Property and equipment -- net............................... 3,319 Operating and other assets.................................. 3,208 Current liabilities......................................... (3,261) Deferred income taxes....................................... (740) Notes payable............................................... (1,853) ------- Net assets of discontinued operations.................. $ 5,055 =======
General Motors no longer owns the outstanding shares of EDS and, accordingly, General Motors' consolidated balance sheet reflects decreased stockholders' equity and liabilities as well as decreased assets. The split-off resulted in an overall reduction in General Motors' consolidated net worth of $4.5 billion at June 7, 1996, including the effect of the $500 million special inter-company payment from EDS. II-12 27 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 3. OTHER INCOME AND OTHER DEDUCTIONS Other income and other deductions included the following (in millions):
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ---- ---- ---- Other income Nonfinancing interest..................................... $1,679 $1,586 $1,389 Insurance premiums........................................ 947 867 874 Claims, commissions, and grants........................... 670 604 467 Equity in net earnings of associates...................... 129 281 232 Income from sales of receivables programs................. 625 744 690 Mortgage servicing and processing fees.................... 489 375 209 Gain on sale of interest in DIRECTV(R)(1)................. 120 -- -- Gain on sale of Avis, Inc. preferred stock(2)............. 105 -- -- Other..................................................... 1,290 485 459 ------ ------ ------ Total other income..................................... $6,054 $4,942 $4,320 ====== ====== ====== Other deductions Insurance losses and loss adjustment expenses............. $ 622 $ 621 $ 750 Provision for financing losses............................ 669 449 177 Loss on sale of facilities(3)............................. 253 -- -- Loss on sale of NCRS' net assets(4)....................... -- 148 -- Other..................................................... 539 460 533 ------ ------ ------ Total other deductions................................. $2,083 $1,678 $1,460 ====== ====== ======
- ------------------------- (1) During 1996, the sale of a 2.5% interest in DIRECTV to AT&T resulted in a gain of $120 million ($72 million after-tax or $0.07 per share of $1 2/3 par value common stock and $0.18 per share of Class H common stock). (2) The sale of GM's preferred stock interest in Avis, Inc. resulted in a gain of $105 million ($65 million after taxes or $0.09 per share of $1 2/3 par value common stock). (3) In 1996, GM-NAO/Delphi sold four Delphi component facilities and GM-NAO's Oshawa die-management business, which resulted in a pre-tax loss of $253 million ($157 million after-tax or $0.21 per share of $1 2/3 par value common stock). (4) The Corporation sold National Car Rental System's (NCRS) net assets, which resulted in $163 million of net income or $0.22 per share of $1 2/3 par value common stock. The 1995 net income reflects $310 million of tax benefits related to the restructuring for NCRS in 1992. The tax benefits were not previously recorded due to the uncertainty of ultimate realization. NOTE 4. MARKETABLE AND OTHER SECURITIES Effective January 1, 1994, General Motors adopted SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, which resulted in a $241 million after-tax increase in stockholders' equity. Under SFAS No. 115, debt and equity securities with readily determinable fair values are classified as trading, available-for-sale or held-to-maturity. Marketable securities held by General Motors are classified as available-for-sale, except for certain mortgage related securities of GMAC, which were classified as trading securities. The aggregate excess of fair value over cost, net of related income taxes, for available-for-sale securities is included as a separate II-13 28 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 4. MARKETABLE AND OTHER SECURITIES (CONCLUDED) component of stockholders' equity. The excess of fair value over cost for trading securities is included in income on a current basis. General Motors determines cost on the specific identification basis. Investments in marketable securities were as follows (in millions):
December 31, 1996 ----------------------------------------- Fair Unrealized Unrealized Cost Value Gains Losses Type of Security ---- ----- ---------- ---------- Bonds, notes, and other securities United States government and governmental agencies and authorities........................................ $1,702 $1,705 $ 5 $ (2) States, municipalities, and political subdivisions.... 1,573 1,648 85 (10) Mortgage-backed securities............................ 62 64 2 -- Other................................................. 3,410 3,441 40 (9) ------ ------ ---- ---- Total debt securities available for sale................ 6,747 6,858 132 (21) Mortgage-backed securities held for trading purposes........................................... 697 697 -- -- ------ ------ ---- ---- Total debt securities................................... 7,444 7,555 132 (21) Equity securities....................................... 384 799 430 (15) ------ ------ ---- ---- Total investment in securities..................... $7,828 $8,354 $562 $(36) ====== ====== ==== ====
December 31, 1995 ----------------------------------------- Fair Unrealized Unrealized Cost Value Gains Losses Type of Security ---- ----- ---------- ---------- Bonds, notes, and other securities United States government and governmental agencies and authorities........................................ $ 529 $ 541 $ 12 $ -- States, municipalities, and political subdivisions.... 1,721 1,825 113 (9) Mortgage-backed securities............................ 77 79 3 (1) Other................................................. 1,990 2,043 54 (1) ------ ------ ---- ---- Total debt securities available for sale................ 4,317 4,488 182 (11) Mortgage-backed securities held for trading purposes........................................... 485 485 -- -- ------ ------ ---- ---- Total debt securities................................... 4,802 4,973 182 (11) Equity securities....................................... 336 752 428 (12) ------ ------ ---- ---- Total investment in securities..................... $5,138 $5,725 $610 $(23) ====== ====== ==== ====
Debt securities totaling $1.8 billion mature within one year, $2.8 billion mature after one through five years, $1.4 billion mature in after five years through 10 years, and $1.5 billion mature after 10 years. Proceeds from sales and maturities of marketable securities totaled $5.7 billion in 1996, $6.2 billion in 1995, and $2.4 billion in 1994. The gross gains and (losses) related to sales of marketable securities were $236 million and $(33) million, $118 million and $(29) million, and $96 million and $(43) million in 1996, 1995, and 1994, respectively. Other securities classified as cash equivalents were $13.5 billion and $9.8 billion at December 31, 1996 and 1995, respectively, and consisted primarily of commercial paper, repurchase agreements, and certificates of deposit. II-14 29 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 5. FINANCE RECEIVABLES -- NET Finance receivables-net included the following (in millions):
DECEMBER 31, ------------------ 1996 1995 ---- ---- U.S. Retail.................................................... $26,867 $26,980 Wholesale................................................. 13,826 16,190 Leasing and lease financing............................... 1,139 1,327 Term loans to dealers and others.......................... 3,314 3,656 ------- ------- Total U.S.............................................. 45,146 48,153 ------- ------- Canada, Mexico and International Retail.................................................... 8,586 8,651 Wholesale................................................. 5,725 5,506 Leasing and lease financing............................... 2,007 1,733 Term loans to dealers and others.......................... 555 493 ------- ------- Total Canada, Mexico and International................. 16,873 16,383 ------- ------- Total finance receivables......................... 62,019 64,536 Less -- Unearned income..................................... (3,547) (3,922) -- Allowance for financing losses....................... (922) (808) ------- ------- Total finance receivables -- net.................. $57,550 $59,806 ======= =======
The aggregate amount of total finance receivables maturing in each of the five years following December 31, 1996 is as follows: 1997 - $35.6 billion; 1998 - - $11.2 billion; 1999 - $8.9 billion; 2000 - $4.3 billion; 2001 - $1.6 billion; and 2002 and thereafter - $448 million. GMAC participates in various sales of receivables programs and sold retail finance receivables through special purpose subsidiaries with principal aggregating $2.2 billion in 1996 and $3.6 billion in 1995. These subsidiaries generally retain a subordinated investment of no greater than 7.5% of the total receivables pool and market the remaining portion. These subordinated investments absorb losses related to sold receivables to the extent that such losses are greater than the excess cash flows from those receivables and cash reserves related to the sale transaction. Pre-tax gains relating to such sales recorded in other income (excluding limited recourse loss provisions that generally have been provided at the time the contracts were originally acquired) amounted to $35 million in 1996, $38 million in 1995, and $31 million in 1994. GMAC continues to service these receivables for a fee and earns other related ongoing income. GMAC's retail finance receivable servicing portfolio amounted to $4.3 billion and $6.6 billion at December 31, 1996 and 1995, respectively. GMAC also sold wholesale receivables that it continues to service for a fee. The wholesale receivables servicing portfolio totaled $5.4 billion and $4.7 billion at December 31, 1996 and 1995, respectively. Additionally, GMAC is committed to sell eligible wholesale receivables, on a revolving basis, arising in certain dealer accounts. II-15 30 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 6. INVENTORIES Inventories included the following (in millions):
DECEMBER 31, ------------------ 1996 1995 ---- ---- Productive material, work in process, and supplies.......... $ 6,590 $ 6,570 Finished product, service parts, etc........................ 5,308 4,778 ------- ------- Total inventories (less allowances)....................... $11,898 $11,348 ======= ======= Increase in LIFO inventories if valued at FIFO.............. $ 2,346 $ 2,424
Inventories are stated generally at cost, which is not in excess of market. The cost of substantially all U.S. inventories other than the inventories of Saturn Corporation (Saturn) and Hughes is determined by the last-in, first-out (LIFO) method. The cost of non-U.S., Saturn, and Hughes inventories is determined generally by either the first-in, first-out (FIFO) or average cost methods. NOTE 7. INCOME TAXES The provision for income taxes was estimated as follows (in millions):
YEARS ENDED DECEMBER 31, --------------------------- 1996 1995 1994 ---- ---- ---- Income taxes estimated to be payable (refundable) currently U.S. federal.............................................. $ (357) $(1,000) $ 266 Foreign................................................... 1,607 1,314 862 U.S. state and local...................................... 197 16 37 ------ ------- ------ Total payable currently................................ 1,447 330 1,165 ------ ------- ------ Deferred income tax (benefit) expense -- net U.S. federal.............................................. 477 2,007 560 Foreign................................................... (147) (88) 455 U.S. state and local...................................... (15) 136 108 ------ ------- ------ Total deferred......................................... 315 2,055 1,123 ------ ------- ------ Investment tax credits...................................... (39) (69) (56) ------ ------- ------ Total income taxes................................ $1,723 $ 2,316 $2,232 ====== ======= ======
Deferred income tax assets and liabilities for 1996 and 1995 reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. The net deferred tax asset in the U.S. was $17.5 billion and $18.4 billion at December 31, 1996 and 1995, respectively. II-16 31 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 7. INCOME TAXES (CONTINUED) Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities included the following (in millions):
DECEMBER 31, ------------------------------------------------ 1996 1995 ---------------------- ---------------------- DEFERRED TAX DEFERRED TAX ---------------------- ---------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- Postretirement benefits other than pensions............ $16,392 $ -- $15,812 $ -- Minimum pension liability adjustment................... 2,036 -- 2,927 -- Employee benefit plans................................. 1,789 6,575 2,029 6,563 Policy and warranty reserves........................... 2,293 -- 2,085 -- Sales and product reserves............................. 1,505 12 1,549 143 Plant closings and restructuring reserves.............. 549 -- 962 -- Profits on long-term contracts......................... 371 142 384 204 Alternative minimum tax credit carryforwards........... 625 -- 730 -- Depreciation........................................... 486 4,682 595 4,775 Capitalized research and experimentation............... 370 -- 571 -- U.S. state net operating loss carryforwards............ 494 -- 478 -- Financing losses....................................... 323 -- 298 -- Tax credit carryforwards............................... 396 -- 537 -- Lease transactions..................................... -- 2,415 -- 2,255 Tax on unremitted profits.............................. -- 576 -- 468 Other U.S.............................................. 5,932 2,802 5,930 2,962 Miscellaneous foreign.................................. 1,525 492 1,141 318 ------- ------- ------- ------- Subtotal............................................. 35,086 17,696 36,028 17,688 Valuation allowances................................... (1,076) -- (1,102) -- ------- ------- ------- ------- Total deferred taxes.............................. $34,010 $17,696 $34,926 $17,688 ======= ======= ======= =======
Realization of the net deferred tax assets is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards. Although realization is not assured, management believes that it is more likely than not that the net deferred tax assets will be realized. The amount of the net deferred tax assets considered realizable; however, could be reduced in the near term if actual future taxable income is lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable temporary differences. The valuation allowances (decreased) increased by $(26) million and $139 million in 1996 and 1995, respectively. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ materially from the amount accrued. The alternative minimum tax credit can be carried forward indefinitely. The U.S. state net operating loss carryforwards will expire in the years 1997 - 2010 if not utilized; however, a substantial portion will not expire until after the year 2000. The tax credit carryforwards will expire in the years 2000 - 2010 if not utilized. Provisions are made for estimated U.S. and foreign income taxes, less available tax credits and deductions, which may be incurred on the remittance of the Corporation's share of subsidiaries' undistributed earnings not deemed to be permanently invested. Taxes have not been provided on foreign subsidiaries' earnings, which are deemed essentially permanently reinvested, of approximately $8.7 billion at December 31, 1996 and $7.3 billion at December 31, 1995. Quantification of the deferred tax liability, if any, associated with permanently reinvested earnings is not practicable. II-17 32 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 7. INCOME TAXES (CONCLUDED) Income from continuing operations before income taxes included the following (in millions):
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 1994 ---- ---- ---- U.S. income................................................. $1,747 $3,621 $2,218 Foreign income.............................................. 4,929 4,728 4,880 ------ ------ ------ Total..................................................... $6,676 $8,349 $7,098 ====== ====== ======
A reconciliation of the provision for income taxes compared with the amounts at the U.S. federal statutory rate was as follows (in millions):
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 1994 ---- ---- ---- Tax at U.S. federal statutory income tax rate............... $2,336 $2,922 $2,484 U.S. net operating loss carryback........................... (4) (190) -- U.S. state and local income taxes........................... 122 113 110 Investment tax credits amortized............................ (39) (69) (56) U.S. tax effect of foreign earnings and dividends........... 40 292 127 Foreign rates other than 35%................................ (285) (220) (473) Taxes on unremitted earnings of subsidiaries................ 49 139 123 Effect of equity in net earnings of associates.............. (45) (98) (81) Sale of NCRS' net assets.................................... -- (258) -- Tax effect of the 1995 contribution of Class E common stock to the U.S. hourly pension plan........................... (245) -- -- Research and experimentation credits........................ (165) (74) -- Other adjustments........................................... (41) (241) (2) ------ ------ ------ Consolidated income tax................................... $1,723 $2,316 $2,232 ====== ====== ======
NOTE 8. EQUIPMENT ON OPERATING LEASES AND LEASE COMMITMENTS The value of General Motors' net equipment on operating leases is based on estimated residual values of the leased equipment, which are calculated on the lease inception dates. Realization of the residual values is dependent on General Motors' future ability to market the equipment under then prevailing market conditions. Although realization is not assured, management believes it is more likely than not that the estimated residual values will be realized. The lease payments to be received related to equipment on operating leases maturing in each of the five years following December 31, 1996 are as follows: 1997-$5.8 billion; 1998-$3.6 billion; 1999-$1.4 billion; 2000-$251 million; and 2001-$112 million. General Motors had the following minimum commitments under noncancelable operating leases having terms in excess of one year primarily for real property: 1997-$715 million; 1998-$596 million; 1999-$596 million; 2000-$584 million; 2001-$479 million; and $2,029 million in 2002 and thereafter. Certain of the leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases were $853 million in 1996, $769 million in 1995, and $816 million in 1994. II-18 33 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 9. REAL ESTATE, PLANTS, AND EQUIPMENT Real estate, plants, and equipment included the following (in millions):
ESTIMATED DECEMBER 31, USEFUL ------------------ LIVES (YEARS) 1996 1995 ------------- ---- ---- Land........................................................ -- $ 720 $ 647 Land improvements........................................... 20-40 1,888 1,874 Leasehold improvements -- less amortization................. 8-10 297 269 Buildings................................................... 29-45 13,433 13,204 Machinery and equipment..................................... 3-27 46,629 45,635 Furniture and office equipment.............................. 5-20 1,144 1,073 Capitalized leases.......................................... 5-40 1,441 1,403 Construction in progress.................................... -- 4,218 3,310 ------- ------- Total real estate, plants, and equipment............... $69,770 $67,415 ======= =======
NOTE 10. INTANGIBLE ASSETS -- NET Intangible assets -- net included the following (in millions):
DECEMBER 31, ------------------ 1996 1995 ---- ---- Pensions (Note 16).......................................... $ 8,969 $ 6,501 Intangible assets relating to acquisition of Hughes......... 2,723 2,846 Goodwill relating to all other acquisitions................. 999 926 ------- ------- Total intangible assets -- net......................... $12,691 $10,273 ======= =======
Intangible assets arising from the acquisition of Hughes relate to patents and related technology and other intangible assets that were originally recorded in 1985 and are principally amortized over 40 years. Goodwill resulting from other acquisitions is amortized over periods not exceeding 40 years. II-19 34 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11. NOTES AND LOANS PAYABLE Notes and loans payable were as follows (in millions):
DECEMBER 31, WEIGHTED AVERAGE ------------------ INTEREST RATE(1) 1996 1995 ---------------- ---- ---- Notes and loans Payable within one year Current portion of long-term debt..................... 6.8% $12,469 $12,868 Commercial paper(2)................................... 5.8% 22,678 21,914 All other(2).......................................... 5.5% 12,079 11,618 Payable beyond one year 1997.................................................. -- -- 11,797 1998.................................................. 6.6% 10,318 6,443 1999.................................................. 6.8% 7,860 4,545 2000.................................................. 7.7% 5,048 3,516 2001.................................................. 6.8% 4,400 1,784 2002 and after........................................ 7.5% 11,414 7,858 Unamortized discount....................................... (966) (1,121) ------- ------- Total notes and loans payable.................... $85,300 $81,222 ======= =======
- ------------------------- (1) The weighted average interest rate for 1996 includes the impact of interest rate swap agreements. (2) The weighted average interest rate for commercial paper and all other short-term borrowings was 5.9% and 6.6%, respectively, at December 31, 1995. After consideration of foreign currency swaps, the above 1996 maturities, payable beyond one year, include $6.6 billion in currencies other than the U.S. Dollar, primarily the Canadian Dollar ($2.1 billion), the German Mark ($1.5 billion), the British Pound ($1.1 billion) and the Australian Dollar ($1 billion). At December 31, 1996 and 1995, notes and loans payable include $70 billion and $67 billion of obligations with fixed interest rates and $15 billion and $14 billion of obligations with variable interest rates (predominantly based on the London Interbank Offering Rate or LIBOR), after considering the impact of interest rate swap agreements. To achieve its desired balance, within prescribed limits, between fixed and variable rate debt, General Motors has entered into interest rate swap, cap, collar, option, and swaption agreements. The notional amounts of such agreements as of December 31, 1996 were approximately $13.2 billion ($6 billion pay variable and $7.2 billion pay fixed), $3.9 billion, $50 million, $6 billion, and $891 million, respectively. The notional amounts of such agreements as of December 31, 1995 were approximately $7.1 billion ($3.6 billion pay variable and $3.5 billion pay fixed), $340 million, $50 million, $nil, and $270 million, respectively. General Motors and its subsidiaries maintain substantial bank lines of credit with various banks that totaled $53.7 billion at December 31, 1996, of which $32.4 billion represented short-term credit facilities and $21.3 billion represented long-term credit facilities. At December 31, 1995, bank lines of credit totaled $50.9 billion, of which $30.1 billion represented short-term credit facilities and $20.8 billion represented long-term credit facilities. The unused short-term and long-term portions of the credit lines totaled $21.9 billion and $19.2 billion at December 31, 1996, compared with $20.6 billion and $18.8 billion at December 31, 1995. Certain bank lines of credit contain covenants with which the Corporation and applicable subsidiaries were in compliance at December 31, 1996. Certain bank lines of credit are supported by bank commitment fees and compensating balances. Compensating balances, which are not subject to withdrawal restrictions, are maintained at a level required to II-20 35 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11. NOTES AND LOANS PAYABLE (CONCLUDED) provide the same income that a fee would generate. Total commitment and facilities fees incurred by General Motors amounted to $36 million in 1996, $44 million in 1995, and $59 million in 1994. Total compensating balances maintained by General Motors in lieu of commitment fees averaged $25 million and $12 million in 1996 and 1995, respectively. Total interest cost incurred in 1996, 1995, and 1994 amounted to $5.7 billion, $5.2 billion, and $5.4 billion, respectively, of which $49 million, $50 million, and $33 million related to certain real estate, plants, and equipment that were capitalized in those years. NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT General Motors is a party to financial instruments with off-balance-sheet risk. These financial instruments are used in the normal course of business to manage the Corporation's exposure to fluctuations in interest rates and foreign exchange rates, and to meet the financing needs of its customers. The primary classes of derivatives used by General Motors are foreign exchange forward contracts and options, interest rate swaps and options, and forward contracts to purchase or sell mortgages or mortgage-backed securities. Those instruments involve, to varying degrees, market risk, as the instruments are subject to rate and price fluctuations, and elements of credit risk in the event a counterparty should default. Credit risk is managed through the approval and periodic monitoring of financially sound counterparties. Derivative transactions are entered to hedge underlying business exposures. Market risk in these instruments is offset by opposite movements in the underlying exposure. Cash receipts or payments on these contracts normally occur at maturity, or for interest rate swap agreements, at periodic contractually defined intervals. FOREIGN EXCHANGE FORWARD CONTRACTS AND OPTIONS General Motors is an international corporation with operations in over 50 countries and has foreign currency exposures at these operations related to buying, selling, and financing in currencies other than the local currency. General Motors' most significant foreign currency exposures relate to Canada, Mexico, Western European countries (primarily Germany, United Kingdom, Spain, Italy, Belgium and France), Australia, Japan, and Brazil. The magnitude of these exposures significantly varies over time depending upon the strength of local automotive markets and sourcing decisions. General Motors enters into agreements by which it seeks to manage certain of its foreign exchange exposures in accordance with established policy guidelines. These agreements primarily hedge cash flows such as debt, firm commitments and anticipated transactions involving vehicles, components, fixed assets, and subsidiary dividends. As a general practice, General Motors has not hedged the foreign exchange exposure related to either the translation of overseas earnings into U.S. dollars, or the translation of overseas equity positions back to U.S. dollars. General Motors uses foreign exchange forward contracts as well as purchased and written foreign exchange options. Foreign exchange forward contracts are legal agreements between two parties to purchase or to sell a foreign currency, for a price specified at the contract date, with delivery and settlement in the future. Cross-currency swaps are included in this category and relate to interest rate swaps in which the underlying notional principal amounts are in different currencies. At December 31, 1996 and 1995, General Motors held foreign exchange forward contracts of $8.3 billion and $10.9 billion (including cross-currency swaps of $2.4 billion and $1.3 billion), respectively. At December 31, 1996 and 1995, General Motors had entered into foreign exchange options of $3.5 billion and $3.8 billion, respectively. II-21 36 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) FOREIGN EXCHANGE FORWARD CONTRACTS AND OPTIONS (CONCLUDED) Deferred hedging gains on outstanding foreign exchange forward contracts hedging firm commitments to purchase inventory or fixed assets totaled $14 million and $1 million at December 31, 1996 and 1995, respectively. Deferred hedging losses on outstanding foreign exchange option contracts hedging firm and anticipated transactions to purchase inventory or fixed assets totaled $15 million at December 31, 1996. Such deferred amounts on outstanding foreign exchange forward and option contracts will be included in the cost of such assets when purchased, and subsequently recognized in operations as part of the basis of these assets. In the event the contract is terminated early or the anticipated transaction is no longer likely to occur, the derivative is then marked to market. Foreign exchange forward contracts, which hedge foreign exchange exposures of anticipated inventory or fixed asset transactions, are marked to market and recognized with other gains or losses on foreign exchange transactions in the consolidated statement of income. General Motors' firm commitments typically extend for periods of up to three years. INTEREST RATE SWAPS AND OPTIONS General Motors' financing and cash management activities subject it to market risk from exposure to changes in interest rates. General Motors has entered into various financial instrument transactions to maintain the desired level of exposure to the risk of interest rate fluctuations and to minimize interest expense. To achieve this objective, General Motors will at times use written options in the management of these exposures. In a limited number of cases, interest rate swaps are matched to the anticipated roll-over of investments, wholesale assets or debt, and are executed over terms of up to five years on a portfolio basis to achieve specific interest rate management objectives. Swaps are also matched to operating lease payments where interest rate exposure exists. The differential paid or received on such swaps is recorded as an adjustment to expense or income over the term of the underlying agreement or matched portfolio. Interest rate swaps are contractual agreements between General Motors and another party to exchange fixed and floating interest rate payments periodically over the life of the agreements without the exchange of underlying principal amounts. Interest rate options, including swaptions and interest rate caps and floors may result in the future exchange of interest payments if market interest rates reach certain levels. At December 31, 1996 and 1995, the total notional amount of such agreements with off-balance-sheet risk was $30.8 billion and $15.9 billion, respectively. Interest rate swaps used to hedge an underlying debt obligation are not marked to market, but are used to adjust interest expense recognized over the life of the underlying debt agreement. Gains and losses on terminated interest rate swaps are deferred and recognized as a yield adjustment on the underlying debt. Unamortized net gains (losses) on interest rate swaps totaled approximately $33 million and $(22) million at December 31, 1996 and 1995, respectively. Written options, including those embedded in interest rate swaps, written interest rate caps and written swaptions, and interest rate swaps that do not meet settlement accounting criteria are marked to market with related gains and losses recognized in income on a current basis. MORTGAGE CONTRACTS GMAC has also entered into contracts to purchase and sell mortgages at specific future dates and has entered into certain exchange traded futures and option contracts to reduce exposure to interest rate risk. At December 31, 1996 and 1995, commitments to sell mortgage loans totaled $1.5 billion and $2.2 billion, respectively and commitments to purchase or originate mortgage loans totaled $2.6 billion and $2.9 billion, respectively. GMAC's exchange traded futures and option contracts, which are used to hedge mortgage loans held for sale, had notional values of $2.4 billion and $100 million at December 31, 1996 and 1995, respectively. II-22 37 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONCLUDED) MORTGAGE CONTRACTS (CONCLUDED) Gains and losses on derivatives, including exchange traded futures and option contracts, used to hedge interest rate risk associated with rate locked funding commitments and mortgage loans held for sale, are deferred and considered in the reporting of the underlying mortgages on a lower of cost or market basis. The notional values of derivatives used to hedge price and interest rate risk associated with mortgage related securities totaled $4.8 billion and $66 million at December 31, 1996 and 1995, respectively. Gains and losses associated with these instruments are recognized in the current period on a mark-to-market basis. Derivatives used to hedge mortgage servicing rights had notional values of $11 billion and $5 billion at December 31, 1996 and 1995, respectively. Gains and losses on such contracts are recorded as an adjustment to amortization expense. GMAC has also entered into interest rate swaps in an effort to stabilize short-term borrowing costs and to maintain a minimum return on certain mortgage loans held for investment. Amounts received or paid under such interest rate swaps are recorded as an adjustment to interest expense. At December 31, 1996 and 1995, the notional values of such instruments totaled $327 million and $133 million, respectively. CREDIT RISK The forward contracts, swaps, options, and lines of credit previously discussed contain an element of risk that the counterparties may be unable to meet the terms of the agreements. However, General Motors minimizes such risk exposure for forward contracts, swaps and options by limiting the counterparties to major international banks and financial institutions who meet established credit guidelines and by limiting the amount of its risk exposure with any one bank or financial institution. Management also reduces its credit risk for unused lines of credit by applying the same credit policies in making commitments as it does for extending loans. Management does not expect to incur any losses as a result of counterparty default. General Motors generally does not require or place collateral for these financial instruments, except for the lines of credit it extends. General Motors has business activities with customers, dealers, and associates around the world. The Corporation's receivables from, and guarantees to, such parties are well diversified, and when warranted, are secured by collateral. Consequently, in management's opinion, no significant concentration of credit risk exists for General Motors. NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with the requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments and SFAS No. 119, Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments, General Motors has provided the following fair value estimates and information about valuation methodologies. The estimated fair value amounts have been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. Fair value information presented herein is based on information available at December 31, 1996 and 1995. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been updated since those dates and; therefore, the current estimates of fair value at dates subsequent to December 31, 1996 and 1995 may differ significantly from these amounts. The II-23 38 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) estimated fair value of financial instruments held by General Motors, for which it is practicable to estimate that value, are set forth below: Book and fair values of financial instruments were as follows (in millions):
DECEMBER 31, -------------------------------------------- 1996 1995 -------------------- -------------------- BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ----- ----- ----- ----- Assets Cash and marketable securities.................... $ 22,262 $ 22,262 $ 16,018 $ 16,018 Finance receivables -- net........................ 57,545 57,584 59,789 60,171 Accounts and notes receivable -- net.............. 6,485 6,485 6,936 6,936 Other assets...................................... 7,191 7,294 5,782 5,809 Liabilities Accounts payable.................................. (14,221) (14,221) (12,685) (12,685) Notes and loans payable Payable within one year........................ (47,024) (47,080) (46,056) (46,134) Payable beyond one year........................ (38,276) (41,113) (35,166) (39,095) Other liabilities................................... (624) (635) (623) (640)
The prior table excludes the book value and fair value of financial instrument derivatives which were as follows (in millions):
FAIR VALUE OF OPEN CONTRACTS(1) AT DECEMBER 31, ---------------------------------------------- 1996 1995 --------------------- --------------------- ASSET LIABILITY ASSET LIABILITY POSITION POSITION POSITION POSITION -------- --------- -------- --------- Foreign exchange forward contracts(2)(3)................... $190 $(410) $284 $(163) Foreign exchange options................................... 38 (11) 28 (29) Interest rate swaps........................................ 107 (152) 181 (133) Interest rate options...................................... 1 (12) -- (42) Mortgage contracts......................................... 40 (34) 46 (43)
- ------------------------- (1) The related asset (liability) recorded on the balance sheet for foreign exchange forward contracts, foreign exchange options, interest rate swaps, and interest rate options totaled $(24) million, $42 million, $(57) million, and $(11) million, respectively, at December 31, 1996 and $69 million, $(1) million, $(21) million, and $(46) million, respectively, at December 31, 1995. The related asset recorded on the balance sheet for mortgage contracts was $12 million and $5 million at December 31, 1996 and 1995, respectively. (2) Foreign exchange forward contracts include certain derivatives with both foreign exchange and interest rate exposures which had a fair value of $(94) million and $75 million at December 31, 1996 and 1995, respectively. (3) The loss in fair value on the open foreign exchange forward contracts in 1996 was largely offset by a gain in the fair value of the related underlying debt instruments. II-24 39 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The following methods and assumptions were used to estimate the fair value of each class of financial instrument: CASH AND MARKETABLE SECURITIES The fair value of cash equivalents and marketable securities is determined principally based on quoted market prices. FINANCE RECEIVABLES The fair value is estimated by discounting the future cash flows using applicable spreads to approximate current rates applicable to each category of finance receivables. The carrying value of wholesale receivables and other receivables whose interest rates adjust on a short-term basis with applicable market indices (generally the prime rate) are assumed to approximate fair value either due to their short maturities or due to the interest rate adjustment feature. ACCOUNTS AND NOTES RECEIVABLE AND ACCOUNTS PAYABLE For receivables and payables with short maturities the book values approximate market values. OTHER ASSETS AND OTHER LIABILITIES Other assets reported at December 31, 1996 and 1995 include various financial instruments (e.g., long-term receivables and certain investments) having a fair value based on discounted cash flows, market quotations, and other appropriate valuation techniques. The fair values of retained subordinated interests in trusts and excess servicing assets (net of deferred costs) are derived by discounting expected cash flows using current market rates. Estimated values of Industrial Development Bonds, included in other liabilities and deferred credits, are based on quoted market prices for the same or similar issues. NOTES AND LOANS PAYABLE The fair value of the debt payable within one year is determined by using quoted market prices, if available, or calculating the estimated value of each bank loan, note, or debenture in the portfolio at the applicable rate in effect. Commercial paper, master notes, and demand notes have an original term of less than 90 days and; therefore, the carrying amount of these liabilities is considered fair value. Debt payable beyond one year has an estimated fair value based on quoted market prices for the same or similar issues or based on the current rates offered to General Motors for debt of similar remaining maturities. FOREIGN EXCHANGE FORWARD CONTRACTS AND OPTIONS The fair value of foreign exchange forward contracts is determined by using current exchange rates. The fair value of foreign exchange options is estimated using pricing models with indicative quotes obtained for the market variables. INTEREST RATE SWAPS AND OPTIONS The fair value of interest rate swaps, including contracts with optionality, is estimated using pricing models based upon current market interest rates. Exchange traded futures are valued at quoted market prices. II-25 40 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED) MORTGAGE CONTRACTS The fair value of such contracts is estimated based upon the amount that would be received or paid to terminate the contracts based on market prices of similar financial instruments and current rates for mortgage loans. UNUSED LINES OF CREDIT Because loans extended under these commitments are at market interest rates, there is no significant fair value position related to the outstanding commitments. NOTE 14. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS General Motors maintains hourly and salaried benefit plans that provide postretirement medical, dental, vision, and life insurance to most U.S. retirees and eligible dependents. These benefits are funded as incurred from the general assets of General Motors. SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires that the cost of such benefits be recognized in the consolidated financial statements during the period employees provide service to General Motors. Certain of the Corporation's non-U.S. subsidiaries have postretirement plans, although most participants are covered by government sponsored or administered programs. The postretirement cost of such programs generally is not significant to General Motors. The components of non-pension postretirement benefit cost were as follows (in millions):
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 1994 ---- ---- ---- Benefits earned during the year............................. $ 668 $ 617 $ 955 Interest accrued on benefits earned in prior years.......... 2,980 3,120 3,114 Termination, curtailment and settlement (gains) losses...... (3) 26 (233) Amortization of net actuarial (gains) losses................ 43 (7) 407 Amortization of prior service costs due to plan changes..... (116) (116) (121) ------ ------ ------ Total non-pension postretirement benefit cost.......... $3,572 $3,640 $4,122 ====== ====== ======
The status of the plans at December 31 was as follows (in millions):
1996 1995 ---- ---- Accumulated postretirement benefit obligation (APBO) Current retirees.......................................... $23,498 $23,155 Fully eligible active plan participants................... 6,427 5,296 Other active plan participants............................ 11,462 12,411 ------- ------- APBO........................................................ 41,387 40,862 Unamortized prior service costs due to plan changes......... 679 795 Unamortized net amount resulting from changes in plan experience and actuarial assumptions..................................... 1,124 (61) ------- ------- Net postretirement benefit obligation.................. $43,190 $41,596 ======= =======
II-26 41 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 14. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONCLUDED) The principal assumptions used were as follows:
1996 1995 1994 ---- ---- ---- Weighted average discount rate.............................. 7.8% 7.5% 8.8% Weighted average rate of increase in future compensation levels related to pay-related life insurance................................ 4.4% 4.3% 4.2% Base weighted average health care cost trend rate(1)........ 6.5% 6.5% 8.7% Ultimate sustained weighted average health care cost trend rate in 2002(2)........................................... 5.0% 5.0% 5.5%
- ------------------------- (1) Current year trend rate assumed at beginning of year was adjusted to actual to determine year-end obligations. (2) Rate remains at 6.5% through 1999 and then decreases on a linear basis through 2002, to the ultimate weighted average trend rate of 5.0%. A one percentage point increase in the assumed health care trend rate would have increased the APBO by $4.3 billion at December 31, 1996 and increased the aggregate service and interest cost components of non-pension postretirement benefit expense for 1996 by $450 million. A one percentage point increase in the weighted average discount rate would result in a $4.4 billion decrease in the APBO at December 31, 1996. General Motors has disclosed in the consolidated financial statements certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as "accumulated postretirement benefit obligations," "liabilities," or "obligations." Notwithstanding the recording of such amounts and the use of these terms, General Motors does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of General Motors (other than pensions) represent legally enforceable liabilities of General Motors. NOTE 15. OTHER LIABILITIES AND DEFERRED CREDITS Other liabilities and deferred credits included the following (in millions):
DECEMBER 31, --------------------- 1996 1995 ---- ---- Warranties, dealer and customer allowances, claims, discounts, etc............................................ $13,702 $12,581 Customer deposits........................................... 6,658 7,325 Payrolls and employee benefits (excludes postemployment).... 4,568 4,138 Unpaid insurance losses, loss adjustment expenses and unearned insurance premiums............................... 3,020 2,922 Plant closings (excludes environmental)..................... 1,397 2,612 Environmental cleanup....................................... 646 692 Postemployment benefits..................................... 2,075 2,219 Governmental and other contract related..................... 1,060 970 Taxes, other than income taxes.............................. 1,334 1,363 Deferred credits............................................ 1,502 1,505 Interest.................................................... 2,180 2,277 Industrial Development Bonds................................ 624 623 Other....................................................... 6,441 5,788 ------- ------- Total other liabilities and deferred credits........... $45,207 $45,015 ======= =======
II-27 42 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 16. PENSIONS General Motors has a number of defined benefit pension plans covering substantially all employees. Plans covering U.S. and Canadian represented employees generally provide benefits of negotiated, stated amounts for each year of service as well as significant supplemental benefits for employees who retire with 30 years of service before normal retirement age. The benefits provided by the plans covering U.S. and Canadian salaried employees and employees in certain foreign locations, are generally based on years of service and salary history. General Motors also has certain nonqualified pension plans covering executives that are based on targeted wage replacement percentages and are unfunded. The measurement dates used for the principal U.S. plans of the Corporation and Hughes were December 31 and December 1, respectively. For non-U.S. plans, the measurement dates were December 1 for Canadian plans and October 1 for other foreign plans. Plan assets are primarily invested in U.S. Government obligations, equity and fixed income securities, commingled pension trust funds, insurance contracts, the Corporation's $1 2/3 par value common stock, and EDS common stock (valued as of the 1996 measurement date at $1.2 billion and $5.3 billion, respectively). In March 1995, under the terms of an agreement between the Corporation and the Pension Benefit Guarantee Corporation (the PBGC), the Corporation contributed to the General Motors Hourly-Rate Employees Pension Plan (Hourly Plan) 173.2 million shares of Class E common stock valued at $6.3 billion on such date. Subsequent to the split-off of EDS, the Class E stock held by the Hourly Plan was exchanged for EDS common stock (Note 2). Subject to the terms of the agreement with the PBGC, the Corporation will defer the use of funding credits that would otherwise result from certain cash and stock contributions. Consequently, the Corporation will continue to make regular cash contributions to the Hourly Plan over the next several years. The agreement with the PBGC released EDS from liability, if any, under Title IV of the Employees Retirement Income Security Act (ERISA) for the Corporation's U.S. Pension Plans. In addition, in connection with the contribution of the shares of Class E common stock, the U.S. Department of Labor granted an exemption with respect to, among other things, limits otherwise applicable under ERISA on the amount of Class E common stock that could be legally held by the Hourly Plan. General Motors' funding policy with respect to its qualified plans is to contribute annually not less than the minimum required by applicable law and regulation. General Motors made pension contributions to the U.S. plans of $800 million in 1996, $10.4 billion in 1995, and $7.7 billion in 1994. Pension expense included the following (in millions):
NON-U.S. U.S. PLANS PLANS ---------- -------- YEAR ENDED DECEMBER 31, 1996 Benefits earned during the year $ 1,208 $ 185 Interest on projected benefit obligation.................. 4,777 653 Return on assets Actual gain............................................ (8,035) (929) Less deferred gain..................................... 1,752 442 Net amortization.......................................... 1,436 139 -------- ----- Net periodic pension cost................................. 1,138 490 Termination, curtailment, and settlement benefits......... 59 60 Other..................................................... 10 98 -------- ----- Net pension expense.................................. $ 1,207 $ 648 ======== =====
II-28 43 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 16. PENSIONS (CONTINUED)
NON-U.S. U.S. PLANS PLANS ---------- -------- YEAR ENDED DECEMBER 31, 1995 Benefits earned during the year........................... $ 927 $ 162 Interest on projected obligation.......................... 4,851 651 Return on assets Actual gain............................................ (12,047) (626) Less deferred gain..................................... 6,584 195 Net amortization.......................................... 1,053 118 -------- ----- Net periodic pension cost................................. 1,368 500 Termination, curtailment, and settlement benefits......... 51 25 Other..................................................... 9 50 -------- ----- Net pension expense.................................. $ 1,428 $ 575 ======== ===== YEAR ENDED DECEMBER 31, 1994 Benefits earned during the year........................... $ 1,131 $ 204 Interest on projected benefit obligation.................. 4,406 596 Return on assets Actual gain............................................ (1,151) (93) Plus deferred loss..................................... (3,270) (277) Net amortization.......................................... 1,311 173 -------- ----- Net periodic pension cost................................. 2,427 603 Termination, curtailment, and settlement benefits........... 400 61 Other....................................................... 13 42 -------- ----- Net pension expense.................................. $ 2,840 $ 706 ======== =====
The funded status of General Motors' plans at December 31, were as follows (in millions):
1996 1995 -------------------- -------------------- ASSETS ACCUM. ASSETS ACCUM. EXCEED BENEFITS EXCEED BENEFITS ACCUM. EXCEED ACCUM. EXCEED BENEFITS ASSETS BENEFITS ASSETS -------- -------- -------- -------- U.S. PLANS Actuarial present value of: Vested benefits..................................... $24,137 $ 36,723 $24,071 $ 34,327 Nonvested benefits.................................. 1,866 7,552 1,761 7,601 ------- -------- ------- -------- Accumulated benefit obligation........................ 26,003 44,275 25,832 41,928 Effect of projected benefits.......................... 1,992 231 2,331 238 ------- -------- ------- -------- Total projected benefit obligation (PBO) based on service to date..................................... 27,995 44,506 28,163 42,166 Plan assets at fair value............................. 31,123 40,172 28,855 38,581 ------- -------- ------- -------- PBO (in excess of) less than plan assets.............. 3,128 (4,334) 692 (3,585) Unamortized net amount resulting from changes in plan experience and actuarial assumptions................ 2,989 5,138 5,736 7,269 Unamortized prior service cost........................ 1,385 7,835 1,268 5,167 Unamortized net obligation (asset) at date of adoption............................................ (644) 415 (834) 520 Adjustment for unfunded pension liabilities........... -- (13,157) -- (12,717) ------- -------- ------- -------- Net prepaid pension asset (liability)............ $ 6,858 $ (4,103) $ 6,862 $ (3,346) ======= ======== ======= ========
II-29 44 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 16. PENSIONS (CONCLUDED)
1996 1995 -------------------- -------------------- ASSETS ACCUM. ASSETS ACCUM. EXCEED BENEFITS EXCEED BENEFITS ACCUM. EXCEED ACCUM. EXCEED BENEFITS ASSETS BENEFITS ASSETS -------- -------- -------- -------- NON-U.S. PLANS Actuarial present value of: Vested benefits..................................... $ 2,323 $ 6,112 $ 2,014 $ 5,465 Nonvested benefits.................................. 75 204 65 155 ------- -------- ------- -------- Accumulated benefit obligation........................ 2,398 6,316 2,079 5,620 Effect of projected benefits.......................... 295 517 302 516 ------- -------- ------- -------- Total PBO based on service to date.................... 2,693 6,833 2,381 6,136 Plan assets at fair value............................. 3,065 2,850 2,626 2,407 ------- -------- ------- -------- PBO (in excess of) less than plan assets.............. 372 (3,983) 245 (3,729) Unamortized net amount resulting from changes in plan experience and actuarial assumptions................ 548 905 579 807 Unamortized prior service cost........................ 194 784 173 912 Unamortized net obligation (asset) at date of adoption............................................ (231) 226 (174) 200 Adjustment for unfunded pension liabilities........... -- (1,410) -- (1,411) ------- -------- ------- -------- Net prepaid pension asset (liability)............ $ 883 $ (3,478) $ 823 $ (3,221) ======= ======== ======= ========
The following assumptions were used to determine the pension expense and the actuarial value of the PBO:
1996 1995 ----------------- ----------------- U.S. NON-U.S. U.S. NON-U.S. PLANS PLANS PLANS PLANS ----- -------- ----- -------- Weighted average discount rate............................. 7.5% 7.3% 7.0% 8.0% Rate of increase in future compensation levels*............ 5.0% 4.2% 5.0% 4.3% Expected long-term rate of return on plan assets........... 10.0% 9.8% 10.0% 9.9%
- ------------------------- * Benefits under the hourly plans are generally not based on wages; therefore, no benefit escalation beyond existing negotiated or anticipated increases was included. The assumptions for non-U.S. plans were developed on a basis consistent with that for U.S. plans, adjusted to reflect prevailing economic conditions and interest rate environments. II-30 45 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 17. PLANT CLOSINGS AND RESTRUCTURING RESERVES General Motors previously established plant closings reserves to realign plant capacity in its North American Operations and a restructuring reserve at Hughes to provide for a reduction in worldwide employment, a major facilities consolidation, and a reevaluation of certain non-strategic businesses. The plant closings reserve principally includes amounts related to postemployment benefits for employees (mainly pursuant to union or other contractual agreements), such as employee job security and supplemental unemployment compensation benefits, at closed plants and two plants scheduled for future closure. The plant closings reserve also includes costs associated with the disposal of assets at the plants scheduled for closure. The postemployment benefits portion of the plant closings reserve was $1.0 billion and $1.9 billion at December 31, 1996 and 1995, respectively, which is subject to change in the near-term (although not anticipated) due to changes in assumptions and the period over which such costs are expected to be incurred. The following table summarizes the activity in the plant closings (excluding environmental) and Hughes restructuring reserves for the period from January 1, 1994 to December 31, 1996 (in millions): BALANCE AT JANUARY 1, 1994.................................. $4,152 1994 charges against reserves............................. (723) Discount of people related liabilities.................... (402) Additions to the reserve by Hughes........................ 35 Reclassification from environmental clean-up liability.... 42 ------ BALANCE AT DECEMBER 31, 1994................................ 3,104 1995 charges against reserves............................. (707) Adjustment to discount for effects of accretion and change in interest rates...................................... 215 ------ BALANCE AT DECEMBER 31, 1995................................ 2,612 1996 charges against reserves............................. (497) Adjustment to discount for effects of accretion and change in interest rates...................................... 61 Plant closings reserve adjustments........................ (779) ------ BALANCE AT DECEMBER 31, 1996................................ $1,397 ======
In 1996, General Motors recorded favorable plant closings reserve adjustments totaling $789 million, including $10 million for environmental matters. Of this amount, $409 million reflected GM's decision to utilize its Wilmington, Delaware, facility for the assembly of a new generation Saturn vehicle, and $380 million was primarily due to revised estimates of postemployment benefit costs to be incurred in connection with plant closings, in light of changes in redeployment and other assumptions, including those resulting from the 1996 settlements with the United Auto Workers and the Canadian Auto Workers. Separate from the plant closings reserve, General Motors recorded a plant closings charge of $62 million to provide for asset write-downs of $34 million, postemployment benefit costs of $15 million, and other costs of $13 million to be incurred in connection with the elimination of a production line in mid-1997 at a North American facility. In 1994, the plant closings reserve was decreased to reflect a $402 million discount for only the postemployment benefits portion of the reserve due to the Corporation's use of discounting in its method of adoption of SFAS No. 112. In 1996 and 1995, the plant closings reserve was increased by $61 million and $215 million, respectively, for the net effects of accretion and changes in the interest rate used to discount the postemployment benefits portion of the reserve. In 1994, the Hughes restructuring reserve was increased by $35 million primarily due to a change in the estimated loss on the disposition of a subsidiary. At December 31, 1996, the combined total of the plant closings and restructuring reserves (excluding environmental), including $1,355 million for plant closings in North America and $42 million for the Hughes restructuring, was primarily comprised of cash items, but also included certain noncash items such as asset write-downs. Total future discounted cash expenditures for plant closings is estimated to be $1,279 million. II-31 46 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 17. PLANT CLOSINGS AND RESTRUCTURING RESERVES (CONCLUDED) The future costs of postemployment benefits (approximately three-quarters of the future cash expenditures) will be expended during the period between the closing of the plants and the time the affected employees are redeployed, retire, or otherwise terminate their employment. The majority of such spending will occur over the next five years. The other cash payments for the plant closings reserve primarily relate to facility costs and will be expended in varying amounts over the next four years. Cash outflows are influenced by, among other items, efficient and effective management of the work force and the timing of plant closings. Approximately $41 million of Hughes' restructuring reserve balance, primarily relating to facilities consolidation, will require future cash outflows, the predominant portion of which will occur during the next year. General Motors and Hughes periodically evaluate the adequacy of reserve balances and estimated future expenditures, including assumptions used and the period over which such costs are expected to be incurred. NOTE 18. CONTINGENT MATTERS In September 1996, Hughes and PanAmSat Corporation entered into an agreement to merge their respective satellite services operations into a new publicly-held company. Hughes would contribute its Galaxy(R) satellite services business in exchange for a 71.5% interest in the new company. Current PanAmSat stockholders would receive a 28.5% interest in the new company and $1.5 billion in cash. The transaction, which is contingent upon receiving certain regulatory approvals, is expected to close during the second quarter of 1997. Hughes has maintained a suit against the U.S. Government since September 1973, regarding the Government's infringement and use of a Hughes patent (the "Williams Patent") covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites. On June 17, 1994, the U.S. Court of Claims awarded Hughes damages of $114 million. Because Hughes believed that the record supported a higher royalty rate, it appealed that decision. The U.S. Government, contending that the award was too high, also appealed. On June 19, 1996, the Court of Appeals for the Federal Circuit affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the Court of Appeals for the Federal Circuit for a rehearing. That petition was denied in October of 1996. The U.S. Government has filed a petition with the U.S. Supreme Court seeking certiorari. Hughes is unable to estimate the duration of any such possible appeal. In the opinion of management of Hughes, there is a reasonable possibility that this matter could be resolved in the near-term. While no amount has been recorded in the financial statements of Hughes to reflect the $114 million award, a resolution of this matter could result in a gain that would be material to the earnings of General Motors attributable to Class H common stock. General Motors is subject to potential liability under government-regulations and various claims and legal actions which are pending or may be asserted against them. Some of the pending actions purport to be class actions. The aggregate ultimate liability of General Motors under these government regulations and under these claims and actions, was not determinable at December 31, 1996. After discussion with counsel, it is the opinion of management that such liability is not expected to have a material adverse effect on the Corporation's consolidated operations or financial position. II-32 47 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 19. STOCKHOLDERS' EQUITY The following table presents changes in stockholders' equity for the period from January 1, 1994 to December 31, 1996 (in millions):
PREFERENCE $1 2/3 PAR VALUE CLASS E CLASS H TOTAL STOCKS COMMON STOCK COMMON STOCK COMMON STOCK CAPITAL STOCK ---------- ---------------- ------------ ------------ ------------- (1) BALANCE AT JANUARY 1, 1994................ $ 4 $1,200 $ 26 $ 8 $1,238 Series A conversion..................... (2) 29 -- -- 27 Shares issued during the year........... -- 28 1 -- 29 --- ------ ---- --- ------ BALANCE AT DECEMBER 31, 1994.............. 2 1,257 27 8 1,294 Shares reacquired under tender offer.... (1) -- -- -- (1) Shares reacquired on the open market.... -- (16) -- -- (16) Shares issued during the year........... -- 14 -- -- 14 Shares issued in conjunction with U.S. Hourly-Rate Employees Pension Plan contribution.......................... -- -- 17 -- 17 Reclassification of shares formerly subject to repurchase from HHMI....... -- -- -- 2 2 --- ------ ---- --- ------ BALANCE AT DECEMBER 31, 1995.............. 1 1,255 44 10 1,310 Shares reacquired on the open market.... -- (8) -- -- (8) Shares issued during the year........... -- 14 -- -- 14 Series C conversion..................... -- -- 5 -- 5 EDS split-off........................... -- -- (49) -- (49) --- ------ ---- --- ------ BALANCE AT DECEMBER 31, 1996.............. $ 1 $1,261 $ -- $10 $1,272 === ====== ==== === ======
NET RETAINED MINIMUM ACCUMULATED UNREALIZED EARNINGS PENSION FOREIGN GAINS TOTAL CAPITAL (ACCUMULATED LIABILITY CURRENCY (LOSSES) ON STOCKHOLDERS' SURPLUS DEFICIT) ADJUSTMENT TRANSLATION INVESTMENTS EQUITY ------- ------------ ---------- ----------- ----------- ------------- (2) (3) (4) BALANCE AT JANUARY 1, 1994.................. $12,003 $(2,004) $(5,311) $ (494) $165 $ 5,597 Amounts in excess of par value of: Series A conversion..................... (27) -- -- -- -- -- Shares issued during the year........... 1,173 -- -- -- -- 1,202 Net income................................ -- 4,901 -- -- -- 4,901 Cash dividends(5)......................... -- (1,112) -- (1,112) Change during the year.................... -- -- 1,763 394 (162) 1,995 Cumulative effect of SFAS No. 115......... -- -- -- -- 241 241 ------- ------- ------- ------- ---- ------- BALANCE AT DECEMBER 31, 1994................ 13,149 1,785 (3,548) (100) 244 12,824 Amounts in excess of par value of: Shares reacquired under tender offer.... (1,132) -- -- -- -- (1,133) Shares reacquired on the open market.... (379) -- -- -- -- (395) Shares issued during the year........... 543 -- -- -- -- 557 Shares issued in connection with U.S. Hourly-Rate Employees Pension Plan contribution.......................... 6,242 -- -- -- -- 6,259 Reclassification of shares formerly subject to repurchase from HHMI....... 448 -- -- -- -- 450 Net income................................ -- 6,881 -- -- -- 6,881 Cash dividends(5)......................... -- (1,328) -- -- -- (1,328) Less redemption price of preference stock in excess of stated value............... -- (153) -- -- -- (153) Change during the year.................... -- -- (1,188) 323 249 (616) ------- ------- ------- ------- ---- ------- BALANCE AT DECEMBER 31, 1995................ 18,871 7,185 (4,736) 223 493 23,346 Amounts in excess of par value of: Shares reacquired on the open market.... (243) -- -- -- -- (251) Shares issued during the year........... 519 -- -- -- -- 533 Series C conversion..................... (7) -- -- -- -- (2) EDS split-off........................... 49 (4,481) -- -- -- (4,481) Net income................................ -- 4,963 -- -- -- 4,963 Cash dividends(5)......................... -- (1,530) -- -- -- (1,530) Change during the year.................... -- -- 1,246 (336) (70) 840 ------- ------- ------- ------- ---- ------- BALANCE AT DECEMBER 31, 1996................ $19,189 $ 6,137 $(3,490) $ (113) $423 $23,418 ======= ======= ======= ======= ==== =======
- ------------------------- Notes follow on the next page. II-33 48 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 19. STOCKHOLDERS' EQUITY (CONTINUED) Notes (in millions except par value, stated value, and per share amounts): (1) The following describes the Corporation's preference stocks: Preference Stock, $0.10 par value (authorized 100 shares): Series B 9 1/8% Depositary Shares, stated value $25 per share, redeemable at Corporation option on or after January 1, 1999; issued at December 31, 1996, 20 shares equivalent to 5 shares of nonconvertible Series B 9 1/8% Preference Stock, stated value $100 per share. Series C Depositary Shares, liquidation preference $50 per share. Series D 7.92% Depositary Shares, stated value $25 per share, redeemable at Corporation option on or after August 1, 1999; issued at December 31, 1996, 6 shares equivalent to 2 shares of Series D 7.92% Preference Stock. Series G 9.12% Depositary Shares, stated value $25 per share, redeemable at Corporation option on or after January 1, 2001; issued at December 31, 1996, 10 shares, equivalent to 3 shares of Series G 9.12% Preference Stock. (2) Capital Surplus attributable to $1 2/3 par value common stock was $16,335, $6,190, and $6,225 at the end of 1996, 1995, and 1994, respectively. Capital Surplus attributable to Class E was $8,418 and $2,088 at the end of 1995 and 1994, respectively. Capital Surplus attributable to Class H was $1,979, $1,832, and $1,269 at the end of 1996, 1995, and 1994, respectively. Capital Surplus attributable to Preference Stocks was $875, $2,431, and $3,567 at the end of 1996, 1995, and 1994, respectively. (3) Retained Earnings (Accumulated Deficit) attributable to $1 2/3 par value common stock were $4,871, $3,854, and $(779) at the end of 1996, 1995, and 1994, respectively. Retained Earnings attributable to Class E were $2,254 and $1,664 at the end of 1995 and 1994, respectively. Retained Earnings attributable to Class H were $1,266, $1,077, and $900 at the end of 1996, 1995, and 1994, respectively. (4) Net of deferred income taxes (benefit) of $(278), $225, and $265 at the end of 1996, 1995, and 1994, respectively. (5) Cash dividends per share of $1 2/3 par value common stock were $1.60, $1.10, and $0.80 for 1996, 1995, and 1994, respectively. Cash dividends per share of Class E were $0.30, $0.52, and $0.48 for 1996, 1995, and 1994, respectively. Cash dividends per share of Class H were $0.96, $0.92, and $0.80 for 1996, 1995, and 1994, respectively. - ------------------------- Holders of $1 2/3 par value and Class H common stocks are entitled to one and one-half vote per share, respectively, on all matters submitted to the stockholders for a vote. The liquidation rights of common stockholders are based on per share liquidation units of the $1 2/3 par value and Class H common stocks and are subject to certain adjustments if outstanding common stock is subdivided, by stock split or otherwise, or if shares of one class of common stock are issued as a dividend to holders of another class of common stock. Each share of $1 2/3 par value and Class H common stocks is entitled to a liquidation unit of the same as the vote per share. Holders of Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of General Motors (which includes 100% of the stock of Hughes). The Corporation's Restated Certificate of Incorporation, as amended, provides generally that in the event the Corporation should sell, liquidate, or otherwise dispose of substantially all of Hughes Aircraft Company, or the other businesses of Hughes, all outstanding shares of Class H common stock will automatically be converted into the Corporation's $1 2/3 par value common stock at an exchange rate that would provide Class H common stockholders with that number of shares of $1 2/3 par value common stock that would have a value equal to 120% of the value of their Class H common stock, as of a specific notice or announcement date provided for in the Restated Certificate of Incorporation. A recapitalization of the type described in the prior sentence would occur if any of the triggering events took place unless the holders of GM common stock (including the holders of $1 2/3 par value common stock and holders of the Class H common stock voting separately as individual classes) vote to approve an alternative proposal from GM's Board of Directors, as occurred in relation to GM's former Class E common stock in connection with the split-off of EDS in 1996, and as GM has indicated its Board of Directors plans to propose to the GM Class H and $1 2/3 stockholders later this year in connection with the potential spin-off of the Hughes defense business (also see Note 23). Upon Board approval, GM may exchange $1 2/3 par value common stock for Class H common stock, if the Board has declared and paid certain minimum cash dividends during each of the five years preceding the exchange. Based on the dividends paid on the Class H common stock in 1992 through 1996, the dividend condition described above would be satisfied in 1997. II-34 49 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 19. STOCKHOLDERS' EQUITY (CONCLUDED) During the 1996 first quarter, approximately 45 million shares of Class E common stock were issued upon conversion of approximately 3 million shares of Series C Preference Stock (represented by depositary shares). The remaining 6,784 shares of Series C Preference Stock were redeemed on February 22, 1996 for $4 million of cash, or $524.20 per share of Series C Preference Stock ($52.42 per depositary share). In May 1995, the Corporation concluded a tender offer, which began in April 1995, under which it purchased for $1.3 billion of cash (i) 24 million depositary shares, each representing one-fourth of a share of its Series B 9 1/8% Preference Stock, at a purchase price of $27.50 per depositary share, (ii) 10 million depositary shares, each representing one-fourth of a share of its Series D 7.92% Preference Stock, at a purchase price of $26.375 per depositary share, and (iii) 13 million depositary shares, each representing one- fourth of a share of its Series G 9.12% Preference Stock, at a purchase price of $28.25 per depositary share. The repurchase had an unfavorable impact of $0.22 per share of $1 2/3 par value common stock. The unfavorable impact was comprised of tender offer expenses of $14 million after-tax, or $0.02 per share, that were charged against income and the purchase price in excess of the carrying amount of the preference shares amounting to $153 million, or $0.20 per share, that was not charged against income but reduced earnings attributable to $1 2/3 par value common stock. The Corporation held an option to call 15 million shares of Class H common stock subject to put options issued to the Howard Hughes Medical Institute (HHMI). In March 1995, the put and call rights expired unexercised. As a result, $2 million was reclassified to Class H common stock and $448 million was reclassified to capital surplus. In June 1994, the Corporation converted its outstanding shares of its Series A Conversion Preference Stock (Preference Equity Redemption Cumulative Stock or PERCS) into 18 million shares of $1 2/3 par value common stock. NOTE 20. EARNINGS PER SHARE ATTRIBUTABLE TO AND DIVIDENDS ON COMMON STOCKS Earnings per share attributable to common stocks have been determined based on the relative amounts available for the payment of dividends to holders of $1 2/3 par value and Class H common stocks (Note 23) and the former Class E common stock (Note 2). The allocation of earnings attributable to such common stocks and the calculation of the related amounts per share were computed by considering the weighted average number of common shares outstanding. Beginning in 1996, common stock equivalents were not considered as they are not material. The Available Separate Consolidated Net Income (ASCNI) of Hughes represents the quarterly separate consolidated net income of Hughes, excluding the effects of purchase accounting adjustments arising at the time of the Corporation's acquisition of Hughes, multiplied by a fraction, the numerator of which is a number equal to the weighted average number of shares of Class H common stock outstanding during the period (99 million during the fourth quarter of 1996) and the denominator of which was 400 million during the fourth quarter of 1996. Comparable numerators for the fourth quarters of 1995 and 1994 were 97 million and 93 million. Comparable denominators were 400 million in the fourth quarters of 1995 and 1994. The denominator used in determining the ASCNI of Hughes may be adjusted as deemed appropriate by the GM Board of Directors to reflect subdivisions or combinations of the Class H common stock and to reflect certain transfers of capital to or from Hughes. The GM Board's discretion to make such adjustments is limited by criteria set forth in the Corporation's Restated Certificate of Incorporation. In this regard, the GM Board has generally caused the denominator to decrease as shares are purchased by Hughes and to increase as such shares are used, at Hughes expense, for Hughes employee benefit plans or acquisitions. II-35 50 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 20. EARNINGS PER SHARE ATTRIBUTABLE TO AND DIVIDENDS ON COMMON STOCKS (CONCLUDED) Dividends on the $1 2/3 par value common stock are declared out of the earnings of General Motors, excluding the ASCNI of Hughes and EDS, during such time that EDS was an indirect wholly-owned subsidiary of the Corporation. Dividends on the Class H common stock are declared out of the ASCNI of Hughes, earned since the acquisition of Hughes by the Corporation. Dividends may be paid on common stocks only when, as and if declared by the GM Board in its sole discretion. The GM Board's policy with respect to $1 2/3 par value common stock is to distribute dividends based on the outlook and the indicated capital needs of the business. The current policy of the GM Board with respect to the Class H common stock is to pay quarterly cash dividends approximately equal to 35% of the ASCNI of Hughes, for the prior year. During the period that EDS was an indirect wholly-owned subsidiary of the Corporation the ASCNI of EDS was determined quarterly in amounts equal to the separate consolidated net income of EDS for each respective quarter, excluding the effects of purchase accounting adjustments relating to the Corporation's acquisition of EDS for each such period, multiplied by a fraction, the numerator of which represented the weighted average number of shares of Class E common stock outstanding during the period (439 million for the fourth quarter of 1995) and the denominator of which was 484 million for the fourth quarter of 1995. The denominator of the fraction was adjusted from time-to-time as deemed appropriate by the GM Board to reflect subdivisions or combinations of the Class E common stock and to reflect certain transfers of capital to or from EDS. The weighted average number of shares of Class E common stock outstanding for 1996 reflects shares outstanding through June 30, 1996. Dividends on the Class E common stock were declared only out of the ASCNI of EDS earned during such time that EDS was an indirect wholly-owned subsidiary of the Corporation. NOTE 21. STOCK INCENTIVE PLANS General Motors' stock incentive plans consist of the General Motors Amended 1987 Stock Incentive Plan (the "GMSIP") and the Hughes Electronics Corporation Incentive Plan (the "Hughes Plan"). The GMSIP is administered by the Executive Compensation Committee of the Board. The Hughes Plan is administered by the Executive Compensation Committee of the Board of Directors of Hughes Electronics Corporation. Under the GMSIP, 40 million shares of $1 2/3 par value and 6 million shares of Class H common stocks may be granted from June 1, 1992 through May 31, 1997 of which 10 million and 3 million shares, respectively, were available for grants at December 31, 1996. Options granted under the GMSIP generally are exercisable one-half after one year and one-half after two years from the dates of grant. Stock option grants to certain executives vest ratably over three years following the grant date. Option prices are 100% of fair market value on the dates of grant and the options generally expire 10 years from the dates of grant, subject to earlier termination under certain conditions. Under the Hughes Plan, Hughes may grant shares, rights, or options to acquire up to 20 million shares of Class H common stock through May 31, 1997, of which 2 million shares were available for grant at December 31, 1996. Option prices are 100% of fair market value on the dates of grant and the options generally expire 10 years from the dates of grant, subject to earlier termination under certain conditions. II-36 51 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 21. STOCK INCENTIVE PLANS (CONCLUDED) Changes in the status of outstanding options were as follows:
GMSIP HUGHES PLAN $1 2/3 PAR VALUE COMMON CLASS H COMMON ------------------------------ ------------------------------ WEIGHTED WEIGHTED SHARES AVERAGE SHARES AVERAGE UNDER OPTION EXERCISE PRICE UNDER OPTION EXERCISE PRICE ------------ -------------- ------------ -------------- Options outstanding at January 1, 1994..... 22,761,057 $39.05 6,366,008 $25.19 Granted.................................... 6,159,395 $58.61 1,612,640 $36.75 Exercised.................................. 3,305,513 $39.23 712,107 $24.48 Terminated................................. 340,161 $50.53 202,220 $34.22 ---------- ------ --------- ------ Options outstanding at December 31, 1994... 25,274,778 $43.64 7,064,321 $27.64 ---------- ------ --------- ------ Granted.................................... 6,600,115 $43.22 1,537,350 $39.94 Exercised.................................. 2,248,627 $37.12 1,929,393 $24.81 Terminated................................. 346,140 $45.12 14,425 $34.17 ---------- ------ --------- ------ Options outstanding at December 31, 1995... 29,280,126 $44.03 6,657,853 $31.29 ---------- ------ --------- ------ Granted.................................... 7,087,590 $52.27 1,501,900 $61.31 Exercised.................................. 6,207,072 $39.16 864,889 $28.58 Terminated................................. 202,697 $51.75 128,075 $42.94 ---------- ------ --------- ------ Options outstanding at December 31, 1996... 29,957,947 $46.94 7,166,789 $37.70 ---------- ------ --------- ------ Options exercisable at December 31, 1996... 19,699,257 $45.67 4,965,289 $30.40 ========== ====== ========= ======
The following table summarizes information about GMSIP and Hughes Plan stock options outstanding at December 31, 1996:
WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE (YRS.) EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- ----------------------- -------------- ----------- -------------- GMSIP $1 2/3 PAR VALUE COMMON $30.00 to $39.99 ............ 5,817,515 5.6 $35.75 5,736,440 $35.71 40.00 to 49.99 ............ 11,406,312 5.9 43.29 8,225,542 43.30 50.00 to 60.00 ............ 12,734,120 8.2 55.32 5,737,275 59.01 ---------- --- ------ ---------- ------ $30.00 to $60.00 ............ 29,957,947 6.8 $46.94 19,699,257 $45.67 ========== === ====== ========== ====== HUGHES PLAN CLASS H COMMON $15.00 to $24.99 ............ 829,669 4.6 $20.74 829,669 $20.74 25.00 to 34.99 ............ 2,179,755 5.5 27.36 2,179,755 27.36 35.00 to 44.99 ............ 2,692,090 7.9 38.45 1,955,865 37.89 45.00 to 54.99 ............ -- -- -- -- -- 55.00 to 65.00 ............ 1,465,275 9.3 61.31 -- -- ---------- --- ------ ---------- ------ $15.00 to $65.00 ............ 7,166,789 7.1 $37.70 4,965,289 $30.40 ========== === ====== ========== ======
NOTE 22. SEGMENT REPORTING INDUSTRY SEGMENTS While the major portion of General Motors' operations is derived from the automotive products industry segment, General Motors also has a financing and insurance industry segment and produces products and II-37 52 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 22. SEGMENT REPORTING (CONTINUED) provides services in other industry segments. The automotive products segment consists of the design, manufacture, assembly, and sale of automobiles, trucks and related parts and accessories. The financing and insurance operations, primarily GMAC, assist in the merchandising of General Motors' products as well as other products. GMAC offers financial services and certain types of insurance to dealers and customers. In addition, GMAC is engaged in mortgage banking services. The other products segment consists of satellite construction, ownership and operation, communications services, ground equipment, direct-to-home satellite television entertainment services, missile systems, command and control systems, torpedoes and sonar systems, electro-optical systems, airborne radar and communication systems, military training and simulation systems, air traffic control systems, information systems, and guidance and control systems; as well as the design, development, and manufacture of locomotives. Substantially all of the products in the automotive segment are marketed through retail dealers and through distributors and jobbers in North America and through distributors and dealers overseas. Information concerning continuing operations by industry segment as of and for each of the three years ended December 31, was as follows (in millions):
FINANCING & AUTOMOTIVE INSURANCE OTHER PRODUCTS OPERATIONS(1) PRODUCTS TOTAL ---------- ------------- -------- ----- 1996 Net sales and revenues(2).................. $133,168 $12,674 $12,173 $158,015 -------- ------- ------- -------- Operating profit........................... $ 4,477 N/A(3) $ 682 $ 5,159 -------- ------- ------- -------- Identifiable assets at year-end............ $103,517 $98,358 $17,161 $219,036 -------- ------- ------- -------- Depreciation and amortization expenses..... $ 6,664 $ 4,695 $ 481 $ 11,840 -------- ------- ------- -------- Capital expenditures....................... $ 9,010 $ 343 $ 596(4) $ 9,949 ======== ======= ======= ======== 1995 Net sales and revenues(2).................. $132,159 $11,664 $11,507 $155,330 -------- ------- ------- -------- Operating profit........................... $ 6,101 N/A(3) $ 538 $ 6,639 -------- ------- ------- -------- Identifiable assets at year-end............ $ 91,162 $95,545 $17,372 $204,079 -------- ------- ------- -------- Depreciation and amortization expenses..... $ 5,990 $ 4,427 $ 796 $ 11,213 -------- ------- ------- -------- Capital expenditures $ 8,216 $ 133 $ 437(4) $ 8,786 ======== ======= ======= ======== 1994 Net sales and revenues(2).................. $123,253 $ 9,419 $11,507 $144,179 -------- ------- ------- -------- Operating profit........................... $ 6,116 N/A(3) $ 891 $ 7,007 -------- ------- ------- -------- Identifiable assets at year-end............ $ 88,064 $85,270 $13,879 $187,213 -------- ------- ------- -------- Depreciation and amortization expenses..... $ 5,655 $ 3,302 $ 688 $ 9,645 -------- ------- ------- -------- Capital expenditures....................... $ 5,545 $ 133 $ 345(4) $ 6,023 ======== ======= ======= ========
- ------------------------- (1) Financing and insurance operations included the following financial data for GMAC:
1996 1995 1994 ---- ---- ---- Net Income.................................................. $ 1,240 $ 1,031 $ 920 Total Assets................................................ $98,578 $95,648 $86,517 Net Assets.................................................. $ 8,268 $ 8,269 $ 7,894
(2) After elimination of intersegment transactions. (3) Financing and insurance operations do not report operating profit. (4) Excludes expenditures related to telecommunications and other equipment amounting to $188 million, $275 million, and $256 million in 1996, 1995, and 1994, respectively. II-38 53 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 22. SEGMENT REPORTING (CONTINUED) A reconciliation of net sales and revenues to total net sales and revenues and of total operating profit to income from continuing operations before income taxes detailed in the consolidated statements of income and a reconciliation of identifiable assets to total assets displayed in the consolidated balance sheets follow (in millions):
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1996 1995 1994 ---- ---- ---- Net sales and revenues...................................... $158,015 $155,330 $144,179 Other income................................................ 6,054 4,942 4,320 -------- -------- -------- Total net sales and revenues........................... $164,069 $160,272 $148,499 ======== ======== ======== Total operating profit...................................... $ 5,159 $ 6,639 $ 7,007 Financing and insurance operations.......................... 2,036 1,783 1,440 Other corporate income and expenses less intersegment transactions.............................................. (519) (73) (1,349) -------- -------- -------- Income from continuing operations before income taxes................................................ $ 6,676 $ 8,349 $ 7,098 ======== ======== ======== Identifiable assets......................................... $219,036 $204,079 $187,213 Corporate assets............................................ 4,984 5,688 5,649 Net assets of discontinued operations....................... -- 5,055 4,348 Eliminations................................................ (1,878) (1,159) (2,222) -------- -------- -------- Total assets........................................... $222,142 $213,663 $194,988 ======== ======== ========
GEOGRAPHIC SEGMENTS Information concerning continuing operations by principal geographic area was as follows (in millions):
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- UNITED CANADA LATIN ALL STATES & MEXICO EUROPE AMERICA OTHER TOTAL(1) 1996 ------ -------- ------ ------- ----- -------- Net sales and revenues Manufactured products............... $ 99,019 $ 8,433 $27,793 $6,860 $3,236 $145,341 Financial services.................. 8,960 1,110 2,156 135 313 12,674 Other income........................ 5,090 138 506 363 (43) 6,054 -------- ------- ------- ------ ------ -------- Subtotal......................... 113,069 9,681 30,455 7,358 3,506 164,069 Interarea........................... 13,357 17,243 1,509 632 28 -- -------- ------- ------- ------ ------ -------- Total............................ $126,426 $26,924 $31,964 $7,990 $3,534 $164,069 ======== ======= ======= ====== ====== ======== Income from continuing operations..... $ 1,633 $ 1,043 $ 1,077 $ 901 $ 344 $ 4,953 -------- ------- ------- ------ ------ -------- Total assets.......................... $166,724 $14,888 $32,307 5,924 $5,616 $222,142 -------- ------- ------- ------ ------ -------- Net assets............................ $ 7,354 $ 3,776 $ 7,337 $3,172 $1,943 $ 23,418 ======== ======= ======= ====== ====== ========
II-39 54 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 22. SEGMENT REPORTING (CONCLUDED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------------------- UNITED CANADA LATIN ALL STATES & MEXICO EUROPE AMERICA OTHER TOTAL(1) ------ -------- ------ ------- ----- -------- 1995 Net sales and revenues Manufactured products................... $102,205 $ 6,985 $27,204 $5,918 $1,354 $143,666 Financial services...................... 8,125 986 2,192 119 242 11,664 Other income............................ 3,664 120 639 330 189 4,942 -------- ------- ------- ------ ------ -------- Subtotal............................. 113,994 8,091 30,035 6,367 1,785 160,272 Interarea............................... 12,781 17,998 1,055 621 59 -- -------- ------- ------- ------ ------ -------- Total................................ $126,775 $26,089 $31,090 $6,988 $1,844 $160,272 ======== ======= ======= ====== ====== ======== Income from continuing operations before cumulative effect of accounting change.................................. $ 2,449 $ 1,102 $ 1,393 $ 701 $ 329 $ 6,033 -------- ------- ------- ------ ------ -------- Income from continuing operations......... $ 2,397 $ 1,102 $ 1,393 $ 701 $ 329 $ 5,981 -------- ------- ------- ------ ------ -------- Total assets(2)........................... $161,606 $14,096 $33,111 $4,862 $4,237 $213,663 -------- ------- ------- ------ ------ -------- Net assets(2)............................. $ 6,451 $ 4,638 $ 8,540 $3,029 $1,550 $ 23,346 -------- ------- ------- ------ ------ -------- 1994 Net sales and revenues Manufactured products..................... $ 96,577 $ 8,218 $23,542 $5,220 $1,203 $134,760 Financial services........................ 6,531 781 1,894 57 156 9,419 Other income.............................. 3,154 178 483 355 150 4,320 -------- ------- ------- ------ ------ -------- Subtotal............................. 106,262 9,177 25,919 5,632 1,509 148,499 Interarea............................... 11,477 13,607 754 90 59 -- -------- ------- ------- ------ ------ -------- Total................................ $117,739 $22,784 $26,673 $5,722 $1,568 $148,499 ======== ======= ======= ====== ====== ======== Income from continuing operations before cumulative effect of accounting change.................................. $ 1,464 $ 1,143 $ 1,219 $ 795 $ 262 $ 4,866 -------- ------- ------- ------ ------ -------- Income from continuing operations......... $ 750 $ 1,098 $ 1,219 $ 795 $ 262 $ 4,108 -------- ------- ------- ------ ------ -------- Total assets(2)........................... $151,058 $13,762 $28,570 $3,983 $3,254 $194,274 -------- ------- ------- ------ ------ -------- Net assets(2)............................. $ (1,178) $ 4,724 $ 6,719 $2,178 $1,066 $ 12,824 -------- ------- ------- ------ ------ --------
- ------------------------- (1) After elimination of interarea transactions. (2) Includes the net assets of discontinued operations of $5.1 billion and $4.3 billion at December 31, 1995 and 1994, respectively. II-40 55 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED NOTE 23. SUBSEQUENT EVENTS On January 16, 1997, the Corporation announced a series of planned transactions that would impact the defense electronics, automotive electronics, and telecommunications and space businesses of Hughes. The transactions would include: - The tax-free spin-off of 100% of the Hughes defense business, to holders of GM's $1 2/3 par value and Class H common stocks; - The tax-free merger of the Hughes defense business with Raytheon Company (Raytheon) immediately following the spin-off, after which there would be outstanding two classes of Raytheon/Hughes defense common stock; - The transfer of Delco Electronics (Delco), the automotive electronics subsidiary of Hughes, from Hughes to GM's Delphi Automotive Systems and a reallocation of the derivative interest in the earnings of Delco currently held by Class H common stockholders to holders of $1 2/3 par value common stock; and - The recapitalization of Class H common stock into a tracking stock linked solely to the telecommunications and space business of Hughes. GM would continue to own 100% of Hughes, which would hold and operate its existing telecommunications and space business. The distribution of stock in the Hughes defense business to holders of GM Class H and $1 2/3 par value common stock would be in a ratio that would be determined by GM's Board of Directors to be fair to both classes of stockholders and would reflect: (1) a pro rata spin-off of the Hughes defense business to holders of GM Class H and $1 2/3 par value common stock; (2) a partial reallocation of the Hughes defense business from holders of GM $1 2/3 par value common stock to holders of Class H common stock in exchange for the derivative interest in the earnings of Delco currently held by the Class H stockholders; and (3) other effects of and factors relating to the planned transactions. Such a distribution ratio will be set by GM's Board of Directors at a time closer to GM's distribution of the solicitation statement/prospectus pursuant to which GM stockholders will be asked to approve the transactions. The planned transactions are subject to approval by holders of GM $1 2/3 par value and Class H common stock. In addition, the merger of the Hughes defense business with Raytheon, which is contingent upon the spin-off of the Hughes defense business, is subject to approval by the stockholders of Raytheon. The planned transactions also are subject to a variety of regulatory approvals and actions, including anti-trust clearance and receipt of rulings by the Internal Revenue Service that the spin-off of the Hughes defense business would be tax-free to GM and its stockholders. The spin-off is not being proposed in a manner that would result in the recapitalization of Class H common stock into $1 2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the Corporation's Restated Certificate of Incorporation. No assurances can be given that the above transactions will be completed; however, management of the Corporation and the Corporation's Board of Directors expect to solicit stockholder approval during the third quarter of 1997, after certain conditions are satisfied. Separately, on January 27, 1997, the GM Board of Directors approved a $2.5 billion repurchase program for $1 2/3 par value common stock, which was expected to be completed principally through open-market purchases within 12 months of the announcement date. This would represent a repurchase of slightly more than 5% of the shares of $1 2/3 par value common stock outstanding on the date of the announcement, based on the New York Stock Exchange's closing price on the last business day prior to the announcement. * * * * * * II-41 56 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION SELECTED QUARTERLY DATA (UNAUDITED)
1996 QUARTERS ------------------------------------------------ 1ST(1)(2) 2ND 3RD(3) 4TH(1)(4) --------- --- ------ --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net sales and revenues................................. $39,240 $44,772 $39,109 $40,948 ======= ======= ======= ======= Income from continuing operations before income taxes................................................ $ 1,233 $ 3,193 $ 1,529 $ 721 Income taxes (benefit)................................. 433 1,097 258 (65)(5) ------- ------- ------- ------- Income from continuing operations.................... 800 2,096 1,271 786 Income (loss) from discontinued operations............. 219 (209) -- -- ------- ------- ------- ------- Net income........................................ 1,019 1,887 1,271 786 Dividends on preference stocks......................... 20 20 21 20 ------- ------- ------- ------- Earnings on common stocks......................... $ 999 $ 1,867 $ 1,250 $ 766 ======= ======= ======= ======= Earnings attributable to common stocks $1 2/3 par value from continuing operations.......... $ 704 $ 2,001 $ 1,188 $ 696 Income (loss) from discontinued operations........... 10 (15) -- -- ------- ------- ------- ------- Net earnings attributable to $1 2/3 par value..... $ 714 $ 1,986 $ 1,188 $ 696 ======= ======= ======= ======= Income (loss) from discontinued operations attributable to Class E........................... $ 209 $ (194) $ -- $ -- ======= ======= ======= ======= Net earnings attributable to Class H................. $ 76 $ 75 $ 62 $ 70 ======= ======= ======= ======= Average number of shares of common stocks outstanding (in millions) $1 2/3 par value..................................... 755 756 756 756 Class E.............................................. 463 479 -- -- Class H.............................................. 97 98 99 99 Earnings per share attributable to common stocks $1 2/3 par value from continuing operations.......... $ 0.93 $ 2.65 $ 1.57 $ 0.92 Income (loss) from discontinued operations........... 0.01 (0.02) -- -- ------- ------- ------- ------- Net earnings attributable to $1 2/3 par value..... $ 0.94 $ 2.63 $ 1.57 $ 0.92 ======= ======= ======= ======= Income (loss) from discontinued operations attributable to Class E........................... $ 0.45 $(0.41) $ -- $ -- ======= ======= ======= ======= Net earnings attributable to Class H................. $ 0.78 $ 0.77 $ 0.63 $ 0.70 ======= ======= ======= ======= Cash dividends per share of common stocks $1 2/3 par value..................................... $ 0.40 $ 0.40 $ 0.40 $ 0.40 Class E.............................................. $ 0.15 $ 0.15 $ -- $ -- Class H.............................................. $ 0.24 $ 0.24 $ 0.24 $ 0.24 Price range of common stocks $1 2/3 par value(6): High............................ $54.75 $58.13 $54.50 $59.38 Low $46.88 $51.50 $45.75 $47.75 Class E(6):.......................................... High $58.00 $58.63 $ -- $ -- Low.............................. $50.00 $52.25 $ -- $ -- Class H(6):.......................................... High $63.38 $68.25 $61.38 $59.25 Low.............................. $45.00 $57.50 $53.13 $49.50
- ------------------------- See notes on page II-43. II-42 57 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION -- CONTINUED - ------------------------- (1) Work stoppages in the United States and Canada, during the first and fourth quarters of 1996, reduced calendar-year pre-tax income by approximately $1.9 billion ($1.2 billion after taxes or $1.56 per share of $1 2/3 par value common stock), after considering partial recovery of production losses from the work stoppages. The pre-tax impact in the 1996 fourth quarter totaled $1.1 billion ($700 million after taxes or $0.91 per share of $1 2/3 par value common stock). (2) The 1996 first quarter income includes a pre-tax gain of $120 million ($72 million after taxes or $0.07 per share of $1 2/3 par value common stock and $0.18 per share of Class H common stock), on the sale of 2.5% of DIRECTV(R) to AT&T. (3) During the 1996 third quarter, GM-NAO/Delphi recorded a pre-tax plant closings reserve adjustment of $409 million ($253 million after taxes or $0.34 per share of $1 2/3 par value common stock), associated with GM's decision to utilize its Wilmington, Delaware facility for the assembly of the new generation Saturn vehicle. (4) Fourth quarter 1996 results also included the following special items: (a) A pre-tax plant closings reserve adjustment of $318 million ($197 million after taxes or $0.26 per share of $1 2/3 par value common stock), which primarily resulted from revised estimates of costs to be incurred in connection with plant closings, in light of changes in redeployment and other assumptions, including those resulting from the 1996 settlements with the UAW and CAW. (b) A pre-tax loss of $253 million ($157 million after taxes or $0.21 per share of $1 2/3 par value common stock), in connection with the sale of four Delphi component facilities, located in Flint and Livonia, Mich., and Oshawa and Windsor, Canada, and GM-NAO's Oshawa die-management business. (c) A pre-tax gain of $105 million ($65 million after taxes or $0.09 per share of $1 2/3 par value common stock), on the sale of GM's preferred stock interest in Avis, Inc. (d) Retiree benefit increases associated with the new UAW labor agreement include lump-sum payments that resulted in a pre-tax charge of approximately $270 million ($167 million after taxes or $0.22 per share of $1 2/3 par value common stock). (5) The income tax benefit in the fourth quarter of 1996 was primarily due to research and experimentation credits in the United States, as well as certain international tax benefits and tax benefits relating to the resolution of certain tax contingencies at Hughes. (6) The principal market is the New York Stock Exchange and prices are based on the Composite Tape. $1 2/3 par value common stock is also listed on the Chicago, Pacific, and Philadelphia stock exchanges. As of December 31, 1996, there were 592,515 holders of record of $1 2/3 par value common stock and 247,782 holders of record of Class H common stock. II-43 58 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION -- CONTINUED SELECTED QUARTERLY DATA (UNAUDITED) -- CONCLUDED
1995 QUARTERS ------------------------------------------------------ 1ST 2ND 3RD 4TH --- --- --- --- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net sales and revenues.................................. $ 41,400 $ 42,205 $ 35,316 $ 41,351 ========= ========= ========= ========= Income from continuing operations before income taxes... $ 3,171 $ 2,902 $ 420 $ 1,856(1) Income taxes............................................ 1,214 820 23(2) 259(1) --------- --------- --------- --------- Income from continuing operations before cumulative effect of accounting change......................... 1,957 2,082 397 1,597 Income from discontinued operations..................... 197 188 246 269 Cumulative effect of accounting change.................. (52)(3) -- -- -- --------- --------- --------- --------- Net income.......................................... 2,102 2,270 643 1,866 Dividends on preference stocks.......................... 72 199(4) 42 51 --------- --------- --------- --------- Earnings on common stocks........................... $ 2,030 $ 2,071 $ 601 $ 1,815 ========= ========= ========= ========= Earnings attributable to common stocks $1 2/3 par value from continuing operations before cumulative effect of accounting change......................... $ 1,821 $ 1,814 $ 294 $ 1,475 Income (loss) from discontinued operations............ 75 (18) 23 25 Cumulative effect of accounting change................ (52) -- -- -- --------- --------- --------- --------- Net earnings attributable to $1 2/3 par value....... $ 1,844 $ 1,796 $ 317 $ 1,500 ========= ========= ========= ========= Income from discontinued operations attributable to Class E............................................. $ 122 $ 206 $ 223 $ 244 ========= ========= ========= ========= Net earnings attributable to Class H.................... $ 64 $ 69 $ 61 $ 71 ========= ========= ========= ========= Average number of shares of common stocks outstanding (in millions) $1 2/3 par value...................................... 753 746 748 752 Class E............................................... 300 439(5) 439 439 Class H............................................... 94 95 96 97 Earnings per share attributable to common stocks $1 2/3 par value from continuing operations before cumulative effect of accounting change......................... $2.41 $2.41 $0.39 $1.95 Income (loss) from discontinued operations............ 0.10 (0.02) 0.03 0.03 Cumulative effect of accounting change................ (0.07)(3) -- -- -- --------- --------- --------- --------- Net earnings attributable to $1 2/3 par value....... $2.44 $2.39 $0.42 $1.98 ========= ========= ========= ========= Income from discontinued operations attributable to Class E............................................... $0.42 $0.47 $0.51 $0.56 ========= ========= ========= ========= Net earnings attributable to Class H.................... $0.67 $0.72 $0.64 $0.74 ========= ========= ========= ========= Cash dividends per share of common stocks $1 2/3 par value...................................... $0.20 $0.30 $0.30 $0.30 Class E............................................... $0.13 $0.13 $0.13 $0.13 Class H............................................... $0.23 $0.23 $0.23 $0.23 Price range of common stocks $1 2/3 par value: High................................ $45.63 $49.00 $51.88 $53.13 Low................................... $37.25 $42.38 $45.38 $43.38 Class E: High................................... $41.38 $45.25 $47.50 $52.63 Low................................... $36.88 $38.38 $41.50 $43.88 Class H: High................................... $41.75 $41.63 $42.75 $50.00 Low................................... $33.25 $37.75 $39.13 $39.50
- ------------------------- (1) Income taxes and interest expense in the fourth quarter reflect benefits related to the resolution of worldwide prior year income tax issues. Income taxes also reflect the benefit of a U.S. net operating loss carryback -- for tax purposes only -- to years with higher tax rates. (2) The effective income tax rate in the third quarter reflects tax benefits from the mix of foreign income and foreign income taxes. (3) In November 1995, the Corporation adopted, retroactive to January 1, 1995, the provisions of the EITF consensus on Issue No. 95-1. The unfavorable cumulative effect of this accounting change was $52 million or $0.07 per share of $1 2/3 par value common stock. Previously reported first quarter results were restated to reflect the effects of adoption. The effect on other 1995 quarters was not material. (4) Includes a $153 million tender offer premium associated with the repurchase of a portion of the Series B, D, and G preference stocks. (5) Reflects Class E common stock contribution to the U.S. Hourly Pension Plan. II-44 59 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION -- CONTINUED SELECTED FINANCIAL DATA (UNAUDITED)
YEARS ENDED DECEMBER 31, ------------------------------------------------ 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net sales and revenues................................. $164,069 $160,272 $148,499 Income from continuing operations before income taxes................................................ $ 6,676(1) $ 8,349 $ 7,098 Percentage of net sales and revenues................... 4.1% 5.2% 4.8% ======== ======== ======== Income from continuing operations before cumulative effect of accounting changes......................... $ 4,953(1) $ 6,033 $ 4,866 Income from discontinued operations.................... 10 900 793 Cumulative effect of accounting changes................ -- (52)(2) (758)(4) -------- -------- -------- Net income........................................ $ 4,963 $ 6,881 $ 4,901 ======== ======== ======== Earnings on common stocks.............................. $ 4,882 $ 6,517 $ 4,580 ======== ======== ======== Rate of return on average common stockholders' equity............................................... 22.5% 54.2%(3) 79.9%(3) ======== ======== ======== $1 2/3 par value common stock Earnings from continuing operations attributable to................................................ $ 4,589(1) $ 5,352(2) $ 3,545(4) Income (loss) from discontinued operations attributable to................................... (5) 105 349 Cash dividends....................................... 1,209 824 593 -------- -------- -------- Net earnings retained............................. $ 3,375 $ 4,633 $ 3,301 ======== ======== ======== Earnings per share from continuing operations........ $ 6.07(1) $7.07(2) $4.69(4) Income (loss) per share from discontinued operations........................................ (0.01) 0.14 0.46 Cash dividends per share............................. 1.60 1.10 0.80 -------- -------- -------- Net earnings retained per share................... $ 4.46 $6.11 $4.35 ======== ======== ======== Class E common stock Income from discontinued operations attributable to................................................ $ 15 $ 795 $ 444 Cash dividends....................................... 145 205 125 -------- -------- -------- Net income retained (loss accumulated)............ $ (130) $ 590 $ 319 ======== ======== ======== Income per share..................................... $ 0.04 $1.96 $1.71 Cash dividends per share............................. 0.30 0.52 0.48 -------- -------- -------- Net income retained (loss accumulated) per share........................................... $(0.26) $1.44 $1.23 ======== ======== ======== Class H common stock Earnings attributable to............................. $ 283 $ 265 $ 242(4) Cash dividends....................................... 94 88 74 -------- -------- -------- Net earnings retained............................. $ 189 $ 177 $ 168 ======== ======== ======== Earnings per share................................... $ 2.88 $2.77 $2.62(4) Cash dividends per share............................. 0.96 0.92 0.80 -------- -------- -------- Net earnings retained per share................... $ 1.92 $1.85 $1.82 ======== ======== ========
- ------------------------- See notes on page II-47. II-45 60 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION -- CONTINUED SELECTED FINANCIAL DATA (UNAUDITED) -- CONTINUED
YEARS ENDED DECEMBER 31, --------------------------- 1993 1992 ---- ---- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net sales and revenues...................................... $132,991 $127,378 Income (loss) from continuing operations before income taxes..................................................... $ 1,479 $ (4,299) Percentage of net sales and revenues........................ 1.1% (3.4)% ======== ======== Income (loss) from continuing operations before cumulative effect of accounting changes.............................. $ 1,777 $ (3,222) Income from discontinued operations......................... 689 601 Cumulative effect of accounting changes..................... -- (20,877)(5) -------- -------- Net income (loss)......................................... $ 2,466 $(23,498) ======== ======== Earnings (loss) on common stocks............................ $ 2,109 $(23,805) Rate of return on average common stockholders' equity....... 104.2%(3) (169.3)% ======== ======== $1 2/3 par value common stock Earnings (loss) from continuing operations attributable to..................................................... $ 1,216 $(24,263)(5) Income from discontinued operations attributable to....... 322 322 Cash dividends............................................ 566 945 -------- -------- Net earnings retained (loss accumulated)............... $ 972 $(24,886) ======== ======== Earnings (loss) per share from continuing operations...... $1.68 $(38.76)(5) Income per share from discontinued operations............. 0.45 0.48 Cash dividends per share.................................. 0.80 1.40 -------- -------- Net earnings retained (loss accumulated) per share..... $1.33 $(39.68) ======== ======== Class E common stock Income from discontinued operations attributable to....... $ 367 $ 278 Cash dividends............................................ 97 76 -------- -------- Net income retained.................................... $ 270 $ 202 ======== ======== Income per share.......................................... $1.51 $ 1.33 Cash dividends per share.................................. 0.40 0.36 -------- -------- Net income retained per share.......................... $1.11 $ 0.97 ======== ======== Class H common stock Earnings (loss) attributable to........................... $ 204 $ (142)(5) Cash dividends............................................ 64 53 -------- -------- Net earnings retained (loss accumulated)............... $ 140 $ (195) ======== ======== Earnings (loss) per share................................. $2.30 $ (2.29)(5) Cash dividends per share.................................. 0.72 0.72 -------- -------- Net earnings retained (loss accumulated) per share..... $1.58 $ (3.01) ======== ========
- ------------------------- See notes on page II-47. II-46 61 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION -- CONCLUDED SELECTED FINANCIAL DATA (UNAUDITED) -- CONCLUDED
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Average number of shares of common stocks outstanding (in millions) $1 2/3 par value.......................................... 756 750 741 Class E................................................... 470 405 260 Class H................................................... 98 96 92 Cash dividends on common stocks as a % of net income........ 29.2% 16.2% 16.2% Expenditures for property................................... $ 9,949 $ 8,786 $ 6,023 Cash and marketable securities.............................. $ 22,262 $ 16,018 $ 15,331 Working capital(6).......................................... $ 1,699 $ 5,726 $ (627) Current ratio(6)............................................ 1.04 1.14 0.98 Total assets................................................ $222,142 $213,663 $191,145 Long-term debt and capitalized leases(6).................... $ 5,390 $ 4,280 $ 5,198
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ------------------------ 1993 1992 ---- ---- (DOLLARS IN MILLIONS) Average number of shares of common stocks outstanding (in millions) $1 2/3 par value.......................................... 710 670 Class E................................................... 243 209 Class H................................................... 89 75 Cash dividends on capital stocks as a % of net income....... 29.5% N/A Expenditures for property................................... $ 5,655 $ 5,951 Cash and marketable securities.............................. $ 17,369 $ 14,533 Working capital(6).......................................... $ 1,937 $ 10,264 Current ratio(6)............................................ 1.08 1.32 Total assets................................................ $182,388 $184,287 Long-term debt and capitalized leases(6).................... $ 5,861 $ 6,495
- ------------------------- (1) Work stoppages in the United States and Canada, during the first and fourth quarters of 1996, reduced 1996 pre-tax income by approximately $1.9 billion ($1.2 billion after taxes or $1.56 per share of $1 2/3 par value common stock), after considering partial recovery of production losses from the work stoppages. (2) In November 1995, the Corporation adopted, retroactive to January 1, 1995, the provisions of the EITF consensus on Issue No. 95-1. The unfavorable effect of this accounting change was $52 million or $0.07 per share of $1 2/3 par value common stock. (3) The returns in 1995, 1994 and 1993 reflect the adoption of SFAS No. 106 and its impact on lowering average common stockholders' equity. (4) General Motors adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits, effective January 1, 1994. The unfavorable cumulative effect of adopting SFAS No. 112 was $751 million or $1.05 per share of $1 2/3 par value common stock and $7 million or $0.08 per share of Class H common stock. (5) General Motors adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, effective January 1, 1992. The unfavorable cumulative effect of adopting SFAS No. 106 was $20.7 billion or $33.38 per share of $1 2/3 par value common stock and $150 million or $2.08 per share of Class H common stock. Also effective January 1, 1992, Hughes changed its revenue recognition policy for certain commercial businesses, which resulted in an unfavorable effect on 1992 earnings of $33 million or $0.05 per share of $1 2/3 par value common stock and $7 million or $0.10 per share of Class H common stock. (6) Calculated with financing and insurance operations on an equity basis. II-47 62 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the Hughes Electronics Corporation (Hughes) consolidated financial statements and MD&A for the period ended December 31, 1996, included as Exhibit 99 to this Annual Report on Form 10-K, and the GMAC Annual Report on Form 10-K for the period ended December 31, 1996, filed separately with the Securities and Exchange Commission. GM-NAO/DELPHI FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, --------------------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Net sales and revenues Vehicles and service parts.............................. $ 93,381 $ 95,936 $ 91,768 Components.............................................. 26,002 26,426 26,097 Intrasector eliminations................................ (18,381) (19,109) (19,732) -------- -------- -------- Total net sales and revenues......................... 101,002 103,253 98,133 -------- -------- -------- Pre-tax income............................................ 1,206 3,346 1,589 Income taxes.............................................. 44 962 268 Earnings of nonconsolidated affiliates.................... 84 64 61 Cumulative effect of accounting changes................... -- (52)(1) (705)(2) -------- -------- -------- Net income........................................... $ 1,246 $ 2,396 $ 677 ======== ======== ======== Net profit margin (3)................................ 1.2% 2.3% 0.7% Depreciation and amortization expenses.................... $ 4,916 $ 4,664 $ 4,324 Capital expenditures...................................... $ 6,158 $ 6,013 $ 3,976 Worldwide employment at December 31 (in thousands)........ 424 434 431
- ------------------------- (1) In November 1995, the provisions of Issue No. 95-1 of the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF), Revenue Recognition on Sales with a Guaranteed Minimum Resale Value, were retroactively adopted to January 1, 1995 and resulted in an unfavorable impact of $52 million. (2) Effective January 1, 1994, Statement of Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for Postemployment Benefits, was adopted and resulted in an unfavorable impact of $705 million. (3) Net profit margin represents net income as a percentage of total net sales and revenues. VEHICLE UNIT DELIVERIES OF CARS AND TRUCKS -- GM-NAO
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------------------- 1996 1995 1994 --------------------------- --------------------------- --------------------------- GM AS GM AS GM AS A % OF A % OF A % OF INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY -------- -- -------- -------- -- -------- -------- -- -------- United States Cars..................... 8,528 2,786 32.7% 8,636 2,956 34.2% 8,991 3,079 34.3% Trucks................... 6,931 2,007 29.0% 6,484 1,939 29.9% 6,422 1,984 30.9% ------ ----- ------ ----- ------ ----- Total U.S.(1)......... 15,459 4,793 31.0% 15,120 4,895 32.4% 15,413 5,063 32.8% Canada..................... 1,203 381 31.6% 1,165 385 33.0% 1,258 410 32.6% Mexico..................... 332 89 26.9% 232 48 20.7% 620 114 18.3% ------ ----- ------ ----- ------ ----- Total North America... 16,994 5,263 31.0% 16,517 5,328 32.3% 17,291 5,587 32.3% ====== ===== ====== ===== ====== ===== WHOLESALE SALES -- GM-NAO Cars..................... 2,913 3,352 3,353 Trucks................... 2,239 2,208 2,184 ----- ----- ----- Total................. 5,152 5,560 5,537 ===== ===== =====
- ------------------------- (1) Industry deliveries include foreign brands of 4.2 million units or 27.1% in 1996, 4.1 million units or 26.8% in 1995, and 4.1 million units or 26.8% in 1994. II-48 63 GM-NAO/DELPHI FINANCIAL REVIEW The 1996 net income of GM-NAO/Delphi, which represents the combined results for General Motors' North American Operations (GM-NAO) and Delphi Automotive Systems (Delphi), totaled $1.2 billion or 1.2% of net sales and revenues, compared with $2.4 billion and $677 million in 1995 and 1994, respectively. The decrease in 1996 net income was almost fully accounted for by lower wholesale sales caused by three major work stoppages. Other factors impacting 1996 results were the record number of new vehicle launches, and increased advertising and other consumer influence expenses related to the new vehicle launches, partially offset by savings associated with continued implementation of worldwide purchasing and lean manufacturing strategies. The increase in 1995 net income was primarily due to revenue growth, global sourcing savings, and reduced manufacturing costs. GM-NAO/Delphi's 1996 net income included certain special items that had a net unfavorable impact of approximately $900 million after-tax. The 1996 special items included the unfavorable impact of the three work stoppages in the U.S. and Canada (approximately $1.1 billion after-tax), the sale of four Delphi plants and GM-NAO's Oshawa die-management business ($157 million after-tax), and retiree lump sum benefit payments ($163 million after-tax). The effect of the unfavorable special items was partially offset by favorable net plant closings reserve adjustments ($450 million after-tax) and a gain on the sale of GM's preferred stock interest in Avis, Inc. ($65 million after-tax). Additional information regarding the GM-NAO plant closings reserve is contained in Note 17 to the GM consolidated financial statements. Net sales and revenues for 1996 were $101 billion, which represented a decrease of $2.3 billion compared with 1995. The decrease in net sales and revenues was largely due to a decrease in the number of wholesale units sold caused by the work stoppages, partially offset by an increase of approximately 6% in Delphi's non GM-NAO vehicle component sales. Net sales and revenues for 1995 were $103.3 billion, which represented an increase of $5.1 billion compared with 1994. The increase in 1995 net sales and revenues primarily resulted from favorable pricing, an increase of 23,000 wholesale units sold, and an increase of approximately 9% in Delphi's non GM-NAO vehicle component sales. The favorable items were partially offset by a year-over-year shift in vehicle sales from the large/luxury segments to the small/compact segments. During 1996, GM-NAO's market share increase in Mexico resulted from favorable customer reaction to new products. However, in the United States and Canada, market share decreased primarily due to the work stoppages and the new vehicle launches, which restricted availability of certain models. Pre-tax income for 1996 decreased by $2.1 billion to $1.2 billion, compared with $3.3 billion and $1.6 billion for 1995 and 1994, respectively. The decrease in 1996 pre-tax income was primarily due to the impact of the special items described previously and the record number of new vehicle launches, partially offset by the favorable results of continued efforts to reduce costs and improve efficiency. The increase in 1995 pre-tax income, compared with 1994, reflected material and manufacturing efficiencies and lower interest expense, which were partially offset by increased depreciation and amortization expenses associated with new equipment and special tools. The effective income tax rate for 1996 was 3.6%, compared with 28.8% and 16.9% for 1995 and 1994, respectively. The lower 1996 tax rate resulted from research and experimentation credits in the United States, a favorable resolution of items related to GM's 1995 tax return, and a favorable tax position in Mexico. The 1995 tax rate reflected a U.S. net operating loss -- for tax purposes only -- which was carried back to prior years that were subject to higher income tax rates, while the 1994 tax rate reflected favorable tax positions in Canada and Mexico. II-49 64 GMIO FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, ----------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Net sales and revenues...................................... $35,251 $32,112 $28,087 ------- ------- ------- Pre-tax income.............................................. 1,787 1,601 2,232 Income taxes................................................ 307 162 818 Earnings of nonconsolidated affiliates...................... 52 205 161 ------- ------- ------- Net income GM Europe (GME)........................................ 778 796 695 Other International.................................... 754 848 880 ------- ------- ------- Total net income.................................. $ 1,532 $ 1,644 $ 1,575 ======= ======= ======= Net profit margin(1).............................. 4.3% 5.1% 5.6% Depreciation and amortization expenses...................... $ 1,486 $ 1,364 $ 1,202 Capital expenditures........................................ $ 2,669 $ 2,086 $ 1,388 Worldwide employment at December 31 (in thousands).......... 111 103 102
- ------------------------- (1) Net profit margin represents total net income as a percentage of net sales and revenues. VEHICLE UNIT DELIVERIES OF CARS AND TRUCKS -- GMIO
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------------------- 1996 1995 1994 --------------------------- --------------------------- --------------------------- GM AS GM AS GM AS A % OF A % OF A % OF INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY -------- -- -------- -------- -- -------- -------- -- -------- (UNITS IN THOUSANDS) INTERNATIONAL Europe Germany................... 3,752 582 15.5% 3,575 581 16.2% 3,470 553 15.9% United Kingdom............ 2,281 326 14.3% 2,195 334 15.2% 2,139 347 16.2% Other West Europe......... 8,414 787 9.4% 7,850 751 9.6% 7,831 752 9.6% ------ ----- ------ ----- ------ ----- Total West Europe...... 14,447 1,695 11.7% 13,620 1,666 12.2% 13,440 1,652 12.3% Central/East Europe....... 2,583 103 4.0% 2,023 59 2.9% 1,764 53 3.0% ------ ----- ------ ----- ------ ----- Total Europe........... 17,030 1,798 10.6% 15,643 1,725 11.0% 15,204 1,705 11.2% ------ ----- ------ ----- ------ ----- Latin America, Africa, and the Middle East (LAAMO) Brazil.................... 1,729 384 22.2% 1,728 348 20.2% 1,398 269 19.3% Venezuela................. 68 16 23.6% 89 28 31.6% 75 22 30.0% Other Latin America....... 1,031 142 13.8% 999 127 12.7% 1,174 125 10.6% ------ ----- ------ ----- ------ ----- Total Latin America.... 2,828 542 19.2% 2,816 503 17.9% 2,647 416 15.7% Africa.................... 680 85 12.5% 638 87 13.7% 500 63 12.5% Middle East............... 628 64 10.2% 560 58 10.4% 607 63 10.4% ------ ----- ------ ----- ------ ----- Total LAAMO............ 4,136 691 16.7% 4,014 648 16.2% 3,754 542 14.4% ------ ----- ------ ----- ------ ----- Asia and Pacific Australia................. 650 131 20.1% 642 129 20.2% 616 122 19.8% Other Asia and Pacific.... 12,903 498 3.9% 12,554 490 3.9% 11,854 425 3.6% ------ ----- ------ ----- ------ ----- Total Asia and Pacific.............. 13,553 629 4.6% 13,196 619 4.7% 12,470 547 4.4% ------ ----- ------ ----- ------ ----- Total International.... 34,719 3,118 9.0% 32,853 2,992 9.1% 31,428 2,794 8.9% ====== ===== ====== ===== ====== ===== WHOLESALE SALES -- GMIO Cars...................... 2,331 2,233 2,127 Trucks.................... 780 774 664 ----- ----- ----- Total.................. 3,111 3,007 2,791 ===== ===== =====
II-50 65 GMIO FINANCIAL REVIEW General Motors' International Operations (GMIO) 1996 net income was $1.5 billion or 4.3% of net sales and revenues, compared with $1.6 billion in both 1995 and 1994. The decrease in 1996 net income was primarily due to a higher income tax rate. Net sales and revenues for 1996 reached $35.3 billion, up 9.8% from 1995, while 1995 net sales and revenues of $32.1 billion were 14.3% higher than 1994. The increase in net sales and revenues in 1996 and 1995 reflected increased wholesale sales volumes in Europe, Latin America, and the Asian and Pacific region. GMIO's vehicle deliveries for calendar year 1996 totaled 3.1 million units and resulted in a 9% market share compared with a 9.1% market share in 1995. Vehicle unit deliveries during 1996 hit an all-time record, marking the first time GMIO annual deliveries exceeded three million units. Pre-tax income for 1996 increased to $1.8 billion from $1.6 billion in 1995 and reflected the favorable impact of increased net sales and revenues and favorable year-over-year currency exchange, partially offset by spending on growth programs within Asia, Latin America, and Central Europe, and new product development spending. In 1995, pre-tax income declined by $631 million compared with 1994. This reduction was largely the result of adverse foreign exchange rate movements, material and labor cost pressures in Latin America, and start-up and launch costs associated with the introduction of the new Opel/Vauxhall Vectra in Europe. In 1996, earnings of nonconsolidated affiliates were down by $153 million from 1995, primarily due to higher product development and marketing costs at Saab, the dissolution of the Australian joint venture between Holden and Toyota, and the unusually high 1995 equity income from nonrecurring asset sales at Isuzu. The effective income tax rate for GMIO in 1996 was 17.2%, compared with 10.1% and 36.6% in 1995 and 1994, respectively. The 1996 tax rate primarily resulted from tax benefits realized in certain countries, partially offset by decreased withholding taxes accrued on unremitted earnings. The 1995 tax rate was favorably impacted by nonrecurring tax benefits realized in certain countries, while the 1994 tax rate was impacted by higher withholding taxes on accrued unremitted earnings. In 1996, GME's net income decreased by $18 million to $778 million, compared with $796 million and $695 million in 1995 and 1994, respectively. The decrease in 1996 net income was primarily due to a more competitive pricing environment and reflected increased new product development costs. Net income for 1996 was also adversely affected by the startup of the Vectra, which had restricted availability early in the year. The improvement in 1995 net income resulted from volume gains, material and manufacturing cost reductions, and a favorable income tax rate, partially offset by unfavorable exchange rate movements and costs associated with the new Vectra model introduction in the second half of the year. The remainder of GMIO's operations reported 1996 net income of $754 million, which represented a decrease of $94 million compared with 1995. The decline in 1996 resulted from a higher tax rate, lower equity earnings from nonconsolidated affiliates, and increased spending on growth programs in both Asia and Latin America. The decline in net income in 1995 compared with 1994 reflected the impact of the government initiated "Popular Car" program in Brazil, which had a negative impact on sales mix; adverse exchange rate movements; material and labor cost pressures in Latin America; and continued growth-related expenditures in the Asia and Pacific region. These factors were partially offset by a favorable income tax rate, improved volumes, and income gains from nonconsolidated affiliates. Finally in 1996, GMIO reinforced its long-term commitment to leadership in the international automotive business with capital expenditures of approximately $2.7 billion, an increase of $565 million and approximately $1.3 billion compared with 1995 and 1994, respectively. II-51 66 GMAC FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, --------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Financing revenue Retail and lease financing................................ $ 3,822 $ 3,292 $ 2,955 Operating leases.......................................... 7,215 6,285 4,856 Wholesale and term loans.................................. 1,607 2,087 1,608 ------- ------- ------- Total financing revenue................................ 12,644 11,664 9,419 Interest and discount....................................... 4,938 4,936 4,231 Depreciation on operating leases............................ 4,627 4,305 3,234 ------- ------- ------- Net financing revenue 3,079 2,423 1,954 Other income and insurance premiums earned 3,330 3,199 2,726 Expenses.................................................... (4,332) (3,839) (3,240) ------- ------- ------- Pre-tax income.............................................. 2,077 1,783 1,440 Income taxes................................................ 837 752 513 Cumulative effect of accounting change(1)................... -- -- (7) ------- ------- ------- Net income............................................. $ 1,240 $ 1,031 $ 920 ======= ======= ======= Net income from financing operations(2)..................... $ 1,048 $ 868 $ 802 Net income from insurance operations........................ 192 163 118 ------- ------- ------- Net income............................................. $ 1,240 $ 1,031 $ 920 ======= ======= ======= Average earning assets...................................... $92,534 $88,230 $79,483 Return on average equity(3)................................. 14.8% 12.5% 11.6% Worldwide employment at December 31 (in thousands).......... 18 17 17
- ------------------------- (1) Effective January 1, 1994, GMAC adopted SFAS No. 112, which resulted in an unfavorable impact of $7 million. (2) Includes GMAC Mortgage Group (GMACMG). (3) Return on average equity represents net income after the cumulative effect of accounting change as a percentage of average stockholder's equity outstanding for each month in the period. II-52 67 GMAC FINANCIAL REVIEW GMAC's 1996 consolidated net income increased 20.3% over 1995 compared with a 12.1% improvement recognized in 1995. All business sectors contributed to the 1996 earnings gain. Net income from financing operations totaled $1 billion, which was 20.7% above 1995. The increase in 1996 net income from financing operations primarily resulted from continued improvements in net financing revenue and higher average earning asset levels in North America, principally in the retail finance receivables and operating lease portfolios, and earnings growth at GMACMG. The 8.2% increase in 1995 net income from financing operations over 1994 resulted primarily from improved net financing revenue and higher average earning asset levels. Insurance operations contributed $192 million to 1996 net income, compared with $163 million and $118 million in 1995 and 1994, respectively. The 1996 and 1995 year-over-year increases reflected improvements in underwriting results and higher realized capital gains. During 1996, GMAC financed 28.4% of new GM vehicle retail deliveries in the United States, up from 26.4% and 26.2% in 1995 and 1994, respectively. The 1996 improvement primarily resulted from higher volumes generated during the first nine months of the year under special rate financing and leasing incentive programs sponsored by GM. This improvement, along with the modest 1995 increase in market share, was achieved amid continued competitive pressures in the automotive financing marketplace. GMAC's financing revenue totaled $12.6 billion in 1996, compared with $11.7 billion and $9.4 billion in 1995 and 1994, respectively. The increase in 1996 total financing revenue resulted from higher revenues from the portfolios of operating leases and retail finance receivables, partially offset by a decline in wholesale revenue. The gain in operating lease revenue was principally driven by an increase in average lease assets in North America, which resulted from continued growth of the portfolio. The higher 1996 retail financing revenues were primarily due to a $3.9 billion increase in average U.S. outstanding balances, which resulted from growth of the owned portfolio between mid-1995 and mid-1996. The reduced wholesale revenue was primarily due to a combination of lower average outstanding balances caused by establishing additional trusts for revolving sales of floor plan receivables during August 1995 and April 1996 and lower short-term interest rate indices upon which inventory financing rates are based. The 23.8% growth in 1995 total financing revenue represented increased activities in all financing business lines, predominantly operating leases and wholesale financing. GMAC's worldwide cost of borrowing decreased to 6.57% in 1996, compared with 7.02% and 6.69% in 1995 and 1994, respectively. The cost of borrowings in the United States was 6.51% in 1996, compared with 6.86% and 6.48% in 1995 and 1994, respectively. The improvements in 1996 were predominantly attributable to a greater proportion of floating rate borrowings in the United States during a period in which the general level of short-term interest rates declined (e.g., during 1996, the U.S. prime lending rate averaged 56 basis points below 1995). The lower 1996 borrowing cost factors almost entirely offset the effects of higher average borrowings, which resulted in only a $2 million increase in interest and discount expense in 1996 compared with the 1995 amount. The 1995 interest and discount expense was $705 million above the 1994 amount due to increased borrowing levels and higher interest rates. Net financing revenue combined with other income and insurance premiums increased in 1996 by $787 million to $6.4 billion, compared with $5.6 billion and $4.7 billion in 1995 and 1994, respectively. The 1996 increase was primarily due to improvement in net interest margins. In addition to the increase in net interest margins, the 1995 increase was also the result of a rise in other income that was primarily attributable to significantly higher fee and investment income from GMACMG activities. Expenses increased by $493 million and $599 million in 1996 and 1995 primarily due to increases in the provision for financing losses of $220 million and $272 million, respectively. Consistent with recent trends in the consumer finance industry, GMAC's delinquencies and losses have increased since 1994, particularly in the United States used vehicle financing portfolio. Additions to the loss reserve as well as tightened credit standards and intensified collection efforts are expected to mitigate GMAC's exposure to further adverse trends in consumer payment experience. Additionally, GMAC incurred higher costs for salaries, benefits, and other operating charges incidental to expanding financing business activities, which contributed to the increased expenses for both 1996 and 1995. GMAC's effective income tax rate for 1996 was 40.3%, compared with 42.2% in 1995 and 35.6% in 1994. The favorable change in 1996 was attributable to lower effective income tax rates for international financing operations. The 1995 increase over 1994 reflected higher U.S. and foreign taxes assessed on foreign source income. II-53 68 HUGHES FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, ----------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net sales Outside customers......................................... $10,661 $ 9,529 $ 9,109 GM and affiliates......................................... 5,083 5,185 4,953 ------- ------- ------- Total net sales........................................ 15,744 14,714 14,062 Other income -- net......................................... 174 58 37 ------- ------- ------- Total revenues......................................... 15,918 14,772 14,099 ------- ------- ------- Pre-tax income.............................................. 1,635 1,594 1,528 Income taxes................................................ 606 646 573 Cumulative effect of accounting change...................... -- -- (30) ------- ------- ------- Net income............................................. $ 1,029 $ 948 $ 925(1) ======= ======= ======= Earnings Used for Computation of Available Separate Consolidated Net Income(2)........................... $ 1,151 $ 1,108 $ 1,049(1) ======= ======= ======= Net earnings attributable to Class H common stock on a per share basis............................................... $ 2.88 $ 2.77 $ 2.62(1) Cash dividends per share of Class H common stock............ $ 0.96 $ 0.92 $ 0.80 Depreciation and amortization expenses(2)................... $ 560 $ 488 $ 470 Capital expenditures(3)..................................... $ 840 $ 820 $ 746 Worldwide employment at December 31 (in thousands).......... 86 84 79
- ------------------------- (1) Effective January 1, 1994, SFAS No. 112 was adopted, which resulted in an unfavorable impact of $30 million or $0.08 per share of Class H common stock. (2) Excludes amortization and adjustment of GM purchase accounting adjustments of $122 million, $160 million, and $124 million, for 1996, 1995, and 1994, respectively, related to GM's acquisition of Hughes Aircraft Company. (3) Includes expenditures related to telecommunications and other equipment amounting to $188 million, $275 million, and $256 million in 1996, 1995, and 1994, respectively. SEGMENT HIGHLIGHTS Telecommunications and Space Revenues.................................................. $4,115 $3,093 $2,596 Net sales................................................. $3,992 $3,076 $2,634 Operating profit(1)....................................... $ 260 $ 189 $ 271 Operating profit margin(2)................................ 6.5% 6.2% 10.3% Automotive Electronics Revenues.................................................. $5,351 $5,561 $5,222 Net sales................................................. $5,311 $5,480 $5,171 Operating profit(1)....................................... $ 654 $ 869 $ 795 Operating profit margin(2)................................ 12.3% 15.9% 15.4% Aerospace and Defense Systems Revenues.................................................. $6,338 $5,945 $6,024 Net sales................................................. $6,332 $5,900 $6,007 Operating profit(1)....................................... $ 695 $ 688 $ 664 Operating profit margin(2)................................ 11.0% 11.7% 11.0%
- ------------------------- (1) Operating profit represents net sales less total costs and expenses other than interest expense and amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. (2) Operating profit margin represents operating profit as a percentage of net sales. II-54 69 HUGHES FINANCIAL REVIEW Hughes reported net income of $1 billion in 1996, compared with $948 million and $925 million in 1995 and 1994, respectively. Excluding amortization and adjustment of purchase accounting adjustments relating to GM's acquisition of Hughes Aircraft Company, Hughes' earnings used for computation of available separate consolidated net income was $1.15 billion in 1996, compared with $1.11 billion in 1995 and $1.05 billion in 1994. Contributing to the 1996 increase in net income was higher operating profit in the Telecommunications and Space segment, reduced losses at Hughes-Avicom International, Inc., a lower effective tax rate, and the $72 million after-tax gain recognized in the first quarter from the sale of a 2.5% equity interest in DIRECTV(R) to AT&T. Partially offsetting these increases was the impact on the Automotive Electronics segment operating profit of lower GM production volumes attributable primarily to the three major work stoppages. The increase in 1995 net income was due primarily to increased revenues and on-going cost reduction efforts, partially offset by the planned increase in expenses associated with the operation and expansion of DIRECTV. Total revenues increased to $15.9 billion in 1996, compared with $14.8 billion in 1995 and $14.1 billion in 1994. This revenue growth was propelled by the Telecommunications and Space segment where revenues for 1996 increased to $4.1 billion, compared with $3.1 billion and $2.6 billion in 1995 and 1994, respectively. The increases in 1996 and 1995 revenues reflected DIRECTV subscriber growth combined with increased sales of commercial satellites and cellular communications equipment, and increased video distribution revenues from Galaxy(R) satellite transponders. Automotive Electronics segment revenues for 1996 were $5.4 billion, compared with $5.6 billion and $5.2 billion in 1995 and 1994, respectively. The 1996 decrease reflected the impact of the work stoppages at various GM production locations during the year and the price reductions from competitive pricing in connection with GM's global sourcing initiative. The increase in Automotive Electronics segment revenues in 1995 resulted from an increase in Hughes-supplied electronic content in GM vehicles produced in North America and continued growth of sales to international and non GM-NAO customers. Aerospace and Defense Systems segment revenues for 1996 increased to $6.3 billion, compared with $5.9 billion and $6 billion in 1995 and 1994, respectively. The 1996 increase in revenues was due primarily to the acquisition of Hughes Defense Communications (formerly Magnavox Electronic Systems Company) in December 1995. Operating profit, excluding amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company, was $1.6 billion in 1996, compared with $1.7 billion and $1.6 billion in 1995 and 1994, respectively. Operating profit margin on the same basis was 10.1%, 11.3%, and 11.6% in 1996, 1995, and 1994, respectively. The decline in 1996 operating profit and operating profit margin was due mainly to the unfavorable impact of lower GM production volumes on the Automotive Electronics segment as a result of the aforementioned work stoppages. The 1995 decrease in operating profit margin was primarily a result of increased operating expenses associated with the continued expansion of DIRECTV, partially offset by higher margins in the Automotive Electronics and Aerospace and Defense Systems segments resulting from cost-reduction programs. Hughes' effective income tax rate was 37.1% in 1996, compared with 40.5% and 37.5% in 1995 and 1994, respectively. The decrease in the effective income tax rate in 1996 was due primarily to the favorable resolution of certain tax contingencies while the effective income tax rate in 1994 was favorably impacted by the recognition of capital loss carryforward benefits. On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. See the Hughes Transactions section on pages II-58 and II-59 for additional information regarding the planned transactions. II-55 70 To facilitate analysis, the following sections present financial statements for the Corporation's manufacturing, wholesale marketing, defense and electronics operations with the financing and insurance operations (primarily GMAC) reflected on an equity basis. This is the same basis and format used in years prior to the Corporation's adoption of SFAS No. 94, Consolidation of All Majority-Owned Subsidiaries. CONSOLIDATED STATEMENTS OF INCOME WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
YEARS ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Net sales and revenues(1)................................... $145,427 $143,754 $134,888 -------- -------- -------- Costs and expenses Cost of sales and other operating charges, exclusive of items listed below..................................... 123,966 121,312 113,655 Selling, general, and administrative expenses............. 11,827 10,195 9,385 Depreciation and amortization expenses.................... 7,145 6,787 6,343 Plant closings reserve adjustments........................ (727) -- -- -------- -------- -------- Total costs and expenses............................. 142,211 138,294 129,383 -------- -------- -------- Operating income............................................ 3,216 5,460 5,505 Other income less income deductions......................... 2,112 1,168 1,213 Interest expense............................................ 859 344 1,265 -------- -------- -------- Income from continuing operations before income taxes....... 4,469 6,284 5,453 Income taxes................................................ 885 1,563 1,719 -------- -------- -------- Income from continuing operations before earnings of nonconsolidated affiliates and cumulative effect of accounting changes........................................ 3,584 4,721 3,734 Earnings of nonconsolidated affiliates...................... 1,369 1,312 1,125 -------- -------- -------- Income from continuing operations before cumulative effective of accounting changes........................... 4,953 6,033 4,859 Income from discontinued operations......................... 10 900 793 Cumulative effect of accounting changes(2).................. -- (52) (751) -------- -------- -------- Net income........................................... $ 4,963 $ 6,881 $ 4,901 ======== ======== ======== Net profit margin(3)................................. 3.4% 4.2% 3.6%
- ------------------------- (1) Includes sales to nonconsolidated affiliates of $954 million, $855 million, and $856 million in 1996, 1995, and 1994, respectively. (2) Effective January 1, 1995, GM adopted EITF Issue No. 95-1 and effective January 1, 1994, GM adopted SFAS No. 112. Not included in 1994 is the unfavorable cumulative effect on GMAC earnings of $7 million of adopting SFAS No. 112 because the cumulative effect is included in earnings of nonconsolidated affiliates. (3) Net profit margin represents income from continuing operations before cumulative effect of accounting changes as a percentage of net sales and revenues. RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS In 1996, GM's income from continuing operations before cumulative effect of accounting changes totaled $5 billion or $6.07 per share of $1 2/3 par value common stock, compared with $6 billion or $7.14 per share of $1 2/3 par value common stock and $4.9 billion or $5.74 per share of $1 2/3 par value common stock in 1995 and 1994, respectively. GM's 1996 income from continuing operations before cumulative effect of accounting changes included certain special items that had a net unfavorable impact of approximately $900 million after-tax (See GM-NAO/Delphi Financial Review). GM completed the split-off of Electronic Data Systems Corporation (EDS) on June 7, 1996, and accordingly, the financial results related to EDS through the split-off date have been reported as discontinued II-56 71 RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS (CONTINUED) operations. GM's 1996 net income, including the income from discontinued operations through the June 7, 1996 split-off, totaled $5 billion or $6.06 per share of $1 2/3 par value common stock, compared with $6.9 billion or $7.21 per share of $1 2/3 par value common stock and $4.9 billion or $5.15 per share of $1 2/3 par value common stock for 1995 and 1994, respectively. Highlights of financial performance by GM's major business sectors were as follows (in millions):
1996 1995 1994 ---- ---- ---- GM-NAO/Delphi............................................... $1,246 $2,396 $ 677 GMIO........................................................ 1,532 1,644 1,575 GMAC........................................................ 1,240 1,031 920 Hughes...................................................... 1,151 1,108 1,049 Other....................................................... (216) (198) (113) ------ ------ ------ Income from continuing operations...................... $4,953 $5,981 $4,108 Discontinued operations (EDS) 10 900 793 ------ ------ ------ Net income............................................. $4,963 $6,881 $4,901 ====== ====== ======
Reference should be made to the GM-NAO/Delphi, GMIO, GMAC, and Hughes Financial Reviews that are presented on pages II-48 through II-55 and incorporated by reference to supplement the information presented herein. In 1996, net sales and revenues increased $1.6 billion to $145.4 billion, compared with $143.8 billion and $134.9 billion in 1995 and 1994, respectively. The 1996 increase resulted from increased net sales for GMIO and Hughes, partially offset by lower wholesale sales in North America. The increase in 1995 compared with 1994 was primarily due to increased wholesale vehicle sales, lower sales incentives and an improved mix of retail and fleet sales in North America, increased wholesale vehicle sales outside of North America, and the continued expansion of Hughes. The gross margin was 14.8% for 1996, compared with 15.6% and 15.7% in 1995 and 1994, respectively. The 1996 decrease in the gross margin primarily resulted from lower wholesale sales, increased safety and emissions costs, and spending for new product launches and new product development. The slight decrease in the 1995 gross margin primarily resulted from labor cost pressures in Latin America; foreign exchange rate movements in Europe, Brazil, and Venezuela; vehicle launch costs in Europe; and increased corporate-wide engineering expenses to support new product development. The higher costs in 1996 and 1995 were partially offset by savings for GM-NAO, Delphi, and GMIO in connection with GM's strategy of utilizing common parts and processes, while implementing lean operations. Selling, general, and administrative expenses increased in both 1996 and 1995 primarily due to efforts to grow the business in all of the GM business sectors, which included increased advertising and other consumer influence spending in connection with new vehicle launch support and marketing programs in North America in 1996. Depreciation and amortization expenses increased in both 1996 and 1995 in connection with expenditures for production and quality improvements worldwide. Favorable pre-tax plant closings reserve adjustments of $727 million were recorded in 1996. Additional information regarding the plant closings reserve adjustments is contained in Note 17 to the GM consolidated financial statements. Other income less income deductions was $2.1 billion in 1996, compared with $1.2 billion in both 1995 and 1994. The amount reported for 1996 included a $120 million pre-tax gain associated with the sale of a 2.5% equity interest in DIRECTV and a $105 million pre-tax gain on the sale of GM's preferred stock interest in Avis, Inc., while the 1995 amount included a $148 million pre-tax loss associated with the sale of the net assets of National Car Rental System (NCRS). Interest expense totaled $859 million in 1996, compared with $344 million and $1.3 billion in 1995 and 1994, respectively. The lower 1995 interest expense resulted from the reversal of interest related to income tax issues resolved in 1995, the reevaluation of the remaining reserve, and lower 1995 accrued interest on outstanding tax issues. II-57 72 RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS (CONCLUDED) In 1996, the effective income tax rate was 19.8%, compared with 24.9% and 31.5% in 1995 and 1994, respectively. The lower 1996 tax rate resulted from the favorable resolution of items related to GM's 1995 tax return, overall foreign tax rates that were lower than the U.S. statutory rate, and research and experimentation credits. The 1995 effective income tax rate resulted from the resolution of numerous prior year tax issues worldwide, efficient utilization of a net operating loss carryback, tax benefits associated with the mix of foreign earnings and foreign income taxes, and tax benefits relating to the sale of the net assets of NCRS. EDS SPLIT-OFF On June 7, 1996, GM split-off EDS to GM Class E stockholders on a tax-free basis for U.S. federal income tax purposes. Under the terms of the split-off, each share of GM's former Class E common stock was exchanged for one share of EDS common stock. In addition, GM and EDS entered into a new 10-year agreement, under which EDS will continue to be GM's principal provider of information technology services, and EDS made a special inter-company payment of $500 million to GM. GM's Board of Directors determined that the ownership of EDS was not necessary for GM to execute its information technology strategy or to ensure the security of its computer data and other information. Furthermore, GM's Board of Directors determined that there were certain actual and potential conflicts between the business of EDS and the other businesses of GM. The split-off was completed to address such conflicts in a manner that was beneficial from the standpoint of all stockholders of GM and to allow the boards and managements of GM and EDS to increase their focus on their respective business operations. A majority of the holders of all three classes of GM common stock approved the split-off. Additional information regarding the split-off of EDS is contained in Note 2 to the GM consolidated financial statements. HUGHES TRANSACTIONS On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. The transactions would include the tax-free spin-off of the Hughes defense business to holders of GM's $1 2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company (Raytheon). The spin-off is not being proposed in a manner that would result in the recapitalization of Class H common stock into $1 2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the General Motors Restated Certificate of Incorporation, as amended. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, GM's Class H common stock would be recapitalized into a tracking stock linked solely to the telecommunications and space business of Hughes. After the spin-off and tax-free merger of the Hughes defense business with Raytheon, there would be outstanding two classes of Raytheon/Hughes defense common stock: Class A common stock, approximately 103 million shares of which would have been distributed to GM's $1 2/3 and Class H stockholders in the spin-off, and Class B common stock which would be exchanged for Raytheon common stock on a one-for-one share basis in the merger. The common stock of the Hughes defense business that would be distributed to GM common stockholders would represent approximately 30% of the stock of the combined company. The distribution of stock in the Hughes defense business to holders of GM Class H and $1 2/3 par value common stock would be in a ratio that would be determined by GM's Board of Directors to be fair to both classes of stockholders and would reflect: (1) a pro rata spin-off of the Hughes defense business to holders of GM Class H and $1 2/3 par value common stock; (2) a partial reallocation of the Hughes defense business from holders of GM $1 2/3 par value common stock to holders of Class H common stock in exchange for the derivative interest in the earnings of Delco currently held by the Class H stockholders; and (3) other effects of and factors relating to the planned transactions. Such a distribution ratio will be set by GM's Board of Directors at a time closer to GM's distribution of the solicitation statement/prospectus pursuant to which GM stockholders will be asked to approve the transactions. The spin-off of the Hughes defense business and merger with Raytheon would have an indicated total value of $9.5 billion to GM and its common stockholders based on stock prices as of the announcement date. That value would consist of a combination of approximately $4.7 billion of total debt obligations of the Hughes II-58 73 HUGHES TRANSACTIONS (CONCLUDED) defense business at the time of the merger, and $4.8 billion of indicated value of Hughes defense stock to be distributed to common stockholders (after giving affect to the merger based on the market price of Raytheon common stock as of the announcement date of $47.00). The merger terms provide that the total debt of the Hughes defense business will be adjusted to reflect variations in the average market price of Raytheon stock, subject to specified limits, so that the two components of value will total $9.5 billion so long as such market price is in a range of between $44.42 and $54.29 per share. Substantially all of such debt would be incurred immediately prior to the spin-off, with the proceeds used principally to fund the telecommunications and space business of Hughes. The integration of Delco with certain parts of Delphi into a distinct business unit will give GM the flexibility to consider some form of future partial public ownership of the resulting entity. GM is evaluating its strategic alternatives in this regard. GM is evaluating the accounting for these transactions and whether the pro rata distribution of the Hughes defense business would be recorded at historical cost, with no gain recognized, or at fair value, with a related gain. Regardless of whether the planned transactions are recorded at historical cost or fair value, it is anticipated that there would be a reduction to GM's stockholders' equity of between $0.6 billion to $1.6 billion, depending on several variables the largest of which is the level of debt incurred by the Hughes defense business prior to the spin-off. Consummation of the transactions described previously is subject to various contingencies, including regulatory clearances and approval by GM common stockholders. Additional information regarding these planned transactions is included in Note 23 to the GM consolidated financial statements. These planned transactions had no impact on GM's 1996 financial results. The planned transactions described previously are intended to result in the achievement of several strategic objectives. The merger of the Hughes defense business with Raytheon would create a stronger defense electronics company which would be able to more effectively compete for new business in an industry where significant consolidation is occurring. At the same time, the integration of Delco Electronics and Delphi Automotive Systems would combine advanced electronics capability with components and systems expertise, and would be expected to result in reduced costs. Hughes Electronics would continue to hold and operate the telecommunications and space business. This would allow Hughes management to focus on this business segment and the capital infusion would allow it to take advantage of growth opportunities in this very competitive industry. The strategy of this business is to continue to expand its offerings from being primarily a supplier of hardware to becoming a provider of hardware and video, voice, and data services worldwide. This strategy requires significant current and future investment in order to maintain and enhance the segment's competitive position with respect to existing products and to take advantage of the growth opportunities presented, as well as the formation of strategic alliances to compete in the very competitive global marketplace. Separately, in September 1996, Hughes and PanAmSat Corporation entered into an agreement to merge their respective satellite services operations into a new publicly-held company. Hughes would contribute its Galaxy satellite services business in exchange for a 71.5% interest in the new company. Current PanAmSat stockholders would receive a 28.5% interest in the new company and $1.5 billion in cash. For accounting purposes, this transaction would be treated as a partial sale of the Galaxy business by Hughes and would result in a one-time, nonrecurring gain. The amount of this gain depends on several variables, but is expected to be between $400 and $600 million before tax. The transaction, which is contingent upon receiving certain regulatory approvals, is expected to close during the second quarter of 1997. Statements made herein concerning the transactions planned by Hughes and General Motors, and strategic alternatives and the possibility of future action in relation thereto constitute forward-looking information. Each of the transactions described in such statements is subject to numerous conditions and uncertainties. Accordingly, there can be no assurance that any such transactions will be consummated, or if consummated, accomplish the strategic objectives of Hughes or General Motors. II-59 74 CONSOLIDATED BALANCE SHEETS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
DECEMBER 31, ---------------------- 1996 1995 ---- ---- (DOLLARS IN MILLIONS) ASSETS Cash and cash equivalents................................... $ 13,320 $ 9,047 Other marketable securities................................. 3,642 1,194 -------- -------- Total cash and marketable securities...................... 16,962 10,241 Accounts and notes receivable (less allowances) Trade..................................................... 4,909 5,595 Nonconsolidated affiliates................................ 927 2,103 Inventories (less allowances)............................... 11,898 11,348 Net assets of discontinued operations....................... -- 5,055 Contracts in process -- net................................. 2,507 2,469 Net equipment on operating leases........................... 3,918 4,393 Deferred income taxes and other............................. 3,141 5,527 -------- -------- Total current assets................................... 44,262 46,731 Equity in net assets of nonconsolidated affiliates.......... 9,855 9,983 Deferred income taxes....................................... 20,075 17,375 Other investments and miscellaneous assets.................. 11,391 12,011 Property -- net............................................. 37,156 34,438 Intangible assets -- net.................................... 12,523 10,106 -------- -------- Total assets........................................... $135,262 $130,644 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable............................................ $ 11,527 $ 10,624 Loans payable............................................... 1,214 2,187 Income taxes payable........................................ -- 101 Accrued liabilities and customer deposits................... 29,822 28,093 -------- -------- Total current liabilities.............................. 42,563 41,005 Long-term debt.............................................. 5,192 4,114 Capitalized leases.......................................... 198 166 Postretirement benefits other than pensions................. 40,578 39,001 Pensions.................................................... 5,966 5,594 Other liabilities and deferred income taxes................. 15,742 15,908 Deferred credits............................................ 1,605 1,510 Stockholders' equity........................................ 23,418 23,346 -------- -------- Total liabilities and stockholders' equity............. $135,262 $130,644 ======== ========
LIQUIDITY AND CAPITAL RESOURCES WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS Total cash and marketable securities at December 31, 1996 were $17 billion, up from $10.2 billion at December 31, 1995. GM has surpassed its goal to accumulate $13 billion of cash and marketable securities in order to continue to fund product development programs throughout the next downturn in the business cycle. GM believes it has sufficient resources to meet anticipated future cash flow requirements. In addition to cash flows from operations, GM and its subsidiaries maintain substantial bank lines of credit with various banks that totaled $53.7 billion at December 31, 1996, of which $32.4 billion represented short-term credit facilities and $21.3 billion represented long-term credit facilities. At December 31, 1995, bank lines of credit totaled $50.9 billion, of which $30.1 billion represented short-term credit facilities and $20.8 billion represented long-term credit facilities. The unused short-term and long-term portions of the credit lines II-60 75 LIQUIDITY AND CAPITAL RESOURCES WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS (CONCLUDED) totaled $21.9 billion and $19.2 billion at December 31, 1996, compared with $20.6 billion and $18.8 billion at December 31, 1995. Long-term debt was $5.2 billion at December 31, 1996, an increase of $1.1 billion from the prior year. The ratio of long-term debt to the total of long-term debt and stockholders' equity was 18.1% and 15% at December 31, 1996 and 1995, respectively. The ratio of long-term debt and short-term loans payable to the total of this debt and stockholders' equity was 21.5% and 21.3% at December 31, 1996 and 1995, respectively. Net liquidity, calculated as cash and marketable securities less the total of loans payable, long-term debt, and capitalized leases, was a record $10.4 billion at December 31, 1996, an increase of $6.6 billion from the prior year. Book value per share of $1 2/3 par value common stock increased to $27.95 from $24.37 at December 31, 1996 and 1995, respectively. Book value per share of Class H common stock increased to $13.97 from $12.20 at December 31, 1996 and 1995, respectively. Book value per share was determined based on the liquidation rights of the various classes of common stock. LIQUIDITY AND CAPITAL RESOURCES FOR GMAC At December 31, 1996, GMAC owned assets and serviced automotive receivables for others totaling $108 billion compared with $106.6 billion at year end 1995. Earning assets totaled $95.3 billion and $92 billion at December 31, 1996 and 1995, respectively. The increase in earning assets was primarily attributable to continued growth of the operating lease portfolio as well as higher outstanding balances for real estate mortgages. Cash and cash equivalents totaled $742 million and $1.4 billion at December 31, 1996 and 1995, respectively. The lower holdings reflect a reduced need to accumulate cash as GMAC's access to the capital markets has continued to improve. Consolidated finance receivables, net of unearned income, totaled $59.3 billion at December 31, 1996, a decrease of $1.9 billion from December 31, 1995 that primarily resulted from lower wholesale receivables outstanding. GMAC's liquidity, as well as its ability to profit from ongoing acquisition activity, is in large part dependent on its access to capital and the costs associated with raising funds in different segments of the capital markets. In this regard, GMAC regularly accesses the short-, medium-, and long-term debt markets, principally through commercial paper, medium-term notes, and underwritten issuances. GMAC's borrowings outstanding at December 31, 1996 totaled $78.7 billion compared with $74.9 billion at December 31, 1995. GMAC's ratio of debt to total stockholder's equity at December 31, 1996 was 9.5:1, up from 9.1:1 at December 31, 1995. The higher year-to-year debt levels were principally used to fund increased asset levels and reduce accounts payable. GMAC has continued to use an asset securitization program as an alternative funding source and has sold finance receivables that it continues to service for a fee. The servicing portfolio of sold finance receivables totaled $9.7 billion and $11.3 billion at December 31, 1996 and 1995, respectively. GMAC and its subsidiaries maintain substantial bank lines of credit, which totaled $40.7 billion and $40 billion at December 31, 1996 and 1995, respectively. The unused portion of these credit lines totaled $30.6 billion at December 31, 1996, which was $200 million higher than at December 31, 1995. II-61 76 CONSOLIDATED STATEMENTS OF CASH FLOWS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS
YEARS ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Cash flows from operating activities Income from continuing operations before cumulative effect of accounting changes.................................. $ 4,953 $ 6,033 $ 4,859 Adjustments to reconcile income from continuing operations before cumulative effect of accounting changes to net cash provided by operating activities Depreciation and amortization expenses................. 7,145 6,787 6,343 Provision for ongoing postretirement benefits other than pensions, net of cash payments.................. 1,549 1,659 2,205 Pension expense, net of cash contributions............. 801 (2,932) (5,018) Plant closings reserve adjustments..................... (727) -- -- Pre-tax loss (gain) on sale of business units.......... 253 116 (18) Change in other operating assets and liabilities Accounts receivable.................................. 1,196 (137) (838) Inventories.......................................... (757) (1,214) (1,656) Accounts payable..................................... 898 (288) 1,267 Deferred taxes and income taxes payable.............. (303) 1,077 406 Other liabilities.................................... 460 576 1,662 Other.................................................. 1,447 (575) (1,555) -------- ------- ------- Net cash provided by operating activities................... 16,915 11,102 7,657 -------- ------- ------- Cash flows from investing activities Expenditures for property................................. (9,606) (8,653) (5,890) Special inter-company payment from EDS.................... 500 -- -- Investments in other marketable securities - acquisitions........................................... (14,340) (5,581) (2,511) Investments in other marketable securities - liquidations........................................... 11,891 5,496 1,914 Operating leases - acquisitions........................... (4,090) (1,090) (1,851) Operating leases - liquidations........................... 3,819 506 1,128 Other..................................................... 334 (71) 737 -------- ------- ------- Net cash used in investing activities....................... (11,492) (9,393) (6,473) -------- ------- ------- Cash flows from financing activities Net (decrease) increase in loans payable.................. (971) 1,072 (528) Increase in long-term debt................................ 1,937 646 152 Decrease in long-term debt................................ (871) (1,597) (786) Proceeds from sale of minority interest in DIRECTV........ 138 -- -- Net increase (decrease) in payable to GMAC................ -- 311 (143) Repurchases of common and preference stocks............... (251) (1,681) -- Proceeds from issuing common stocks....................... 480 453 1,017 Cash dividends paid to stockholders....................... (1,530) (1,328) (1,112) -------- ------- ------- Net cash used in financing activities....................... (1,068) (2,124) (1,400) -------- ------- ------- Effect of exchange rate changes on cash and cash equivalents............................................... (185) 146 (16) -------- ------- ------- Net cash provided by (used in) continuing operations........ 4,170 (269) (232) Net cash provided by (used in) discontinued operations...... 103 193 (24) -------- ------- ------- Net increase (decrease) in cash and cash equivalents........ 4,273 (76) (256) Cash and cash equivalents at beginning of the year.......... 9,047 9,123 9,379 -------- ------- ------- Cash and cash equivalents at end of the year................ $ 13,320 $ 9,047 $ 9,123 ======== ======= =======
II-62 77 CASH FLOWS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS Net cash provided by operating activities was $16.9 billion, $11.1 billion, and $7.7 billion in 1996, 1995, and 1994, respectively. The increase in net cash provided by operating activities in 1996 resulted from a decrease in accounts receivable and cash contributions to the worldwide pension funds, higher depreciation and amortization expenses, and a $1 billion income tax refund related to the carryback of a 1995 net operating loss, partially offset by an increase in deferred tax assets. The increase in 1995 was primarily attributable to higher net income and depreciation and amortization expenses, the sale of $600 million of accounts receivable, and a decrease in cash contributions to the worldwide pension funds. Depreciation and amortization expenses increased as a result of higher property expenditures in each of the last three years. Cash pension contributions for 1996 and 1995 decreased due to the improved funding of GM's U.S. hourly pension plan and included the effects of the 1995 non-cash contribution of GM's former Class E common stock (now EDS common stock), valued for book purposes at approximately $6.3 billion. GM has made substantial progress toward realigning plant capacity in North America, and the improved operating cash flows reflect these actions. Total future discounted cash expenditures for plant closings is estimated to be $1,279 million. Additional information on the plant closings reserve (excluding environmental) is summarized in Note 17 to the GM consolidated financial statements. Net cash used in investing activities increased to $11.5 billion in 1996, compared with $9.4 billion and $6.5 billion in 1995 and 1994, respectively. The increase in 1996 was primarily due to a $2.4 billion net change in investments in other marketable securities combined with a $953 million increase in property expenditures, partially offset by a $500 million special inter-company payment from EDS. The $2.9 billion increase in 1995 over 1994 resulted primarily from increased property expenditures. Worldwide property expenditures in 1996, of which 60% were in the U.S. (65% in 1995 and 66% in 1994), 10% in Canada and Mexico (8% in 1995 and 10% in 1994) and 30% overseas (27% in 1995 and 24% in 1994), have been devoted primarily to improve efficiency and quality, to increase truck assembly capacity, and to increase GM's global presence. Capital expenditures for 1997 are estimated to be approximately $9.9 billion with outstanding commitments of $7 billion at December 31, 1996. In 1996, net cash used in financing activities decreased to $1.1 billion, compared with $2.1 billion and $1.4 billion in 1995 and 1994, respectively. The higher level of cash used in financing activities in 1995 was due to a $1.3 billion repurchase of preference stocks. The increase in net cash used in financing in 1995 compared with 1994 resulted from the repurchase of preference stocks, as well as a reduction of $564 million in proceeds from issuing common stocks and a $1.1 billion increase in total loans payable. Cash dividends paid to stockholders increased in 1996 and 1995 as GM's Board of Directors approved dividend increases in the first quarter of each year. GM's policy is to distribute dividends on its $1 2/3 par value common stock based on the outlook and indicated capital needs of the business. In January 1997, GM's Board of Directors increased the quarterly dividend on $1 2/3 par value common stock by $0.10 per share to $0.50 per share, a level that GM believes will be sustainable throughout the automotive business cycle. With respect to Class H common stock, GM's current policy is to pay quarterly cash dividends approximately equal to 35% of the available separate consolidated net income of Hughes, for the prior year. In January 1997, GM's Board of Directors increased the quarterly dividend on Class H common stock to $0.25 per share from $0.24 per share. It is anticipated that if the previously described Hughes transactions are consummated, the General Motors Board of Directors will adopt a dividend policy relating to the new Class H common stock which the Board deems to be appropriate in light of the capital needs and growth opportunities of the Hughes telecommunications and space business and generally commensurate with that of other companies in the telecommunications and space business having similar capital needs and growth opportunities. Also in January 1997, GM's Board of Directors approved a $2.5 billion repurchase program for $1 2/3 par value common stock, which was expected to be completed principally through open-market purchases within 12 months of the announcement date. This would represent a repurchase of slightly more than 5% of the shares of $1 2/3 par value common stock outstanding on the date of the announcement based on the New York Stock Exchange's closing price on the last business day prior to the announcement. II-63 78 CASH FLOWS FOR GMAC In 1996, cash provided by operating and financing activities totaled $4.2 billion and $2.6 billion, respectively. Cash used in investing activities, primarily for expanding the operating lease portfolio, totaled $7.5 billion. In 1995, cash provided by operating and financing activities totaled $5.9 billion and $6.7 billion, respectively. Cash used in investing activities, principally for expanding the finance receivables and operating lease portfolios, totaled $12.5 billion. In 1994, cash provided by operating and financing activities totaled $4.4 billion and $2.5 billion, respectively. Cash used for investing activities, primarily for the acquisition of operating lease assets, totaled $9.6 billion. The 1994 decrease in cash and cash equivalents of $2.7 billion resulted from a planned reduction in liquidity reserve requirements due to GMAC's improved access to capital markets. HEALTH CARE EXPENSE AND OTHER POSTRETIREMENT BENEFITS As described in Note 14 to the GM consolidated financial statements, SFAS No. 106 requires the cost of postretirement medical, dental, vision, and life insurance to retirees and eligible dependents to be recognized in the consolidated financial statements during the period in which employees provide services to GM. Costs for medical, dental, vision, and life insurance claims provided to employees during active service are expensed as incurred (pay-as-you-go) and are not covered by SFAS No. 106. The components of the SFAS No. 106 expense, the U.S. health care cost, and cash expenditures for GM's U.S. operations are set forth below (excluding cash expenditures for Hughes' non-automotive employees, but including GMAC). SFAS No. 106 has no effect on cash flow since GM continues its practice of paying postretirement benefits (other than pensions) when incurred. Nonetheless, GM is committed to reducing the burden of continuing health care cost increases.
YEAR ENDED DECEMBER 31, 1996 ------------------------------------------ SFAS NO. 106 HEALTH PAY-AS-YOU-GO EXPENSE CARE COST COST* ------------ --------- ------------- (DOLLARS IN MILLIONS) GM U.S. operations health care SFAS No. 106 expense................................. $2,999 $2,999 $ -- Retired employees pay-as-you-go...................... -- -- 1,730 Active employees pay-as-you-go....................... -- 1,764 1,764 ------ ------ ------ Total health care................................. 2,999 $4,763 $3,494 ------ ====== ====== SFAS No. 106 expense Life insurance....................................... 404 Other subsidiaries - health care and life insurance......................................... 169 ------ Total SFAS No. 106................................ $3,572 ======
- ------------------------- * Pay-as-you-go amounts for 1995 were $1.7 billion for retirees, $1.9 billion for active employees, and $3.6 billion in total. GM has disclosed in its consolidated financial statements certain amounts associated with estimated future postretirement benefits other than pensions and classified such amounts as "accumulated postretirement benefit obligations", "liabilities", or "obligations." Notwithstanding the recording of such amounts and the use of these terms, GM does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of GM (other than pensions) represent legally enforceable liabilities of GM. II-64 79 GM CARD GM sponsors a credit card program, entitled the GM Card program, which was introduced in the U.S. in September 1992 and subsequently in Canada, Australia, Brazil, and the United Kingdom. A cardholder's use of the card generates entitlements to rebates that can be used solely in connection with the cardholder's purchase or lease of a new GM vehicle. As the sponsor of the GM Card program, GM does not provide consumer credit. The program is used as a marketing tool to increase product sales. Independent banks issue the GM Card and are responsible for evaluating, extending, and funding credit to the cardholders, and are fully responsible for any credit card losses with no recourse against GM. In the U.S., GM Card rebates accumulate at a rate equal to 5% of all spending for goods or services charged on the GM Card up to a maximum rebate amount of $500 per year. Beginning with their annual fee date in 1997, the maximum rebate for Gold Card members will be $500 per year. Additional rebates may be earned when the GM Card is used to make purchases from non-bank marketing partners. The rebates, which expire in 7 years, may be applied over and above all sales allowances in the market at the time of vehicle purchase or lease. GM is solely responsible to cardholders for rebates. Provisions for GM Card rebates are recorded as reductions in revenue at the time of vehicle sale. GM has the right to prospectively modify the plan. Rebates redeemed worldwide during 1996, 1995, and 1994 were $443 million, $299 million, and $150 million, respectively. Cardholder rebates available worldwide for future redemption when the cardholder purchases or leases a new GM vehicle amounted to $3.2 billion and $2.5 billion (net of deferred program income) at December 31, 1996 and 1995, respectively. GM anticipates that profits from incremental sales resulting from the GM Card program, along with deferred program income, will more than offset future rebate costs associated with the GM Card. DERIVATIVE INSTRUMENTS GM is an international corporation with operations in over 50 countries, which naturally exposes it to a variety of financial risks. These financial risks are principally the effects of movements in foreign exchange rates on transactions not denominated in U.S. dollars, and to a lesser extent, changes in interest rates on its net cost of borrowings. In addition, GM is hedging its use of metals in the physical and financial commodities markets. The impact of such financial exposures on GM's annual income is relatively small compared with the impact of changes in vehicle sales volumes and operating margins. Gains and losses on derivatives used to hedge commodities price exposures are deferred and recorded as a basis adjustment to the underlying inventory purchase. At the time the inventory is sold, the gain or loss on the derivative is recognized in income as an adjustment to cost of sales. Additional information regarding GM's accounting policies for and use of derivative financial instruments is contained in Notes 1, 11, 12, and 13 to the GM consolidated financial statements. SECURITY RATINGS
CURRENT SECURITY RATINGS ----------------------------- MOODY'S S&P D&P FITCH ------- --- --- ----- GM/GMAC long-term debt....................... A.3 A- A- A- GM preference stocks......................... Baa1 BBB+ BBB+ BBB+ GMAC commercial paper........................ P-1 A.2 D-1 F-1 Hughes long-term debt........................ A.3 A- -- -- Hughes commercial paper...................... P-2 A.2 -- --
Debt ratings by the various rating agencies reflect each agency's opinion of the ability of issuers to repay debt obligations punctually. Lower ratings generally result in higher borrowing costs. A security rating is not a II-65 80 SECURITY RATINGS (CONCLUDED) recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating. GM's 1996 credit ratings remained unchanged from 1995 by its U.S. rating agencies. Following GM's January 1997 announcement with respect to the Hughes business segments (see Note 23 to the GM consolidated financial statements), each of the rating agencies reaffirmed its current rating and outlook for GM securities. Moody's Investors Service (Moody's), however, put Hughes' ratings on review for possible downgrade. In September 1996, Moody's confirmed the long-term credit ratings of GM, Hughes and certain related affiliates at A.3, seventh highest within the 10 investment grade ratings available from Moody's for long-term debt. Moody's defines A.3 bonds as having "upper-medium grade" quality. In this action, the credit rating for the commercial paper of Hughes was confirmed at P-2. Moody's employs its P-1 rating to indicate that an issuer's ability to repay is superior relative to other issuers, while the P-2 rating indicates that the issuer has a strong ability for repayment relative to other issuers. The rating for GM preference stocks remains at Baa1, which signifies "medium-grade" quality. In October 1996, Standard and Poor's Ratings Services, a division of McGraw-Hill Companies, Inc. (S&P), revised its outlook on Hughes from stable to developing as a result of the uncertainty with respect to GM's investment strategy related to Hughes. S&P indicated that the developing outlook reflects the possibility that if a significant change in the relationship between GM and Hughes were to occur, the credit quality of Hughes could be either favorably or adversely affected, depending upon the nature of the transaction pursued. In November 1996 and January 1997, S&P affirmed its long-term debt ratings of GM, GMAC, and Hughes at A-. The S&P A- credit rating is the seventh highest within the 10 investment grade ratings available from S&P for long-term debt, based on a strong capability to pay interest and repay principal, although somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Additionally, S&P affirmed its rating on GM's preference stock at BBB+, eighth highest within the 10 S&P investment grade ratings, and affirmed its A.2 rating on GMAC's and Hughes' commercial paper. The ratings outlook for GM and GMAC remain stable, while the outlook for Hughes remains developing. In addition, substantially all of the short-, medium- and long-term debt issued by GMAC and the senior debt of GM is rated by Fitch Investors Service, Inc. (Fitch) and Duff & Phelps Credit Rating Co. (D&P). These ratings were all reaffirmed by Fitch and D&P in September 1996 and January 1997. The senior debt of GM and GMAC remains rated A- by both agencies, seventh highest within the 10 investment grade ratings available. Fitch's A- rating is assigned to bonds considered to be of high credit quality, with the obligor's ability to pay interest and repay principal considered to be strong. D&P's A- rating indicates adequate likelihood of timely payment of principal and interest. GMAC's commercial paper remains rated F-1 by Fitch, the second highest of four investment grade ratings available, which is assigned to short-term issues that possess a very strong credit quality based primarily on the existence of liquidity necessary to meet the obligation in a timely manner. GMAC's commercial paper remains rated D-1 by D&P, the second highest of five investment grade ratings available, which signifies a very high certainty of timely payment based on excellent liquidity factors and good fundamental protection factors. GM's preference stocks remain rated BBB+ by Fitch and D&P, the eighth highest of 10 investment grade ratings available. Preference issues assigned this rating by Fitch are considered reasonably safe but lack the protection of the "A" to "AAA" categories. This rating signifies that current results should be watched for possible signs of deterioration. Preference stocks assigned this rating by D&P have below average protection factors but are still considered sufficient for prudent investment. II-66 81 DEFERRED INCOME TAXES At December 31, 1996, GM's consolidated balance sheet included a net deferred tax asset of approximately $17.5 billion related to net future deductible temporary differences (see Note 7 to the GM consolidated financial statements) in the United States of which approximately $16.4 billion related to the obligation for postretirement benefits other than pensions. Realization of the net deferred tax asset is dependent upon profitable operations in the United States and future reversals of existing taxable temporary differences. Although realization is not assured, GM believes that it is more likely than not that such benefits will be realized through the reduction of future taxable income. Management has carefully considered various factors in assessing the probability of realizing these deferred tax benefits including: - Operating results of GMAC and Hughes, which generated U.S. pre-tax income of approximately $3.1 billion, $2.7 billion, and $2.3 billion in 1996, 1995, and 1994, respectively. - The operating results of GM-NAO/Delphi over the most recent three year period and overall financial forecasts of book and taxable income for the 1997-2001 period. Further improvements are expected by continuing to balance plant capacity pursuant to the plant closing plan, reducing material costs through global sourcing, and increasing efficiency through lean manufacturing. - The ability to utilize tax planning, such as capitalization of research and experimentation costs for tax purposes, so that GM does not have, and does not expect to generate in the near future, any significant U.S. federal tax net operating loss carryforwards. - The extended period of time over which the tax benefits can be utilized. Postretirement benefits become tax deductions over periods up to 50 years. - The fact that GM has never lost deferred federal tax benefits due to the expiration of a U.S. net operating loss carryforward. Dividends received from foreign operations for U.S. federal income tax purposes totaled approximately $1.2 billion, $182 million, and $1.1 billion in 1996, 1995, and 1994, respectively. In 1995, the reduced level of dividends resulted from tax planning strategies related to the U.S. net operating loss carryback position -- for tax purposes only. PENSIONS At December 31, 1996, GM's total worldwide net unfunded pension position decreased to $4.8 billion ($1.2 billion U.S. and $3.6 billion non-U.S.) from $6.4 billion a year ago ($2.9 billion U.S. and $3.5 billion non-U.S.). Major factors contributing to the improvement in the U.S. plans were the 50 basis points increase in the discount rate used to measure the pension obligation at the end of 1996 compared with 1995, asset returns in excess of the assumed 10% asset earnings rate, and contributions during the year, partially offset by benefit increases as a result of the U.S. labor negotiations. On an economic basis, GM achieved a fully-funded status for its U.S. hourly and salaried pension plans at December 31, 1995 and continues to maintain a fully-funded status on this basis. The economic basis of measuring the U.S. hourly and salaried pension liability differs from the SFAS No. 87 basis required by generally accepted accounting principles, but GM believes it to be a better measure of GM's ongoing economic exposure for pension obligations and as such uses this measure to determine its funding. The economic basis discounts pension liabilities at the long-term asset earnings rate assumption (currently 10%) rather than at a year-end market rate as required by SFAS No. 87 (currently 7.5%). In periods of low interest rates, as in the current market environment, the SFAS No. 87 liability will generally exceed the liability calculated on an economic basis, whereas in periods of high interest rates the economic basis liability will generally exceed the SFAS No. 87 liability. During 1996, GM contributed $800 million in cash to its U.S. hourly pension plans. In March 1995, under terms of an agreement between GM and the Pension Benefit Guarantee Corporation, GM contributed to the GM Hourly-Rate Employees Pension Plan 173 million shares of Class E common stock valued at $6.3 billion on such date. Subsequent to the split-off of EDS, the Class E common stock held by the plan was II-67 82 PENSIONS (CONCLUDED) exchanged for EDS common stock. See Notes 2 and 16 to the GM consolidated financial statements for additional information on the EDS split-off and pensions. ENVIRONMENTAL MATTERS GM is subject to various laws relating to the protection of the environment and is in various stages of investigation or remediation for sites where contamination has been alleged. As disclosed in Note 15 to the GM consolidated financial statements, the accrued liability for worldwide environmental cleanup was $646 million and $692 million at December 31, 1996 and 1995, respectively. In future periods, new laws or regulations, advances in technologies, additional information about the ultimate remedy selected at new and existing sites, and GM's share of the cost of such remedies could significantly change GM's estimates. Note 1 to the GM consolidated financial statements describes GM's methodology for estimating environmental liabilities. The process of estimating such liabilities is complex and dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, the uncertainty as to what remedy and technology will be required, the outcome of discussions with regulatory agencies and other potentially responsible parties (PRPs) at multi-party sites, and the number and financial viability of other PRPs. In 1996, 1995, and 1994, GM expensed $94 million, $134 million, and $106 million, respectively, for environmental cleanup. In addition, worldwide capital expenditures, as discussed previously, included $122 million, $133 million, and $131 million in 1996, 1995, and 1994, respectively, for various environmental matters. EMPLOYMENT AND PAYROLLS
1996 1995 1994 ---- ---- ---- WORLDWIDE EMPLOYMENT AT DECEMBER 31, (in thousands) GM-NAO/Delphi............................................. 424 434 431 GMIO...................................................... 111 103 102 GMAC...................................................... 18 17 17 Hughes.................................................... 86 84 79 Other(1).................................................. 8 11 18 ------ ------ ------ Employees associated with continuing operations........ 647 649 647 Discontinued operations (EDS)............................... -- 96 81 ------ ------ ------ Total.................................................. 647 745 728 ====== ====== ====== Worldwide payrolls -- continuing operations (in billions)... $ 29.8 $ 29.8 $ 28.5 U.S. hourly payrolls (in billions)(2)(3).................... $ 13.3 $ 13.7 $ 13.6 Average labor cost per active hour worked -- U.S. hourly(2)................................................. $44.19 $43.13 $44.23
- ------------------------- (1) Includes employees of NCRS at December 31, 1994. (2) Excludes EDS, Hughes' non-automotive employees, Saturn, and NCRS. (3) Includes employees "at work" (excludes laid-off employees receiving benefits). * * * * * * II-68 83 PART III GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEMS 10 THROUGH 13 Certain information required by Part III (Items 10 through 13) of this form, other than the information set forth below, has been omitted because the Registrant intends to file a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of its fiscal year. EXECUTIVE OFFICERS OF THE REGISTRANT The names and ages of all executive officers of the Registrant at February 28, 1997 and their positions and offices with the Registrant on that date are as follows:
NAME AND (AGE) POSITIONS AND OFFICES -------------- --------------------- John F. Smith, Jr. (58).............................. Chairman of the Board; Chief Executive Officer; President; Member, Finance Committee and Chairman, The President's Council Harry J. Pearce (54)................................. Vice Chairman of the Board; Member, The President's Council J. Michael Losh (50)................................. Executive Vice President; Chief Financial Officer; Member, The President's Council G. Richard Wagoner, Jr. (44)......................... Executive Vice President; Member, The President's Council Louis R. Hughes (48)................................. Executive Vice President; Member, The President's Council
There are no family relationships, as defined, between any of the above executive officers, and there is no arrangement or understanding between any of the above executive officers and any other person pursuant to which he was selected as an officer. Each of the above executive officers was elected by the Board of Directors to hold office until the next annual election of officers and until his successor is elected and qualified or until his earlier resignation or removal. The Board of Directors elects the officers in conjunction with each annual meeting of the stockholders. Mr. John F. Smith, Jr. has been associated with General Motors since 1961. He was elected Executive Vice President in charge of International Operations in 1988. Effective August 1990, he was elected Vice Chairman of the Board of Directors. On April 6, 1992, Mr. Smith was elected President and Chief Operating Officer. Effective November 1992, he was elected Chief Executive Officer and President. On January 1, 1996, Mr. Smith became Chairman of the Board of Directors. Mr. Pearce has been associated with General Motors since 1985. In May 1987, he was elected Vice President and General Counsel of General Motors. Effective November 1992, he was elected Executive Vice President of General Motors with responsibility for the Industry-Government Relations Staff, Environmental Activities Staff (now Environmental and Energy Staff), Worldwide Economics, Electronic Data Systems Corporation and GM Hughes Electronics Corporation (now Hughes Electronics Corporation). In July 1994, he assumed responsibility for GM's Strategic Decision Center, Corporate Communications, Allison Transmission Division, Electro-Motive Division (now GM Locomotive Group), Urban and Community Affairs, Executive Compensation and Corporate Governance, and the Corporate Services Staff. He remained General Counsel through August 1, 1994. Effective January 1, 1996, Mr. Pearce was elected a director and became Vice Chairman of the Board of Directors. Mr. Losh has been associated with General Motors since 1964. In July 1984, he was elected Vice President of General Motors and General Manager of Pontiac Division. He was named General Manager of Oldsmobile Division in June 1989. Effective May 1992, he was elected Group Executive in charge of North III-1 84 American Vehicle Sales, Service, and Marketing. In July 1994, he was elected Executive Vice President and Chief Financial Officer of General Motors. Mr. Wagoner has been associated with General Motors since 1977. He was elected Vice President in charge of finance for General Motors Europe in June 1989. In July 1991, he was elected President and Managing Director of General Motors do Brasil. Effective November 1992, he was elected Executive Vice President and Chief Financial Officer of General Motors. In July 1994, he was named President of North American Operations. Mr. Hughes has been associated with General Motors since 1966. In March 1989, he was elected Chairman and Managing Director of Adam Opel AG. He was elected President of General Motors Europe and Vice President and Group Executive of General Motors in April 1992. Effective November 1992, he was elected Executive Vice President, International Operations of General Motors. In September 1994, he was named President of International Operations. III-2 85 PART IV GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
PAGE NO. -------- (a) 1. All Financial Statements See Part II 2. Financial Statement Schedule II-Allowances for the Years Ended December 31, 1996, 1995, and 1994................... IV-4 3. Exhibits (Including Those Incorporated by Reference)
EXHIBIT NO. ------- (2)(a) Agreement and Plan of Merger by and between HE Holdings, Inc. and Raytheon Company dated as of January 16, 1997, filed as Exhibit 2(a) to the Current Report on Form 8-K of General Motors Corporation dated January 16, 1997........... N/A (2)(b) Implementation Agreement by and between General Motors Corporation and Raytheon Company dated as of January 16, 1997, filed as Exhibit 2(b) to the Current Report on Form 8-K of General Motors Corporation dated January 16, 1997.... N/A (2)(c) Form of Agreement and Plan of Merger by and between General Motors Corporation and Corporation (included as Exhibit A to the Implementation Agreement attached as Exhibit 2(b) to the Current Report on Form 8-K dated January 16, 1997), filed as Exhibit 2(c) to the Current Report on Form 8-K of General Motors Corporation dated January 16, 1997........................................................ N/A (2)(d)* List of Omitted Schedules and Other Attachments, filed as Exhibit 2(d) to the Current Report on Form 8-K of General Motors Corporation dated January 16, 1997................... N/A (3)(a) Restated Certificate of Incorporation, as amended, filed as Exhibit 3(i) to the Current Report on Form 8-K of General Motors Corporation dated June 7, 1996, and Amendment to Article Fourth of the Certificate of Incorporation -- Division III -- Preference Stock, by reason of the Certificates of Designations filed with the Secretary of State of the State of Delaware on September 14, 1987 and the Certificate of Decrease filed with the Secretary of State of the State of Delaware on September 29, 1987 (pertaining to the six series of Preference Stock contributed to the General Motors pension trusts), incorporated by reference to Exhibit 19 to the Quarterly Report on Form 10-Q of General Motors Corporation for the quarter ended June 30, 1990 in the Form SE of General Motors Corporation dated August 6, 1990; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on June 28, 1991 (pertaining to Series A Conversion Preference Stock), incorporated by reference to Exhibit 4(a) to Form S-8 Registration Statement No. 33-43744 in the Form SE of General Motors Corporation dated November 1, 1991; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on December 9, 1991 (pertaining to Series B 9 1/8% Preference Stock), incorporated by reference to Exhibit 4(a) to Form S-3 Registration Statement No. 33-45216 in the Form SE of General Motors Corporation dated January 27, 1992; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on February 14, 1992 (pertaining to Series C Convertible Preference Stock), incorporated by reference to Exhibit (3)(a) to the Annual Report on Form 10-K of General Motors Corporation for the year ended December 31, 1991 in the Form SE of General Motors Corporation dated March 20, 1992; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on July 15, 1992 (pertaining to Series D 7.92%
IV-1 86
EXHIBIT NO. PAGE NO. ------- -------- Preference Stock), incorporated by reference to Exhibit 3(a)(2) to the Quarterly Report on Form 10-Q of General Motors Corporation for the quarter ended June 30, 1992 in the Form SE of General Motors Corporation dated August 10, 1992; and as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on December 15, 1992 (pertaining to Series G 9.12% Preference Stock), incorporated by reference to Exhibit 4(a) to Form S-3 Registration Statement No. 33-49309 in the Form SE of General Motors Corporation dated January 25, 1993.................................................... N/A (b) By-Laws, as amended, filed as Exhibit 3(ii) to the Current Report on Form 8-K of General Motors Corporation dated January 27, 1997............................................ N/A (4)(a) Form of Indenture relating to the $500,000,000 8 1/8% Debentures Due April 15, 2016 dated as of April 1, 1986 between General Motors Corporation and Citibank, N.A., Trustee, incorporated by reference to Exhibit 4 to Amendment No. 1 to Form S-3 Registration Statement No. 33-4452 and resolutions adopted by the Special Committee on April 15, 1986, incorporated by reference to Exhibit 4(a) to the Current Report on Form 8-K of General Motors Corporation dated April 24, 1986........................................ N/A (b) Form of Indenture relating to the $700,000,000 9 5/8% Notes Due December 1, 2000 and the $1,400,000,000 Medium-Term Note Program dated as of November 15, 1990 between General Motors Corporation and Citibank, N.A., Trustee, incorporated by reference to Exhibit 4(a) to Form S-3 Registration Statement No. 33-37737................................................ N/A (c) Form of Indenture relating to the $377,377,000 7.75% Debentures Due March 15, 2036 dated as of December 7, 1995 between General Motors Corporation and Citibank, N.A., Trustee, filed as Exhibit 4(a) to Amendment No. 1 to Form S-3 Registration Statement No. 33-64229..................... N/A (d) Instruments defining the rights of holders of nonregistered debt of the Registrant have been omitted from this exhibit index because the amount of debt authorized under any such instrument does not exceed 10% of the total assets of the Registrant and its subsidiaries. The Registrant agrees to furnish a copy of any such instrument to the Commission upon request..................................................... N/A (10)(a) The General Motors Hourly-Rate Employees Pension Plan, filed as Exhibit (10)(a) to the Annual Report on Form 10-K for the year ended December 31, 1994........................ N/A (b) General Motors Retirement Program for Salaried Employees, filed as Exhibit (10)(b) to the Annual Report on Form 10-K for the year ended December 31, 1994........................ N/A (c)** General Motors Amended 1987 Stock Incentive Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 13, 1992........................................................ N/A (d)** General Motors Performance Achievement Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 16, 1982..................... N/A (e)** General Motors 1987 Performance Achievement Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 17, 1987........................................................ N/A (f)** General Motors 1992 Performance Achievement Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 13, 1992........................................................ N/A
IV-2 87
EXHIBIT NO. PAGE NO. ------- -------- (11) Computation of Earnings Per Share Attributable to Common Stocks for the Three Years Ended December 31, 1996.......... IV-7 (12) Computation of Ratios of Earnings to Fixed Charges for the Three Years Ended December 31, 1996......................... IV-10 (21) Subsidiaries of the Registrant as of December 31, 1996...... IV-11 (23) Consent of Independent Auditors............................. IV-20 (99) Hughes Electronics Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis.................................................... IV-21 (27) Financial Data Schedule (for SEC information only).......... N/A (b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December 31, 1996. * The registrant hereby undertakes to furnish supplementally a copy of any omitted schedule or other attachment to the Securities and Exchange Commission upon request. ** Required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. IV-3 88 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SCHEDULE II -- ALLOWANCES
ADDITIONS ADDITIONS BALANCE AT CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER BALANCE AT DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR ----------- ---------- ---------- ---------- ---------- ----------- (DOLLARS IN MILLIONS) FOR THE YEAR ENDED DECEMBER 31, 1996 Allowances Deducted from Assets Finance receivables (unearned income)....... $3,922 $ -- $2,949 $3,324 $3,547 Allowance for financing losses.............. 808 669 116(a) 671(b) 922 Accounts and notes receivable (for doubtful receivables).............................. 138 49 -- 36 151 Inventories (principally for obsolescence of service parts)............................ 229 74 -- -- 303 Other investments and miscellaneous assets (receivables and other)................... 33 1 -- 22 12 Miscellaneous allowances (mortgage)......... 59 99 31 51 138 ------ ---- ------ ------ ------ Total Allowances Deducted from Assets..... $5,189 $892 $3,096 $4,104 $5,073 ====== ==== ====== ====== ====== FOR THE YEAR ENDED DECEMBER 31, 1995 Allowances Deducted from Assets Finance receivables (unearned income)....... $3,310 $ -- $3,617 $3,005 $3,922 Allowance for financing losses.............. 693 449 88(a) 422(b) 808 Accounts and notes receivable (for doubtful receivables).............................. 187 25 1 75(b) 138 Inventories (principally for obsolescence of service parts)............................ 178 78 -- 27(c) 229 Other investments and miscellaneous assets (receivables and other)................... 32 -- 1 -- 33 Miscellaneous allowances (insurance and mortgage)................................. 36 36 -- 13 59 ------ ---- ------ ------ ------ Total Allowances Deducted from Assets..... $4,436 $588 $3,707 $3,542 $5,189 ====== ==== ====== ====== ====== FOR THE YEAR ENDED DECEMBER 31, 1994 Allowances Deducted from Assets Finance receivables (unearned income)....... $3,195 $ -- $2,325 $2,210 $3,310 Allowance for financing losses.............. 748 177 129(a) 361(b) 693 Accounts and notes receivable (for doubtful receivables).............................. 170 55 1 39(b) 187 Inventories (principally for obsolescence of service parts)............................ 149 53 -- 24(c) 178 Other investments and miscellaneous assets (receivables and other)................... 34 -- -- 2 32 Miscellaneous allowances (insurance and mortgage)................................. 25 28 -- 17 36 ------ ---- ------ ------ ------ Total Allowances Deducted from Assets..... $4,321 $313 $2,455 $2,653 $4,436 ====== ==== ====== ====== ======
- ------------------------- Notes: (a) Primarily reflects the recovery of accounts previously written-off. (b) Accounts written off. (c) Obsolete parts written off, etc. Reference should be made to the notes to consolidated financial statements. IV-4 89 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. GENERAL MOTORS CORPORATION ----------------------------------- (Registrant) Date: March 3, 1997 By /s/ JOHN F. SMITH, JR. ------------------------------------ (John F. Smith, Jr. Chairman of the Board of Directors, Chief Executive Officer, and President) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 3rd day of March 1997 by the following persons on behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE --------- ----- /s/ JOHN F. SMITH, JR. Chairman of the Board of Directors, - ----------------------------------- Chief Executive Officer, and (John F. Smith, Jr.) President /s/ HARRY J. PEARCE Vice Chairman of the Board of - ----------------------------------- Directors (Harry J. Pearce) /s/ J. MICHAEL LOSH Executive Vice President and Chief - ----------------------------------- Financial Officer Principal (J. Michael Losh) } Financial /s/ LEON J. KRAIN Vice President and Group Executive Officers - ----------------------------------- (Leon J. Krain) /s/ JOHN D. FINNEGAN Vice President and Treasurer - ----------------------------------- (John D. Finnegan) /s/ WALLACE W. CREEK Comptroller Principal - ----------------------------------- } Accounting (Wallace W. Creek) Officers /s/ PETER R. BIBLE Chief Accounting Officer - ----------------------------------- (Peter R. Bible)
IV-5 90 SIGNATURES -- CONCLUDED
SIGNATURE TITLE --------- ----- /s/ ANNE L. ARMSTRONG Director - ----------------------------------- (Anne L. Armstrong) /s/ PERCY BARNEVIK Director - ----------------------------------- (Percy Barnevik) /s/ JOHN H. BRYAN Director - ----------------------------------- (John H. Bryan) /s/ THOMAS E. EVERHART Director - ----------------------------------- (Thomas E. Everhart) /s/ CHARLES T. FISHER, III Director - ----------------------------------- (Charles T. Fisher, III) /s/ GEORGE M. C. FISHER Director - ----------------------------------- (George M. C. Fisher) /s/ J. WILLARD MARRIOTT, JR. Director - ----------------------------------- (J. Willard Marriott, Jr.) /s/ ANN D. MCLAUGHLIN Director - ----------------------------------- (Ann D. McLaughlin) /s/ ECKHARD PFEIFFER Director - ----------------------------------- (Eckhard Pfeiffer) /s/ EDMUND T. PRATT, JR. Director - ----------------------------------- (Edmund T. Pratt, Jr.) /s/ JOHN G. SMALE Director - ----------------------------------- (John G. Smale) /s/ LOUIS W. SULLIVAN Director - ----------------------------------- (Louis W. Sullivan) /s/ DENNIS WEATHERSTONE Director - ----------------------------------- (Dennis Weatherstone) /s/ THOMAS H. WYMAN Director - ----------------------------------- (Thomas H. Wyman)
IV-6 91 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT To the Stockholder and Board of Directors of Hughes Electronics Corporation: We have audited the Consolidated Balance Sheet of Hughes Electronics Corporation and subsidiaries as of December 31, 1996 and 1995 and the related Consolidated Statement of Income and Available Separate Consolidated Net Income and Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of Hughes Electronics Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Hughes Electronics Corporation and subsidiaries at December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, effective January 1, 1994 Hughes Electronics Corporation changed its method of accounting for postemployment benefits. /s/ DELOITTE & TOUCHE LLP - --------------------------------------- DELOITTE & TOUCHE LLP Los Angeles, California January 28, 1997 IV-22 92 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME
YEARS ENDED DECEMBER 31, --------------------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Revenues Net sales Outside customers....................................... $10,661.5 $ 9,528.8 $ 9,108.7 General Motors and affiliates........................... 5,082.6 5,185.5 4,953.6 Other income -- net....................................... 173.8 57.5 37.1 --------- --------- --------- Total revenues.......................................... 15,917.9 14,771.8 14,099.4 --------- --------- --------- Costs and expenses Cost of sales and other operating charges, exclusive of items listed below...................................... 12,083.9 11,325.1 10,943.4 Selling, general, and administrative expenses............. 1,505.6 1,234.2 1,018.3 Depreciation and amortization............................. 560.3 487.7 470.2 Amortization of GM purchase accounting adjustments related to Hughes Aircraft Company.............................. 122.3 123.4 123.8 Interest expense -- net................................... 11.2 7.5 15.1 --------- --------- --------- Total costs and expenses.................................. 14,283.3 13,177.9 12,570.8 --------- --------- --------- Income before income taxes................................ 1,634.6 1,593.9 1,528.6 Income taxes.............................................. 605.7 645.6 572.8 --------- --------- --------- Income before cumulative effect of accounting change...... 1,028.9 948.3 955.8 Cumulative effect of accounting change.................... -- -- (30.4) --------- --------- --------- Net income................................................ 1,028.9.. 948.3 925.4 Adjustments to exclude the effect of GM purchase accounting adjustments related to Hughes Aircraft Company................................................. 122.3 159.5 123.8 --------- --------- --------- Earnings Used for Computation of Available Separate Consolidated Net Income................................. $ 1,151.2 $ 1,107.8 $ 1,049.2 ========= ========= ========= Available Separate Consolidated Net Income Average number of shares of General Motors Class H common stock outstanding (in millions) (numerator)........................................ 98.4 95.5 92.1 Class H dividend base (in millions) (denominator).... 399.9 399.9 399.9 Available Separate Consolidated Net Income........... $283.3 $264.6 $241.6 ========= ========= ========= Earnings attributable to General Motors Class H common stock on a per share basis Before cumulative effect of accounting change........ $2.88 $2.77 $2.70 Cumulative effect of accounting change............... -- -- (0.08) --------- --------- --------- Net earnings attributable to General Motors Class H common stock....................................... $2.88 $2.77 $2.62 ========= ========= =========
Reference should be made to the notes to consolidated financial statements. IV-23 93 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
DECEMBER 31, ------------------------ 1996 1995 ---- ---- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNT) ASSETS Current assets Cash and cash equivalents................................... $ 1,161.3 $ 1,139.5 Accounts and notes receivable Trade receivables (less allowances)....................... 1,200.6 1,235.6 General Motors and affiliates............................. 113.4 146.7 Contracts in process, less advances and progress payments of $1,010.4 and $1,327.2..................................... 2,507.1 2,469.2 Inventories (less allowances)............................... 1,528.5 1,225.5 Prepaid expenses, including deferred income taxes of $428.0 and $484.4................................................ 568.1 594.3 --------- --------- Total current assets................................. 7,079.0 6,810.8 --------- --------- Property-net................................................ 2,886.6 2,739.2 --------- --------- Telecommunications and other equipment, net of accumulated depreciation of $362.3 and $274.5......................... 1,133.5 1,175.1 --------- --------- Intangible assets, net of amortization of $1,579.1 and $1,415.1.................................................. 3,466.0 3,573.7 --------- --------- Investments and other assets -- principally at cost (less allowances)............................................... 1,915.0 1,675.6 --------- --------- Total assets......................................... $16,480.1 $15,974.4 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable Outside................................................... $ 896.4 $ 748.7 General Motors and affiliates............................. 27.5 52.2 Advances on contracts....................................... 868.9 838.3 Notes and loans payable..................................... 248.1 432.5 Income taxes payable........................................ 132.9 190.8 Accrued liabilities......................................... 2,025.8 2,046.3 --------- --------- Total current liabilities............................ 4,199.6 4,308.8 --------- --------- Long-term debt and capitalized leases....................... 34.5 258.8 --------- --------- Postretirement benefits other than pensions................. 1,658.9 1,610.6 --------- --------- Other liabilities and deferred credits...................... 1,407.2 1,270.5 --------- --------- Commitments and Contingencies Stockholder's equity Capital stock (outstanding, 1,000 shares, $0.10 par value) and additional paid-in capital......................... 6,347.2 6,338.1 Net income retained for use in the business............... 2,968.8 2,323.9 --------- --------- Subtotal............................................. 9,316.0 8,662.0 Minimum pension liability adjustment...................... (113.5) (108.6) Accumulated foreign currency translation adjustments...... (22.6) (27.7) --------- --------- Total stockholder's equity........................... 9,179.9 8,525.7 --------- --------- Total liabilities and stockholder's equity........... $16,480.1 $15,974.4 ========= =========
Certain amounts for 1995 have been reclassified to conform with 1996 classifications. Reference should be made to the notes to consolidated financial statements. IV-24 94 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Cash flows from operating activities Income before cumulative effect of accounting change...... $1,028.9 $ 948.3 $ 955.8 Adjustments to reconcile income before cumulative effect of accounting change to net cash provided by operating activities Depreciation and amortization........................... 560.3 487.7 470.2 Amortization and adjustment of GM purchase accounting adjustments related to Hughes Aircraft Company......... 122.3 159.5 123.8 Pension cost, net of cash contributions................. (1.3) (51.9) 20.3 Provision for postretirement benefits other than pensions, net of cash payments......................... 40.1 43.5 78.4 Net (gain) loss on sale of property..................... (23.2) 6.1 14.3 Net gain on sale of investments and businesses.......... (120.3) (12.9) (3.6) Change in deferred income taxes and other*.............. 130.9 (150.1) (60.1) Change in other operating assets and liabilities Accounts receivable................................... 86.7 (147.3) (238.1) Contracts in process.................................. (34.1) (186.2) 111.4 Inventories........................................... (302.8) (160.1) (27.5) Prepaid expenses...................................... (30.3) (3.0) (15.2) Accounts payable...................................... 122.0 (92.0) 25.8 Income taxes payable.................................. (57.9) 160.4 (70.7) Accrued and other liabilities......................... (13.9) 257.0 (28.2) Other*................................................ (308.0) (272.8) 20.2 -------- -------- -------- Net cash provided by operating activities................... 1,199.4 986.2 1,376.8 -------- -------- -------- Cash flows from investing activities Investment in companies, net of cash acquired............. (28.7) (309.5) (7.0) Expenditures for property and special tools............... (652.3) (545.7) (490.5) Increase in telecommunications and other equipment........ (191.2) (198.9) (351.9) Proceeds from sale and leaseback of satellite transponders with GMAC............................................... 252.0 -- -- Proceeds from disposal of property........................ 96.2 50.6 90.6 Proceeds from sale of investments and businesses.......... -- 127.2 3.6 Decrease (increase) in notes receivable................... 1.6 (13.6) 206.9 -------- -------- -------- Net cash used in investing activities....................... (522.4) (889.9) (548.3) -------- -------- -------- Cash flows from financing activities Net decrease in notes and loans payable................... (393.2) (80.9) (2.1) Increase in long-term debt................................ 13.5 28.0 7.5 Decrease in long-term debt................................ (29.0) (37.7) (20.8) Proceeds from sale of minority interest in subsidiary..... 137.5 -- -- Cash dividends paid to General Motors..................... (384.0) (368.0) (320.0) -------- -------- -------- Net cash used in financing activities....................... (655.2) (458.6) (335.4) -------- -------- -------- Net increase (decrease) in cash and cash equivalents........ 21.8 (362.3) 493.1 Cash and cash equivalents at beginning of the year.......... 1,139.5 1,501.8 1,008.7 -------- -------- -------- Cash and cash equivalents at end of the year................ $1,161.3 $1,139.5 $1,501.8 ======== ======== ========
- ------------------------- * 1994 amounts exclude the effect of accounting change. Reference should be made to the notes to consolidated financial statements. IV-25 95 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND CONSOLIDATION The consolidated financial statements include the accounts of Hughes Electronics Corporation (Hughes) and its domestic and foreign subsidiaries that are more than 50% owned. Investments in associated companies in which at least 20% of the voting securities is owned are accounted for under the equity method of accounting. Effective December 31, 1985, General Motors Corporation (General Motors or GM) acquired Hughes Aircraft Company and its subsidiaries for $2.7 billion in cash and cash equivalents and 100 million shares of GM Class H common stock having an estimated value of $2,561.9 million, which carried certain guarantees. On February 28, 1989, GM and the Howard Hughes Medical Institute (Institute) reached an agreement to terminate GM's then-existing guarantee obligations with respect to the Institute's holding of GM Class H common stock. Under terms of the agreement as amended, the Institute received put options exercisable under most circumstances at $30 per share on March 1, 1991, 1992, 1993, and 1995 for 20 million, 10 million, 10.5 million, and 15 million shares, respectively. The Institute exercised these put options at $30 per share on March 1, 1991, March 2, 1992, and March 1, 1993. On February 15, 1995, GM and the Institute entered into an agreement under which GM assisted the Institute in selling 15 million shares of GM Class H common stock at $38.50 per share. The March 1, 1995 put option expired unexercised. The acquisition of Hughes Aircraft Company was accounted for as a purchase. The purchase price exceeded the net book value of Hughes Aircraft Company by $4,244.7 million, which was assigned as follows: $500.0 million to patents and related technology, $125.0 million to the future economic benefits to GM of the Hughes Aircraft Company Long-Term Incentive Plan (LTIP), and $3,619.7 million to other intangible assets, including goodwill. The amounts assigned to patents and related technology are being amortized on a straight-line basis over 15 years and other intangible assets, including goodwill, over 40 years. The amount assigned to the future economic benefits of the LTIP was fully amortized in 1990. For the purpose of determining earnings per share and amounts available for dividends on the common stocks of General Motors, the amortization and disposal, if any, of these intangible assets is charged against earnings attributable to GM $1 2/3 par value common stock and amounted to $122.3 million, $159.5 million and $123.8 million in 1996, 1995, and 1994, respectively. The 1995 amount included a $36.1 million charge, included in other income, for the write-off of such purchase accounting adjustments related to the disposition of certain non-strategic business units. The earnings of Hughes and its subsidiaries since the acquisition of Hughes Aircraft Company form the base from which any dividends on the GM Class H common stock are declared. These earnings include income earned from sales to GM and its affiliates, but exclude purchase accounting adjustments (See Notes 2 and 7). On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments (See Note 18). USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates. IV-26 96 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED REVENUE RECOGNITION Sales to General Motors and affiliates and to outside customers not pursuant to long-term contracts are generally recognized as products are shipped or services are rendered. Sales under long-term contracts are recognized primarily using the percentage-of-completion (cost-to-cost) method of accounting. Under this method, sales are recorded equivalent to costs incurred plus a portion of the profit expected to be realized, determined based on the ratio of costs incurred to estimated total costs at completion. Sales under certain commercial long-term contracts are recognized using the units-of-delivery method. Profits expected to be realized on long-term contracts are based on estimates of total sales value and costs at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are recorded in the accounting period in which the revisions are made. Estimated losses on contracts are recorded in the period in which they are identified. Certain contracts contain cost or performance incentives which provide for increases in profits for surpassing stated objectives and decreases in profits for failure to achieve such objectives. Amounts associated with incentives are included in estimates of total sales values when there is sufficient information to relate actual performance to the objectives. CASH FLOWS Cash equivalents consist of highly liquid investments purchased with original maturities of 90 days or less. Net cash provided by operating activities reflects cash payments for interest and income taxes as follows:
1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Interest........................................... $ 39.6 $ 37.5 $ 40.7 ------ ------ ------ Income taxes....................................... $647.9 $634.2 $686.2 ------ ------ ------
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS Trade receivables are principally related to long-term contracts and programs. Amounts billed under retainage provisions of contracts are not significant, and substantially all amounts are collectible within one year. Contracts in process are stated at costs incurred plus estimated profit, less amounts billed to customers and advances and progress payments applied. Engineering, tooling, manufacturing, and applicable overhead costs, including administrative, research and development, and selling expenses, are charged to costs and expenses when incurred. Contracts in process include amounts relating to contracts with long production cycles and amounts receivable under sales-type leases, and $546.0 million of the 1996 amount is expected to be billed after one year. Contracts in process in 1996 also include approximately $53.8 million relating to claims, requests for equitable adjustments, and amounts withheld pending negotiation or settlement with customers. Under certain contracts with the U.S. Government, progress payments are received based on costs incurred on the respective contracts. Title to the inventories related to such contracts (included in contracts in process) vests with the U.S. Government. IV-27 97 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED INVENTORIES Inventories are stated at the lower of cost or market principally using the first-in, first-out (FIFO) or average cost methods.
MAJOR CLASSES OF INVENTORIES 1996 1995 - ---------------------------- ---- ---- (DOLLARS IN MILLIONS) Productive material, work in process, and supplies....... $1,383.1 $1,060.4 Finished product......................................... 145.4 165.1 -------- -------- Total............................................... $1,528.5 $1,225.5 ======== ========
PROPERTY AND DEPRECIATION Property is carried at cost. Depreciation of property is provided for based on estimated useful lives (3 to 45 years) generally using accelerated methods. TELECOMMUNICATIONS AND OTHER EQUIPMENT Telecommunications and other equipment includes satellite transponders and other equipment subject to operating leases or service agreements. Such equipment is carried at Hughes' direct and indirect manufacturing cost and is amortized over the estimated useful lives (7 to 23 years) using the straight-line method. The net book value of equipment subject to operating leases was $412.4 million and $299.8 million at December 31, 1996 and 1995, respectively. INTANGIBLE ASSETS Intangible assets, principally the excess of cost over the fair value of identifiable net assets of purchased businesses, are amortized using the straight-line method over periods not exceeding 40 years. Hughes periodically evaluates the recoverability of goodwill and other intangible assets by assessing whether the unamortized intangible asset can be recovered over its remaining life through undiscounted cash flows generated by underlying tangible assets. INCOME TAXES The provision for income taxes is based on reported income before income taxes. Deferred income tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, as measured by applying currently enacted tax laws. Provision has been made for U.S. Federal income taxes to be paid on that portion of the undistributed earnings of foreign subsidiaries that has not been deemed permanently reinvested. Hughes and its domestic subsidiaries join with General Motors in filing a consolidated U.S. Federal income tax return. The portion of the consolidated income tax liability recorded by Hughes is generally equivalent to the liability it would have incurred on a separate return basis. RESEARCH AND DEVELOPMENT Expenditures for research and development are charged to costs and expenses as incurred and amounted to $730.0 million in 1996, $761.7 million in 1995 and $699.3 million in 1994. IV-28 98 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED FINANCIAL INSTRUMENTS Hughes enters into foreign exchange-forward contracts to reduce its exposure to fluctuations in foreign exchange rates. Foreign exchange-forward contracts are accounted for as hedges to the extent they are designated as, and are effective as, hedges of firm foreign currency commitments. FOREIGN CURRENCY TRANSACTIONS Foreign currency transaction net gains (losses) included in consolidated operating results amounted to $5.4 million in 1996, $(0.5) million in 1995, and $(4.2) million in 1994. MARKET AND CREDIT RISK CONCENTRATIONS Sales under United States Government contracts were 34.5%, 35.5%, and 37.6% of net sales in 1996, 1995, and 1994, respectively. Sales to General Motors and affiliates, consisting of various automotive electronic component parts, were 32.3% of total sales in 1996, and 35.2% in 1995 and 1994. Financial instruments which potentially subject Hughes to concentrations of credit risk consist principally of highly liquid investments purchased with original maturities of 90 days or less. Hughes places these investments with high-quality counterparties and, by policy, limits the amount of credit exposure to any one counterparty. ACCOUNTING CHANGES Effective January 1, 1996, Hughes adopted Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, and as permitted by this standard, will continue to apply the recognition and measurement principles of Accounting Principles Board Opinion No. 25 to its stock options. Hughes has calculated the proforma effects of applying SFAS No. 123 and determined that such effects are not significant in relation to reported net income and earnings per share. Effective January 1, 1996, Hughes also adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The adoption of this new accounting standard did not have a material effect on Hughes' consolidated operating results or financial position. Effective January 1, 1994, Hughes adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits. The Statement requires accrual of the costs of benefits provided to former or inactive employees after employment, but before retirement. The unfavorable cumulative effect of adopting this Standard was $30.4 million, net of income taxes of $19.2 million, or $0.08 per share of GM Class H common stock. The charge primarily related to extended disability benefits which are accrued on a service-driven basis. NOTE 2: RELATED-PARTY TRANSACTIONS SALES, PURCHASES, AND ADMINISTRATIVE EXPENSES The amounts due from and to GM and affiliates result from sales of products to and purchases of materials and services from units controlled by GM. Purchases from GM and affiliates, including computer systems services provided by Electronic Data Systems Corporation prior to its split-off from GM, and common administrative expenses allocated by GM, amounted to approximately $77.9 million, $233.7 million, and $257.1 million, in 1996, 1995, and 1994, respectively. IV-29 99 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED INCENTIVE PLANS Certain eligible employees of Hughes participate in various incentive plans of GM and its subsidiaries. NOTE 3: INCENTIVE PLAN Under the Hughes Electronics Corporation Incentive Plan (the Plan), as approved by the GM Board of Directors in 1987, 1992, and 1995, shares, rights, or options to acquire up to 20 million shares of GM Class H common stock may be granted through May 31, 1997. The GM Executive Compensation Committee may grant options and other rights to acquire shares of GM Class H common stock under the provisions of the Plan. The option price is equal to 100% of the fair market value of GM Class H common stock on the date the options are granted. These nonqualified options generally expire 10 years from the dates of grant and are subject to earlier termination under certain conditions. Changes in the status of outstanding options were as follows:
SHARES UNDER WEIGHTED AVERAGE GM CLASS H COMMON STOCK OPTION EXERCISE PRICE ----------------------- ------------ ---------------- Outstanding at January 1, 1994.............................. 6,366,008 $25.19 Granted..................................................... 1,612,640 36.75 Exercised................................................... (712,107) 24.48 Terminated.................................................. (202,220) 34.22 ---------- ------- Outstanding at December 31, 1994............................ 7,064,321 27.64 Granted..................................................... 1,537,350 39.94 Exercised................................................... (1,929,393) 24.81 Terminated.................................................. (14,425) 34.17 ---------- ------- Outstanding at December 31, 1995............................ 6,657,853 31.29 Granted..................................................... 1,501,900 61.31 Exercised................................................... (864,889) 28.58 Terminated.................................................. (128,075) 42.94 ---------- ------- Outstanding at December 31, 1996............................ 7,166,789 $37.70 ========== ======= Exercisable at December 31, 1996............................ 4,965,289 $30.40 ========== =======
The following table summarizes information about the Plan stock options outstanding at December 31, 1996:
WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE - --------------- ----------- ---------------- -------- ----------- -------- $15.00 to $24.99 829,669 4.6 $20.74 829,669 $20.74 25.00 to 34.99 2,179,755 5.5 27.36 2,179,755 27.36 35.00 to 44.99 2,692,090 7.9 38.45 1,955,865 37.89 45.00 to 54.99 -- -- -- -- -- 55.00 to 65.00 1,465,275 9.3 61.31 -- -- - ---------------- --------- -- ------ --------- ------ $15.00 to $65.00 7,166,789 7.1 $37.70 4,965,289 $30.40 ================ ========= == ====== ========= ======
At December 31, 1996, the maximum number of shares for which additional options and other rights may be granted under the Plan was 2,314,449 shares. IV-30 100 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 4: PENSION PROGRAMS Hughes' total pension expense amounted to $97.5 million in 1996, $39.0 million in 1995 and $54.9 million in 1994. Substantially all the employees of Delco Electronics participate in the defined benefit pension plans of General Motors. Plans covering represented employees generally provide benefits of negotiated stated amounts for each year of service as well as significant supplemental benefits for employees who retire with 30 years of service before normal retirement age. The benefits provided by the plans covering salaried employees are generally based on years of service and the employee's salary history. Certain nonqualified pension plans covering executives are based on targeted wage replacement percentages and are unfunded. The accumulated plan benefit obligation and plan net assets for the employees of Delco Electronics are not determined separately; however, GM charged Delco Electronics $53.1 million, $50.9 million, and $93.3 million, for benefits earned by these employees in 1996, 1995, and 1994, respectively. Substantially all of Hughes' non-automotive employees are covered by Hughes' bargaining and non-bargaining defined benefit retirement plans. Benefits are based on years of service and compensation earned during a specified period of time before retirement. Additionally, an unfunded, nonqualified pension plan covers certain executives. The net pension expense (credit), related to these plans covering non-automotive employees, included the components shown below:
1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Benefits earned during the year......... $ 161.3 $ 110.5 $ 146.7 Interest accrued on benefits earned in prior years........................... 413.4 403.6 377.0 Actual return on assets................. (1,253.1) (1,198.3) (104.7) Net amortization and deferral........... 722.8 672.3 (457.4) --------- --------- ------- Net retirement plan expense (credit)......................... $ 44.4 $ (11.9) $ (38.4) ========= ========= =======
Costs are actuarially determined using the projected unit credit method and are funded in accordance with U.S. Government cost accounting standards to the extent such costs are tax-deductible. SFAS No. 87, Employers' Accounting for Pensions, requires the recognition of an additional pension liability to increase the amounts recorded up to the unfunded accumulated benefit obligation. The adjustment required to recognize the minimum pension liability required by SFAS No. 87 is recorded as an intangible asset to the extent of unrecognized prior service cost and the remainder, net of applicable deferred income taxes, is recorded as a reduction of Stockholder's Equity. At December 31, 1996 and 1995, the additional minimum pension liability recorded was $210.8 million and $204.9 million, respectively, of which $113.5 million and $108.6 million, respectively, was recorded as a reduction of Stockholder's Equity. Plan assets are invested primarily in listed common stock, cash and short-term investment funds, U.S. Government securities, and other investments. The weighted average discount rates used in determining the actuarial present values of the projected benefit obligation shown in the table on the next page were 7.5% and 7.25% at December 31, 1996 and 1995, respectively. The rate of increase in future compensation levels was 5.0% in 1996 and 1995. The expected long-term rate of return on assets used in determining pension cost was 9.5% for 1996 and 1995. IV-31 101 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table sets forth the funded status of the Hughes non-automotive employee plans and the amounts included in the Consolidated Balance Sheet.
DECEMBER 31, ----------------------------------------- 1996 1995 ------------------- ------------------- ASSETS ACCUM. ASSETS ACCUM. EXCEED BENEFITS EXCEED BENEFITS ACCUM. EXCEED ACCUM. EXCEED BENEFITS ASSETS BENEFITS ASSETS -------- -------- -------- -------- (DOLLARS IN MILLIONS) Actuarial present value of benefits based on service to date and present pay levels Vested............................. $4,437.0 $ 330.7 $4,685.3 $ 327.5 Nonvested.......................... 403.7 3.9 225.6 4.7 -------- ------- -------- ------- Accumulated benefit obligation.......... 4,840.7 334.6 4,910.9 332.2 Additional amounts related to projected pay increases......................... 549.3 13.8 456.7 11.0 -------- ------- -------- ------- Total projected benefit obligation based on service to date.................... 5,390.0 348.4 5,367.6 343.2 Plan assets at fair value............... 7,094.9 70.2 6,397.7 65.9 -------- ------- -------- ------- Plan assets in excess of (less than) projected benefit obligation.......... 1,704.9 (278.2) 1,030.1 (277.3) Unamortized net amount resulting from changes in plan experience and actuarial assumptions................. (564.0) 208.6 173.3 193.3 Unamortized net asset at date of adoption.............................. (106.6) -- (161.9) -- Unamortized net amount resulting from changes in plan provisions............ (13.0) 15.9 (13.8) 22.6 Adjustment for unfunded pension liabilities........................... -- (210.8) -- (204.9) -------- ------- -------- ------- Net prepaid pension cost (accrued liability)......................... $1,021.3 $(264.5) $1,027.7 $(266.3) ======== ======= ======== =======
NOTE 5: OTHER POSTRETIREMENT BENEFITS Substantially all of the employees of Delco Electronics participate in various postretirement medical, dental, vision, and life insurance plans of General Motors. Hughes maintains a program for eligible non-automotive retirees to participate in health care and life insurance benefits generally until they reach age 65. Qualified employees who elected to participate in the Hughes contributory defined benefit pension plans may become eligible for these benefits if they retire from Hughes between the ages of 55 and 65. The total non-pension postretirement benefit cost of Hughes and its subsidiaries included the components set forth as follows:
1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Benefits earned during the year............................. $ 36.2 $ 33.9 $ 50.1 Interest accrued on benefits earned in prior years.......... 116.5 123.3 130.3 Net amortization............................................ (11.0) (16.5) 7.6 ------ ------ ------ Total non-pension postretirement benefit cost.......... $141.7 $140.7 $188.0 ====== ====== ======
IV-32 102 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table displays the components of Hughes' obligation recognized for postretirement benefit plans included in the Consolidated Balance Sheet:
DECEMBER 31, -------------------- 1996 1995 ---- ---- (DOLLARS IN MILLIONS) Accumulated postretirement benefit obligation attributable to Current retirees....................................... $ 808.3 $ 857.1 Fully eligible active plan participants................ 254.2 221.1 Other active plan participants......................... 562.0 547.5 -------- -------- Accumulated postretirement benefit obligation............... 1,624.5 1,625.7 Unrecognized net amount resulting from changes in plan experience and actuarial assumptions...................... 103.7 62.4 -------- -------- Net postretirement benefit obligation....................... 1,728.2 1,688.1 Less current portion........................................ 69.3 77.5 -------- -------- Net long-term postretirement benefit obligation............. $1,658.9 $1,610.6 ======== ========
The assumed weighted average discount rates used in determining the actuarial present value of the accumulated postretirement benefit obligation were 7.56% and 7.25% at December 31, 1996 and 1995, respectively. The assumed weighted average rate of increase in future compensation levels related to pay- related life insurance benefits was 4.5% at December 31, 1996 and 4.4% at December 31, 1995. The assumed weighted average health care cost trend rate was 7.91% in 1996, decreasing linearly each successive year until it reaches 5.31% in 2006, after which it remains constant. A one percentage point increase in each year of this annual trend rate would increase the accumulated postretirement benefit obligation at December 31, 1996 by approximately $150 million, and increase the service and interest cost components of the 1996 postretirement benefit expense by approximately $17 million. Hughes has disclosed in the consolidated financial statements certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as "accumulated postretirement benefit obligations", "liabilities", or "obligations." Notwithstanding the recording of such amounts and the use of these terms, Hughes does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of Hughes (other than pensions) represent legally enforceable liabilities of Hughes. IV-33 103 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 6: INCOME TAXES The income tax provision consisted of the following:
1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Taxes currently payable U.S. Federal.............................................. $390.7 $ 664.6 $532.2 Foreign................................................... 11.2 13.4 10.3 U.S. state and local...................................... 102.8 138.4 100.5 ------ ------- ------ Total.................................................. 504.7 816.4 643.0 ------ ------- ------ Deferred tax (assets) liabilities -- net U.S. Federal.............................................. 97.9 (130.0) (62.2) Foreign................................................... 0.3 2.0 1.3 U.S. state and local...................................... 2.8 (42.8) (9.3) ------ ------- ------ Total.................................................. 101.0 (170.8) (70.2) ------ ------- ------ Total income tax provision........................... $605.7 $ 645.6 $572.8* ====== ======= ======
- ------------------------ * Excluding effect of accounting change. The deferred income tax benefit in 1994 included a $63.0 million credit that resulted from an adjustment to the beginning of the year valuation allowance because of a change in circumstances with respect to Hughes' ability to realize the benefit from a capital loss carryforward. Income before income taxes included the following components:
1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) U.S. income................................................. $1,547.1 $1,494.7 $1,448.1 Foreign income.............................................. 87.5 99.2 80.5 -------- -------- -------- Total..................................................... $1,634.6 $1,593.9 $1,528.6 ======== ======== ========
The consolidated income tax provision was different than the amount computed using the U.S. statutory income tax rate for the reasons set forth in the following table:
1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Expected tax at U.S. statutory income tax rate.............. $572.1 $557.9 $535.0 U.S. state and local income taxes........................... 68.6 62.2 59.3 Purchase accounting adjustments............................. 42.8 55.8 43.3 Foreign sales corporation tax benefit....................... (27.2) (22.2) (19.2) Change in valuation allowance............................... -- -- (63.0) Other....................................................... (50.6) (8.1) 17.4 ------ ------ ------ Consolidated income tax provision......................... $605.7 $645.6 $572.8* ====== ====== ======
- ------------------------- * Excluding effect of accounting change. IV-34 104 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities were as follows:
DECEMBER 31, -------------------------------------------------------- 1996 1995 ------------------------- ------------------------- DEFERRED DEFERRED DEFERRED DEFERRED TAX TAX TAX TAX ASSETS LIABILITIES ASSETS LIABILITIES -------- ----------- -------- ----------- (DOLLARS IN MILLIONS) Postretirement benefits other than pensions....... $ 763.6 $ -- $ 704.9 $ -- Profits on long-term contracts.................... 370.7 142.3 384.5 203.5 Leveraged leases.................................. 119.6 -- 74.9 -- Employee benefit programs......................... 148.9 387.8 185.2 393.3 Depreciation...................................... -- 496.2 -- 479.5 Special provision for restructuring............... 29.0 -- 56.4 -- Other............................................. 313.2 251.6 445.2 220.3 -------- -------- -------- -------- Subtotal........................................ 1,745.0 1,277.9 1,851.1 1,296.6 Valuation allowance............................... (33.6) -- (22.8) -- -------- -------- -------- -------- Total deferred taxes............................ $1,711.4 $1,277.9 $1,828.3 $1,296.6 ======== ======== ======== ========
Provision has been made for U.S. Federal income taxes to be paid on that portion of the undistributed earnings of foreign subsidiaries that has not been deemed permanently reinvested. At December 31, 1996 and 1995, undistributed earnings of foreign subsidiaries amounted to approximately $462.3 million and $397.4 million, respectively. Repatriation of all accumulated foreign earnings would have resulted in tax liabilities of $122.6 million and $110.3 million, respectively, for which Hughes has provided deferred tax liabilities of $93.4 million and $82.8 million, respectively. At December 31, 1996, Hughes had $73.6 million of foreign operating loss carryforwards which expire in varying amounts between 1997 and 2001. The valuation allowance includes a provision for all of the foreign operating loss carryforwards. In addition, Hughes had $19.6 million of capital loss carryforwards, of which $12.3 million will expire in 1998 and $7.3 million will expire in 2000. No valuation allowance has been provided for the capital loss carryforwards. NOTE 7: EARNINGS ATTRIBUTABLE TO GENERAL MOTORS CLASS H COMMON STOCK ON A PER SHARE BASIS AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME Earnings attributable to General Motors Class H common stock on a per share basis have been determined based on the relative amounts available for the payment of dividends to holders of the GM Class H common stock. Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). Dividends on the GM Class H common stock are declared by GM's Board of Directors out of the Available Separate Consolidated Net Income of Hughes earned since the acquisition of Hughes Aircraft Company by GM. The Available Separate Consolidated Net Income of Hughes is determined quarterly and is equal to the separate consolidated net income of Hughes, excluding the effects of GM purchase accounting adjustments arising from the acquisition of Hughes Aircraft Company (Earnings Used for Computation of Available Separate Consolidated Net Income), multiplied by a fraction, the numerator of which is a number equal to the weighted average number of shares of GM Class H common stock outstanding during the period and the denominator of which was 399.9 million during the fourth quarters of 1996, 1995, and 1994. The denominator used in determining the Available Separate Consolidated Net Income of Hughes is adjusted as deemed appropriate by the GM Board of Directors to reflect subdivisions or combinations of the GM Class H common stock and to reflect certain transfers of capital to or from Hughes. The GM Board's IV-35 105 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED discretion to make such adjustments is limited by criteria set forth in GM's Certificate of Incorporation. In this regard, the GM Board has generally caused the denominator to decrease as shares are purchased by Hughes, and to increase as such shares are used, at Hughes expense, for Hughes employee benefit plans or acquisitions. Dividends may be paid on GM Class H common stock only when, as, and if declared by the GM Board of Directors in its sole discretion. The current policy of the GM Board with respect to GM Class H common stock is to pay cash dividends approximately equal to 35% of the Available Separate Consolidated Net Income of Hughes for the prior year. Notwithstanding the current dividend policy, the dividends paid on the GM Class H Common Stock during 1996, 1995, and 1994 were based on an annual rate higher than 35% of the Available Separate Consolidated Net Income of Hughes for the preceding year. NOTE 8: PROPERTY -- NET
ESTIMATED USEFUL LIVES (YEARS) 1996 1995 --------- ---- ---- (DOLLARS IN MILLIONS) Land and improvements................... 10-40 $ 187.6 $ 189.7 Buildings and unamortized leasehold improvements.......................... 5-45 1,361.5 1,293.3 Machinery and equipment................. 3-13 3,140.3 2,874.2 Furniture, fixtures, and office machines.............................. 5-15 139.1 118.3 Construction in progress................ -- 348.5 439.9 -------- -------- Total.............................. 5,177.0 4,915.4 Less accumulated depreciation........... 2,378.1 2,244.2 -------- -------- Net real estate, plants, and equipment............................. 2,798.9 2,671.2 Special tools -- less amortization...... 3 87.7 68.0 -------- -------- Property -- net.................... $2,886.6 $2,739.2 ======== ========
NOTE 9: NOTES AND LOANS PAYABLE AND LONG-TERM DEBT AND CAPITALIZED LEASES
1996 1995 ---- ---- (DOLLARS IN MILLIONS) Loans payable to banks.................. $ 10.2 $ 15.1 Current portion of long-term debt....... 151.4 7.2 Current portion of GM term loans........ 58.8 85.0 Other................................... 27.7 325.2 ------ ------ Total notes and loans payable...... $248.1 $432.5 ====== ====== Foreign bank debt....................... $ 27.1 $ 53.8 Term loans GM.................................... 58.8 143.8 Other................................. 150.0 150.0 Other debt.............................. -- 2.9 ------ ------ Total.............................. 235.9 350.5 Less current portion.................... 210.2 92.2 ------ ------ Long-term debt.......................... 25.7 258.3 Capitalized leases...................... 8.8 .5 ------ ------ Total long-term debt and capitalized leases............... $ 34.5 $258.8 ====== ======
At December 31, 1996, Hughes had $550.0 million and $650.0 million of unused credit available under short-term lines of credit and an unsecured revolving credit loan agreement, respectively. The unsecured IV-36 106 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED revolving credit loan agreement provides for a commitment of $650.0 million through January 2000, subject to a facility fee of 0.10% per annum. Borrowings under the agreement bear interest at a rate which approximates the London Interbank Offered Rate plus 0.175%. No amounts were outstanding under the agreement or the short-term lines of credit at December 31, 1996. At December 31, 1996, foreign bank debt included $27.1 million denominated in British pounds sterling, bearing interest at rates ranging from 5.9% to 7.1%, with maturity dates from 1997 to 2003. The GM term loan bears interest at 6.1% with a maturity date in 1997. The other term loans consisted of notes payable to an insurance company bearing interest at rates ranging from 7.7% to 8.0% with maturity dates in 1997. Other notes and loans payable for 1995 included $302.7 million related to the acquisition of Magnavox Electronic Systems Company (see Note 13). The note, which bore interest at a rate of 5.3%, was repaid in full on January 5, 1996. Annual maturities of long-term debt and capitalized leases are $210.2 million in 1997, $2.4 million in 1998, $2.5 million in 1999, $2.8 million in 2000, $3.1 million in 2001, and $23.7 million thereafter. Property with a net book value of $14.8 million at December 31, 1996 was pledged as collateral under such debt. NOTE 10: ACCRUED LIABILITIES
1996 1995 ---- ---- (DOLLARS IN MILLIONS) Payrolls and other compensation.......................... $ 671.3 $ 553.2 Provision for losses on contracts........................ 356.3 408.4 Accrual for restructuring................................ 32.9 115.9 Other.................................................... 965.3 968.8 -------- -------- Total............................................... $2,025.8 $2,046.3 ======== ========
Certain amounts for 1995 have been reclassified to conform with 1996 classifications. IV-37 107 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11: STOCKHOLDER'S EQUITY The authorized capital stock of Hughes consists of 1,000 shares of $0.10 par value common stock. At December 31, 1996, 1995, and 1994, 1,000 shares having an aggregate par value of $100 were issued and outstanding. All of the outstanding capital stock of Hughes is held by General Motors.
1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Capital stock and additional paid-in capital Balance at beginning of the year...... $6,338.1 6,326.5 $6,323.1 Tax benefit from exercise of GM Class H common stock options............. 9.1 11.6 3.4 -------- -------- -------- Balance at end of the year......... $6,347.2 $6,338.1 $6,326.5 ======== ======== ======== Net income retained for use in the business Balance at beginning of the year...... $2,323.9 $1,743.6 $1,138.2 Net income............................ 1,028.9 948.3 925.4 Cash dividends paid to General Motors............................. (384.0) (368.0) (320.0) -------- -------- -------- Balance at end of the year......... $2,968.8 $2,323.9 $1,743.6 ======== ======== ======== Minimum pension liability adjustment Balance at beginning of the year...... $ (108.6) $ (76.1) $ (120.4) Change during the year................ (4.9) (32.5) 44.3 -------- -------- -------- Balance at end of the year......... $ (113.5) $ (108.6) $ (76.1) ======== ======== ======== Accumulated foreign currency translation adjustments Balance at beginning of the year...... $ (27.7) $ (18.2) $ (12.8) Change during the year................ 5.1 (9.5) (5.4) -------- -------- -------- Balance at end of the year......... $ (22.6) $ (27.7) $ (18.2) ======== ======== ========
As sole stockholder of Hughes, GM is able to cause Hughes to pay cash dividends and make advances to or otherwise enter into transactions with GM as GM deems desirable and appropriate. GM reserves the right to cause Hughes to pay cash dividends to GM in such amounts as GM determines are desirable under the then prevailing facts and circumstances. Such amounts may be the same as, greater than, or less than the cash dividends paid by GM on its Class H common stock. There is no fixed relationship, on a per share or aggregate basis, between the cash dividends that may be paid by GM to holders of its Class H common stock and the cash dividends or other amounts that may be paid by Hughes to GM. NOTE 12: SPECIAL PROVISION FOR RESTRUCTURING In 1992, Hughes recorded a special restructuring charge of $1,237.0 million primarily attributable to redundant facilities and related employment costs. The special charge comprehended a reduction of Hughes' worldwide employment, a major facilities consolidation, and a reevaluation of certain business lines that no longer met Hughes' strategic objectives. Restructuring costs of $92.4 million, $208.8 million and $228.3 million were charged against the reserve during 1996, 1995, and 1994, respectively. In addition, in 1994 the restructuring reserve was increased by $35.0 million primarily due to changes in the estimated loss on disposition of a subsidiary. The remaining liability at December 31, 1996 of $42.0 million relates primarily to reserves for excess facilities and other site consolidation costs. Approximately $40.7 million of this total will require future cash outflows. It is expected that these costs will be expended predominantly during the next year. IV-38 108 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 13: ACQUISITIONS AND DIVESTITURES In December 1996, Hughes announced that it had reached an agreement to acquire the Marine Systems Division of Alliant Techsystems, Inc. for $141.0 million in cash. The Marine Systems Division is a leader in lightweight torpedo manufacturing and the design and manufacturing of underwater surveillance, sonar and mine warfare systems. The acquisition was completed in the first quarter of 1997. In September 1996, Hughes and PanAmSat Corporation entered into an agreement to merge their respective satellite services operations into a new publicly-held company. Hughes would contribute its Galaxy(R) satellite services business in exchange for a 71.5% interest in the new company. Current PanAmSat stockholders would receive a 28.5% interest in the new company and $1.5 billion in cash. The source of the cash component of the consideration is expected to be new debt financing, which will be an obligation of the new company. PanAmSat is a leading provider of international satellite services. The transaction, which is contingent upon receiving certain regulatory approvals, is expected to close during the second quarter of 1997. In March 1996, Hughes sold a 2.5% equity interest in DIRECTV(R), a wholly-owned subsidiary of Hughes, to AT&T for $137.5 million, with options to increase their ownership interest under certain conditions. The sale resulted in a $120.3 million pre-tax gain which is included in other income. In February 1995, Hughes acquired substantially all of the assets of CAE-Link Corporation for $176.0 million in cash. CAE-Link is an established supplier of simulation, training, and technical services, primarily to the U.S. military and NASA. In December 1995, Hughes acquired all of the stock of Magnavox Electronic Systems Company (Magnavox) for $382.4 million, consisting of cash of $70.5 million, a note payable of $302.7 million, and estimated additional amounts to be paid of $9.2 million. Magnavox is a leading supplier of military tactical communications, electronic warfare, and command and control systems. In addition, Hughes acquired several other enterprises with operations that complement existing technological capabilities at aggregate purchase prices, paid in cash, of $28.7 million and $63.0 million in 1996 and 1995, respectively. All acquisitions were accounted for using the purchase method of accounting. The operating results of the entities acquired were consolidated with those of Hughes from their respective acquisition dates. These acquisitions did not have a material impact on the operating results of Hughes. The purchase price of each acquisition was allocated to the net assets acquired, including intangible assets, based upon their estimated fair values at the date of acquisition. During 1995, Hughes divested several non-strategic enterprises generating aggregate proceeds of approximately $127.2 million and a net loss of approximately $8.2 million, which included the write-off of $30.1 million of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. Also in 1995, Hughes recorded a $46.0 million charge for the estimated loss on disposition of a business unit (including $6.0 million related to the write-off of GM purchase accounting adjustments) and completed the divestiture of Hughes LAN Systems, for which a pre-tax charge of $35.0 million was taken in 1994. NOTE 14: DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Hughes is a party to financial instruments with off-balance sheet risk in the normal course of business to reduce its exposure to fluctuations in foreign exchange rates. The primary class of derivatives used by Hughes is foreign exchange-forward contracts. These instruments involve, to varying degrees, elements of credit risk in the event a counterparty should default and market risk as the instruments are subject to rate and price fluctuations. Credit risk is managed through the periodic monitoring and approval of financially sound counterparties. Market risk is mitigated because the derivatives are used to hedge underlying transactions. Cash receipts or payments on these contracts normally occur at maturity. Hughes holds derivatives only for purposes other than trading. IV-39 109 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Foreign exchange-forward contracts are legal agreements between two parties to purchase and sell a foreign currency, for a price specified at the contract date, with delivery and settlement in the future. Hughes uses these agreements to hedge risk of changes in foreign currency exchange rates associated with certain firm commitments denominated in foreign currency. The total notional amount of foreign exchange-forward contracts Hughes held at December 31, 1996 and 1995 was approximately $223 million and $289 million, respectively. Hughes' open contracts extend for periods averaging six months. NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS For notes and loans payable and long-term debt and capitalized leases, the estimated fair value (which approximates book value) was $283.2 million and $694.9 million at December 31, 1996 and 1995, respectively. Such fair value is based on the quoted market prices for similar issues or on the current rates offered to Hughes for debt of similar remaining maturities. The carrying value of debt with an original term of less than 90 days is assumed to approximate fair value. The fair values of derivative financial instruments reflect the estimated amounts Hughes would receive or pay to terminate the contracts at the reporting date, which takes into account the current unrealized gains or losses on open contracts that are deferred and recognized when the offsetting gains and losses are recognized on the related hedged items. The fair value of foreign exchange-forward contracts is estimated based on foreign exchange rate quotes at the reporting date. At December 31, 1996 and 1995, the estimated fair value of open contracts, which were in a net gain position, was $4.5 million and $10.7 million, respectively. For all financial instruments not described above, fair value approximates book value. NOTE 16: SEGMENT REPORTING Hughes operates within the field of modern high-technology electronics for use in Telecommunications and Space, Automotive Electronics, and Aerospace and Defense Systems business segments. The Telecommunications and Space segment includes satellite construction, ownership and operation, communication services, ground equipment, and direct-to-home satellite television entertainment services. Radios, controls for engines and transmissions, navigation and communication systems, monitors and sensors for air bags, controllers for anti-lock brakes, climate control, dashboard instrumentation, vehicle security electronics, and other automotive electronic products are included in the Automotive Electronics segment. The Aerospace and Defense Systems segment includes missile systems, command and control systems, torpedoes and sonar systems, electro-optical systems, airborne radar and communication systems, military training and simulation systems, air traffic control systems, information systems, and guidance and control systems. Intercompany transfers between segments are not material. Information concerning operations by segment is shown on the next page: IV-40 110 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
AEROSPACE TELECOM. AUTOMOTIVE & DEFENSE CORPORATE & SPACE ELECTRONICS SYSTEMS & OTHER TOTAL -------- ----------- --------- --------- ----- (DOLLARS IN MILLIONS) Revenues 1996............................... $4,114.9 $5,350.8 $6,338.4 $ 113.8 $15,917.9 1995............................... 3,092.7 5,561.3 5,945.4 172.4 14,771.8 1994............................... 2,596.2 5,221.7 6,023.6 257.9 14,099.4 Operating Profit (Loss)(1) 1996............................... $ 238.8 $ 654.0 $ 593.8 $ (14.6) $ 1,472.0 1995............................... 168.2 869.0 587.1 (80.4) 1,543.9 1994............................... 250.0 794.8 562.7 (100.9) 1,506.6 Identifiable Assets at Year End(2) 1996............................... $4,874.7 $3,394.9 $7,544.7 $ 665.8 $16,480.1 1995............................... 4,309.0 3,267.4 7,718.4 679.6 15,974.4 1994............................... 3,727.8 3,429.8 6,712.0 980.9 14,850.5 Depreciation and Amortization(1) 1996............................... $ 215.8 $ 195.9 $ 258.5 $ 12.4 $ 682.6 1995............................... 199.3 151.4 232.9 27.5 611.1 1994............................... 161.8 142.2 259.4 30.6 594.0 Capital Expenditures(3) 1996............................... $ 449.8 $ 196.0 $ 171.1 $ 23.3 $ 840.2 1995............................... 436.5 264.7 109.8 9.3 820.3 1994............................... 399.3 166.4 159.5 21.1 746.3
- ------------------------- Certain amounts for 1995 have been reclassified to conform with 1996 classifications. (1) Includes purchase accounting adjustments associated with GM's purchase of Hughes Aircraft Company of $122.3 million in 1996 ($21.0 million, $100.9 million, and $0.4 million related to Telecommunications and Space, Aerospace and Defense Systems, and Corporate and Other, respectively), $123.4 million in 1995 ($21.0 million, $100.9 million, and $1.5 million related to Telecommunications and Space, Aerospace and Defense Systems, and Corporate and Other, respectively) and $123.8 million in 1994 ($21.0 million, $100.9 million, and $1.9 million related to Telecommunications and Space, Aerospace and Defense Systems, and Corporate and Other, respectively). (2) Identifiable assets include the unamortized purchase accounting adjustments associated with the purchase of Hughes Aircraft Company as detailed below:
AEROSPACE TELECOM. & DEFENSE CORP. & & SPACE SYSTEMS OTHER TOTAL -------- --------- ------- ----- 1996................................. $468.0 $2,247.8 $ 7.7 $2,723.5 1995................................. 489.0 2,348.7 8.1 2,845.8 1994................................. 510.0 2,449.6 45.7 3,005.3
(3) Telecommunications and Space includes expenditures related to telecommunications and other equipment amounting to $187.9 million, $274.6 million, and $255.8 million in 1996, 1995, and 1994, respectively. IV-41 111 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED A reconciliation of operating profit shown on the previous page to Income before Income Taxes shown in the Consolidated Statement of Income and Available Separate Consolidated Net Income follows:
1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Operating Profit............................................ $1,472.0 $1,543.9 $1,506.6 Other Income -- net......................................... 173.8 57.5 37.1 Interest Expense -- net..................................... (11.2) (7.5) (15.1) -------- -------- -------- Income before Income Taxes................................ $1,634.6 $1,593.9 $1,528.6 ======== ======== ========
Export sales from the U.S. were as follows:
1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Africa...................................................... $ 42.2 $ 25.4 $ 25.8 Asia........................................................ 1,168.1 948.9 758.2 Canada...................................................... 721.3 861.8 876.3 Europe...................................................... 1,296.8 929.4 678.6 Mexico...................................................... 196.2 143.4 96.9 Other Latin America......................................... 115.5 76.0 90.3 Middle East................................................. 250.9 327.0 370.1 -------- -------- -------- Total............................................. $3,791.0 $3,311.9 $2,896.2 ======== ======== ========
NOTE 17: COMMITMENTS AND CONTINGENCIES Hughes signed agreements in 1995 and 1996 to procure commercial satellite launches, a significant number of which are expected to be used in connection with satellites ordered by outside customers. The agreements provide for launches beginning in 1998 and also contain options for additional launch vehicles. The total amount of the commitment, which is dependent upon the number of options exercised, market conditions, and other factors, could exceed $2 billion. In December 1994, Hughes entered into an agreement with Computer Sciences Corporation (CSC) whereby CSC provides a significant amount of the non-automotive data processing services required by Hughes. Baseline service payments to CSC are expected to aggregate approximately $1.5 billion over the term of the eight-year agreement. The contract is cancelable by Hughes with substantial early termination penalties. Minimum future commitments under operating leases having noncancelable lease terms in excess of one year, primarily for real property and satellite transponders, aggregating $2,552.5 million, are payable as follows: $274.8 million in 1997, $244.5 million in 1998, $265.9 million in 1999, $289.7 million in 2000, $208.8 million in 2001, and $1,268.8 million thereafter. Certain of these leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases were $279.4 million in 1996, $257.9 million in 1995, and $306.2 million in 1994. Hughes has issued or is a party to various guarantees and letter of credit agreements totaling $813.4 million at December 31, 1996. In the Company's past experience, virtually no claims have been made against these financial instruments. Hughes and its subsidiaries are subject to potential liability under government regulations and various claims and legal actions which are pending or may be asserted against them. The aggregate ultimate liability of Hughes and its subsidiaries under these government regulations, and under these claims and actions, was not determinable at December 31, 1996. In the opinion of management of Hughes, such liability is not expected to have a material adverse effect on Hughes' consolidated operations or financial position. IV-42 112 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Hughes has maintained a suit against the U.S. Government since September 1973, regarding the Government's infringement and use of a Hughes patent (the "Williams Patent") covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites. On June 17, 1994, the U.S. Court of Claims awarded Hughes damages of $114 million. Because Hughes believed that the record supported a higher royalty rate, it appealed that decision. The U.S. Government, contending that the award was too high, also appealed. On June 19, 1996, the Court of Appeals for the Federal Circuit affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the Court of Appeals for the Federal Circuit for a rehearing. That petition was denied in October of 1996. The U.S. Government has filed a petition with the U.S. Supreme Court seeking certiorari. In the opinion of management of Hughes, there is a reasonable possibility that this matter could be resolved in the near term. While no amount has been recorded in the financial statements of Hughes to reflect the $114 million award, a resolution of this matter could result in a gain that would be material to the earnings of General Motors attributable to Class H common stock. NOTE 18: SUBSEQUENT EVENT On January 16, 1997, GM and Hughes announced a series of planned transactions that would impact the defense electronics, automotive electronics, and telecommunications and space businesses of Hughes. The transactions would include: - The tax-free spin-off of 100% of the Hughes defense business, to holders of GM's $1 2/3 par value and Class H common stocks; - The tax-free merger of the Hughes defense business with Raytheon Company (Raytheon) immediately following the spin-off, after which there would be outstanding two classes of Raytheon/Hughes defense common stock; - The transfer of Delco Electronics (Delco), the automotive electronics subsidiary of Hughes, from Hughes to GM's Delphi Automotive Systems and a reallocation of the derivative interest in the earnings of Delco currently held by Class H common stockholders to holders of $1 2/3 par value common stock; and - The recapitalization of Class H common stock into a tracking stock linked solely to the telecommunications and space business of Hughes. GM would continue to own 100% of Hughes, which would hold and operate its existing telecommunications and space business. The distribution of stock in the Hughes defense business to holders of GM Class H and $1 2/3 par value common stock would be in a ratio that would be determined by GM's Board of Directors to be fair to both classes of stockholders and would reflect: (1) a pro rata spin-off of the Hughes defense business to holders of GM Class H and $1 2/3 par value common stock; (2) a partial reallocation of the Hughes defense business from holders of GM $1 2/3 par value common stock to holders of Class H common stock in exchange for the derivative interest in the earnings of Delco currently held by the Class H stockholders; and (3) other effects of and factors relating to the planned transactions. Such a distribution ratio will be set by GM's Board of Directors at a time closer to GM's distribution of the solicitation statement/prospectus pursuant to which GM stockholders will be asked to approve the transactions. IV-43 113 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED The planned transactions are subject to approval by holders of GM $1 2/3 par value and Class H common stock. In addition, the merger of the Hughes defense business with Raytheon, which is contingent upon the spin-off of the Hughes defense business, is subject to approval by the stockholders of Raytheon. The planned transactions also are subject to a variety of regulatory approvals and actions, including anti-trust clearance and receipt of rulings by the Internal Revenue Service that the spin-off of the Hughes defense business would be tax-free to GM and its stockholders. The spin-off is not being proposed in a manner that would result in the recapitalization of Class H common stock into $1 2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in GM's Restated Certificate of Incorporation. No assurances can be given that the above transactions will be completed; however, management of GM and Hughes and GM's Board of Directors expect to solicit stockholder approval during the third quarter of 1997, after certain conditions are satisfied. IV-44 114 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION SELECTED QUARTERLY DATA (UNAUDITED)
1ST 2ND 3RD 4TH --- --- --- --- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1996 QUARTERS Revenues.............................................. $3,736.7 $4,062.5 $3,822.6 $4,296.1 ======== ======== ======== ======== Income before income taxes............................ $ 472.5 $ 448.3 $ 366.2 $ 347.6 Income taxes.......................................... 191.4 172.3 144.7 97.3 -------- -------- -------- -------- Net income............................................ $ 281.1 $ 276.0 $ 221.5 $ 250.3 ======== ======== ======== ======== Earnings used for computation of available separate consolidated net income............................. $ 311.7 $ 306.6 $ 252.0 $ 280.9 Average number of shares of General Motors Class H common stock outstanding (in millions).............. 97.4 98.2 98.8 99.3 Class H dividend base (in millions)................... 399.9 399.9 399.9 399.9 Available separate consolidated net income............ $ 76.0 $ 75.2 $ 62.3 $ 69.8 ======== ======== ======== ======== Net earnings attributable to General Motors Class H common stock on a per share basis................... $ 0.78 $ 0.77 $ 0.63 $ 0.70 ======== ======== ======== ======== Stock price range of General Motors Class H common stock High................................................ $ 63.38 $ 68.25 $ 61.38 $ 59.25 Low................................................. $ 45.00 $ 57.50 $ 53.13 $ 49.50
SELECTED QUARTERLY DATA (UNAUDITED)
1ST 2ND 3RD 4TH --- --- --- --- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1995 QUARTERS Revenues.............................................. $3,578.8 $3,723.6 $3,441.3 $4,028.1 ======== ======== ======== ======== Income before income taxes............................ $ 403.3 $ 436.3 $ 310.6 $ 443.7 Income taxes.......................................... 165.4 178.8 121.6 179.8 -------- -------- -------- -------- Net income............................................ $ 237.9 $ 257.5 $ 189.0 $ 263.9 ======== ======== ======== ======== Earnings used for computation of available separate consolidated net income............................. $ 268.9 $ 288.4 $ 256.1 $ 294.4 Average number of shares of General Motors Class H common stock outstanding (in millions).............. 94.2 95.4 95.9 96.5 Class H dividend base (in millions)................... 399.9 399.9 399.9 399.9 Available separate consolidated net income............ $ 63.3 $ 68.8 $ 61.4 $ 71.1 ======== ======== ======== ======== Net earnings attributable to General Motors Class H common stock on a per share basis................... $ 0.67 $ 0.72 $ 0.64 $ 0.74 ======== ======== ======== ======== Stock price range of General Motors Class H common stock High................................................ $ 41.75 $ 41.63 $ 42.75 $ 50.00 Low................................................. $ 33.25 $ 37.75 $ 39.13 $ 39.50
IV-45 115 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION -- CONCLUDED SELECTED FINANCIAL DATA (UNAUDITED)
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Revenues................................ $15,917.9 $14,771.8 $14,099.4 $13,517.5 $12,297.1 Earnings (Loss) used for computation of available separate consolidated net income (loss)......................... $ 1,151.2 $ 1,107.8 $ 1,049.2 $ 921.6 $ (921.6) Average number of shares of General Motors Class H common stock outstanding (in millions)............. 98.4 95.5 92.1 88.6 75.3 Class H dividend base (in millions)..... 399.9 399.9 399.9 399.9 399.9 Available separate consolidated net income (loss)......................... $ 283.3 $ 264.6 $ 241.6 $ 204.5 $ (142.3) GM Class H cash dividends............... $ 94.4 $ 87.9 $ 73.8 $ 64.1 $ 53.3 Dividend payout ratio (1)............... 35.7% 36.4% 36.0% N/A 51.0% Earnings (Loss) attributable to General Motors Class H common stock on a per share basis before cumulative effect of accounting changes................. $ 2.88 $ 2.77 $ 2.70 $ 2.30 $ (0.11) Earnings (Loss) attributable to General Motors Class H common stock on a per share basis after cumulative effect of accounting changes.................... $ 2.88 $ 2.77 $ 2.62 $ 2.30 $ (2.29) Capital expenditures(2)................. $ 840.2 $ 820.3 $ 746.3 $ 580.0 $ 558.5 Cash and cash equivalents............... $ 1,161.3 $ 1,139.5 $ 1,501.8 $ 1,008.7 $ 702.7 Working capital......................... $ 2,879.4 $ 2,502.0 $ 2,695.5 $ 2,165.2 $ 1,692.4 Total assets............................ $16,480.1 $15,974.4 $14,850.5 $14,117.1 $14,209.2 Long-term debt and capitalized leases... $ 34.5 $ 258.8 $ 353.5 $ 416.8 $ 711.0 Return on equity*(3).................... 11.6% 11.5% 12.1% 11.3% (13.9)% Income (Loss) before interest and taxes as a percent of capitalization (4).... 18.3% 18.7% 19.0% 18.0% (2.3)% Pre-tax return on total assets (5)...... 10.1% 10.3% 10.6% 9.7% (1.8)%
- ------------------------- * Includes unfavorable cumulative effect of accounting changes of $30.4 million in 1994 and $872.1 million in 1992. (1) GM Class H cash dividends divided by available separate consolidated net income for the prior year. (2) Includes expenditures related to telecommunications and other equipment amounting to $187.9 million, $274.6 million, $255.8 million, $131.1 million, and $101.6 million in 1996, 1995, 1994, 1993, and 1992, respectively. (3) Net income (loss) divided by average stockholder's equity (General Motors' equity in its wholly-owned subsidiary, Hughes). Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). (4) Income (Loss) before interest and taxes divided by average stockholder's equity plus average debt. (5) Income (Loss) before Income Taxes divided by average Total Assets. IV-46 116 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATING AND FINANCIAL REVIEW The following discussion excludes purchase accounting adjustments related to General Motors' acquisition of Hughes Aircraft Company (see Supplemental Data beginning on page IV-54). Statements made concerning expected financial performance, ongoing financial performance strategies, and possible future action which Hughes intends to pursue to achieve strategic objectives for each of its three principal business segments (including the planned transactions described below) constitute forward-looking information. The implementation of these strategies and of such future actions and the achievement of such financial performance are each subject to numerous conditions, uncertainties and risk factors, and, accordingly, no assurance can be given that Hughes will be able to successfully accomplish its strategic objectives or achieve such financial performance. The principal important risk factors which could cause actual performance and future actions to differ materially from the forward-looking statements made herein include economic conditions, product demand and market acceptance, government action, competition, ability to achieve cost reductions, GM's global sourcing strategy with respect to automotive electronics, General Motors' North American Operations (GM-NAO) volumes, technological risk, interruptions to production attributable to causes outside Hughes' control, and the receipt of various approvals with respect to the planned transactions. GENERAL On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. The transactions would include the tax-free spin-off of the Hughes defense business to holders of GM's $1 2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company (Raytheon). The spin-off is not being proposed in a manner that would result in the recapitalization of Class H common stock into $1 2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the General Motors Restated Certificate of Incorporation, as amended. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, GM's Class H common stock would be recapitalized into a tracking stock linked solely to the telecommunications and space business of Hughes. After the spin-off and tax-free merger of the Hughes defense business with Raytheon, there would be outstanding two classes of Raytheon/Hughes defense common stock: Class A common stock, approximately 103 million shares of which would have been distributed to GM's $1 2/3 and Class H stockholders in the spin-off, and Class B common stock which would be exchanged for Raytheon common stock on a one-for-one share basis in the merger. The common stock of the Hughes defense business that would be distributed to GM common stockholders would represent approximately 30% of the stock of the combined company. The distribution of stock in the Hughes defense business to holders of GM Class H and $1 2/3 par value common stock would be in a ratio that would be determined by GM's Board of Directors to be fair to both classes of stockholders and would reflect: (1) a pro rata spin-off of the Hughes defense business to holders of GM Class H and $1 2/3 par value common stock; (2) a partial reallocation of the Hughes defense business from holders of GM $1 2/3 par value common stock to holders of Class H common stock in exchange for the derivative interest in the earnings of Delco currently held by the Class H stockholders; and (3) other effects of and factors relating to the planned transactions. Such a distribution ratio will be set by GM's Board of Directors at a time closer to GM's distribution of the solicitation statement/prospectus pursuant to which GM stockholders will be asked to approve the transactions. The spin-off of the Hughes defense business and merger with Raytheon would have an indicated total value of $9.5 billion to GM and its common stockholders based on stock prices as of the announcement date. That value would consist of a combination of approximately $4.7 billion of total debt obligations of the Hughes defense business at the time of the merger, and $4.8 billion of indicated value of Hughes defense stock to be IV-47 117 distributed to common stockholders (after giving affect to the merger based on the market price of Raytheon common stock as of the announcement date of $47.00). The merger terms provide that the total debt of the Hughes defense business will be adjusted to reflect variations in the average market price of Raytheon stock, subject to specified limits, so that the two components of value will total $9.5 billion so long as such market price is in a range of between $44.42 and $54.29 per share. Substantially all of such debt would be incurred immediately prior to the spin-off, with the proceeds used principally to fund the telecommunications and space business of Hughes. Consummation of the transactions described previously is subject to various contingencies, including regulatory clearances and approval by GM common stockholders. Additional information regarding these planned transactions is included in Note 18 to the Hughes Consolidated Financial Statements. These planned transactions had no impact on 1996 financial results. The planned transactions described previously are intended to result in the achievement of several strategic objectives. The merger of the Hughes defense business with Raytheon would create a stronger defense electronics company which would be able to more effectively compete for new business in an industry where significant consolidation is occurring. At the same time, the integration of Delco Electronics and Delphi Automotive Systems would combine advanced electronics capability with components and systems expertise, and would be expected to result in reduced costs. Hughes Electronics would continue to hold and operate the telecommunications and space business. This would allow Hughes management to focus on this business segment and the capital infusion would allow it to take advantage of growth opportunities in this very competitive industry. The strategy of this business is to continue to expand its offerings from being primarily a supplier of hardware to becoming a provider of hardware and video, voice, and data services worldwide. This strategy requires significant current and future investment in order to maintain and enhance the segment's competitive position with respect to existing products and to take advantage of the growth opportunities presented, as well as the formation of strategic alliances to compete in the very competitive global marketplace. RESULTS OF OPERATIONS REVENUES. Hughes reported record revenues of $15,917.9 million in 1996, a 7.8% increase over 1995. Revenues in 1995 were $14,807.9 million, an increase of 5.0% compared with 1994 revenues of $14,099.4 million. The increase in 1996 revenues was largely the result of continued growth in the Telecommunications and Space segment and increased revenues in the Aerospace and Defense Systems segment, partially offset by lower Automotive Electronics revenues caused in part by work stoppages at various GM production locations during the year. 1995 revenue growth was driven by the Automotive Electronics and Telecommunications and Space segments. (Pro forma segment information is presented on page IV-56). Telecommunications and Space. Revenues in the Telecommunications and Space segment were $4,114.9 million in 1996, a 33.1% increase over 1995, and $3,092.7 million in 1995, a 19.1% increase over 1994 revenues of $2,596.2 million. The increases in both years were primarily due to continued expansion of the DIRECTV(R) subscriber base, increased sales of commercial satellites and cellular communications equipment, and increased video distribution revenues from Galaxy(R) satellite transponders. Automotive Electronics. Revenues in the Automotive Electronics segment decreased 3.8% in 1996 to $5,350.8 million from $5,561.3 million in 1995. The decline was principally due to a decrease in GM vehicles produced in the United States and Canada (excluding joint ventures) primarily related to the United and Canadian Auto Workers' (UAW and CAW, respectively) strikes offset, in part, by an increase in Hughes-supplied electronic content in these vehicles from $888 per vehicle to $906 per vehicle and an increase in international and non-GM-NAO sales from $841 million in 1995 to $1,010 million in 1996. Revenues increased $339.6 million, or 6.5%, in 1995 from $5,221.7 million in 1994. 1995 revenue growth was attributed to an increase in Hughes-supplied electronic content in GM vehicles produced in North America to $888 in 1995 from $857 in 1994, and an increase in sales to international and non-GM-NAO customers to IV-48 118 $841 million in 1995 from $672 million in 1994. Vehicle production remained relatively unchanged between 1994 and 1995. Aerospace and Defense Systems. Aerospace and Defense Systems segment revenues were $6,338.4 million in 1996, a 6.6% increase from 1995 revenues of $5,945.4 million. The growth was primarily attributable to additional revenues resulting from the December 1995 acquisition of Hughes Defense Communications (formerly Magnavox Electronic Systems Company) and the build-up of newer programs including Desktop V, Wide Area Augmentation System and Land Warrior. 1995 revenues decreased $78.2 million, or 1.3%, from 1994 revenues of $6,023.6 million. The decline was principally due to lower production rates on several missile programs, partially offset by the additional revenues related to the 1995 acquisition of CAE-Link Corporation. Other Income. Included in revenues is other income of $173.8 million, $93.6 million, and $37.1 million for 1996, 1995, and 1994, respectively. 1996 includes the $120.3 million pre-tax gain from the sale of a 2.5% equity interest in DIRECTV to AT&T. 1995 and 1994 included pre-tax charges of $40.0 million and $35.0 million, respectively, for the estimated losses on disposition of certain non-strategic business units. Also included in 1995 was $35.9 million of revenue earned for providing services to GM. OPERATING PROFIT. Operating profit was $1,594.3 million in 1996, $1,667.3 million in 1995, and $1,630.4 million in 1994. Operating profit margins, as a percentage of net sales, were 10.1%, 11.3%, and 11.6% in 1996, 1995, and 1994, respectively. The decline in profitability in 1996 compared to 1995 was primarily attributable to the lower GM production volumes related to the UAW and CAW strikes and continued price reductions in the Automotive Electronics segment offset in part, by the increased profitability in the Telecommunications and Space segment. Also offsetting the 1996 decline in profitability were the reduced operating losses at Hughes-Avicom International, Inc. Operating profit improved in 1995 largely due to a continued emphasis on cost reduction efforts, most notably in the Automotive Electronics and Aerospace and Defense Systems segments, and the overall growth in revenues, partially offset by a planned increase in operating expenses associated with DIRECTV. The 1995 operating profit margin decline was attributable primarily to the DIRECTV operating expense increase which more than offset the margin improvements in the two other segments. Telecommunications and Space. Operating profit for 1996 was $259.8 million, a 37.3% increase from $189.2 million reported in 1995. The 1996 increase was largely a result of the revenue increases previously discussed and reduced mobile telephony satellite development costs offset, in part, by operating losses related to the start of service by the Company's DIRECTV business in Latin America. Operating profit in 1995 decreased 30.2% from 1994 operating profit of $271.0 million. The 1995 decline in operating profit was principally due to increased operating expenses associated with the expansion of DIRECTV and increased development costs on a geostationary satellite mobile telephony product line. Operating profit margins were 6.5% in 1996, 6.2% in 1995, and 10.3% in 1994. After 1996, operating profit margins in the Telecommunications and Space segment are expected to increase as DIRECTV's subscriber base grows. Automotive Electronics. In 1996, operating profit was $654.0 million compared with $869.0 million in 1995. The decline was mostly due to the reduced production volumes, continued price reductions resulting from competitive pricing in connection with GM's global sourcing initiative, and the impact from continued investment in international expansion. 1995 operating profit increased $74.2 million, or 9.3%, as compared to 1994 operating profit of $794.8 million. The improvement in profitability in 1995 was attributable not only to increased revenues, but also to an aggressive cost reduction program. As the principal supplier of automotive electronics to General Motors' North American Operations unit (GM-NAO), Hughes' sales of automotive electronics will continue to be heavily dependent on General Motors production of vehicles in North America, the level of Hughes-supplied electronic content per GM vehicle, the price of such electronics, and the competitiveness of Hughes' product offerings. In this regard, it is anticipated that competition through GM's global purchasing process will negatively impact Hughes' sales to GM-NAO and result in a decline in the portion of GM-NAO automotive electronics supplied by Hughes. The segment's strategy is to aggressively reduce costs in order to minimize the effect of continuing price reductions and to manage the loss of GM-NAO market share by offering competitive IV-49 119 products which increase electronic functionality through a focus on safety, security, communications, and convenience. The segment will also seek to improve its systems capability and cost competitiveness both internally and by developing key design, manufacturing, and marketing alliances and other relationships with mechanical and electrical automotive component suppliers. The international market for automotive electronic products is also highly competitive. The segment has refined its strategy for this market to focus on profitable growth as well as increased market share, and accordingly, will seek to enhance the cost competitiveness of its international operations. The competitive environment described above is making it increasingly difficult to maintain the level of operating profit margins realized in this segment in the past. Beyond 1996, operating margins are expected to be lower than recent historical levels as price and volume declines associated with GM's global sourcing initiatives more than offset Hughes' ability to achieve cost reductions. In response to the increased pressure on margins and to enhance future competitiveness, management will take action to reduce the cost structure of the business. As a result of the factors described above, the operating margin is expected to decline further in 1997 to low double digits, and then show modest improvement in 1998 and 1999. Aerospace and Defense Systems. Operating profit was $694.7 million in 1996 compared to $688.0 million in 1995 and $663.6 million in 1994. The operating profit margin for 1996 declined to 11.0% from 11.7% in 1995 primarily due to a continued shift from production programs to engineering and development programs, and growth in information systems and services revenues. The operating profit margin for 1995 increased to 11.7% from 11.0% largely due to a provision taken in 1994 for certain air traffic control contracts, partly offset by reduced revenues in 1995. Future operating profits could be adversely impacted by further reductions in the U.S. defense budget. COSTS AND EXPENSES. Selling, general, and administrative expenses were $1,505.6 million in 1996, $1,234.2 million in 1995, and $1,018.3 million in 1994. The increases were principally due to the continued expansion of DIRECTV, both in the U.S. and internationally, and increased international sales activities at Delco Electronics. The effective income tax rate was 34.5%, 36.8%, and 34.7% in 1996, 1995, and 1994, respectively. The decrease in the effective income tax rate in 1996 was due primarily to the favorable resolution of certain tax contingencies while the effective income tax rate in 1994 was favorably impacted by the recognition of capital loss carryforward benefits. EARNINGS. Hughes' 1996 earnings were $1,151.2 million, or $2.88 per share of GM Class H common stock, compared with 1995 earnings of $1,107.8 million, or $2.77 per share, and 1994 earnings of $1,049.2 million, or $2.62 per share. Earnings in 1994 included the unfavorable effect of an accounting change for postemployment benefits. Excluding the accounting change, Hughes' earnings in 1994 would have been $1,079.6 million, or $2.70 per share. BACKLOG. The 1996 year-end backlog of $15,100 million increased from $14,929 million at the end of 1995, primarily due to record backlog in the Aerospace and Defense Systems segment. 1995 year-end backlog increased from the $13,210 million at the end of 1994, primarily due to increased satellite orders in the Telecommunications and Space segment. A portion of the backlog is subject to appropriation decisions by the U.S. Government subsequent to award. In addition, Hughes' contracts with the U.S. Government are subject to termination by the Government either for its convenience or for default by Hughes. Sales to the U.S. Government may be affected by changes in acquisition policies, budget considerations, changing concepts in national defense, spending priorities, and other factors that are outside of Hughes' control. SPECIAL PROVISION FOR RESTRUCTURING. In 1992, Hughes recorded a special charge of $749.4 million (after-tax), for the restructuring of Hughes' operations. The special charge comprehended a reduction of Hughes' worldwide employment, a major facilities consolidation, and a reevaluation of certain business lines that no longer met Hughes' strategic objectives. Restructuring costs of $92.4 million, $208.8 million, and $228.3 million were charged against the reserve during 1996, 1995, and 1994, respectively. In addition, in 1994, the restructuring reserve was increased by $35.0 million, primarily due to changes in the estimated loss on disposition of a subsidiary. The remaining liability at December 31, 1996 of $42.0 million IV-50 120 relates primarily to reserves for excess facilities and other site consolidation costs. Approximately $40.7 million of this amount will require future cash outflows. It is expected that these costs will be expended predominantly during the next year. ACCOUNTING CHANGES. Effective January 1, 1996, Hughes adopted Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, and as permitted by this standard, will continue to apply the recognition and measurement principles of Accounting Principles Board Opinion No. 25 to its stock options. Hughes has calculated the proforma effects of applying SFAS No. 123 and determined that such effects are not significant in relation to reported net income and earnings per share. Effective January 1, 1996, Hughes also adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The adoption of this new accounting standard did not have a material effect on Hughes' consolidated operating results or financial position. Effective January 1, 1994, Hughes adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits. The Statement requires accrual of the costs of benefits provided to former or inactive employees after employment, but before retirement. The unfavorable cumulative effect of adopting this Standard was $30.4 million, net of income taxes of $19.2 million, or $0.08 per share of GM Class H common stock. The charge primarily related to extended disability benefits which are accrued on a service-driven basis. LIQUIDITY AND CAPITAL RESOURCES CASH AND CASH EQUIVALENTS. Cash and cash equivalents were $1,161.3 million at December 31, 1996, an increase of $21.8 million from December 31, 1995. Operating activities generated cash of $1,199.4 million as Hughes achieved another year of record earnings. Additional cash was provided by proceeds from the sale and leaseback of satellite transponders with General Motors Acceptance Corporation, and proceeds from the sale of a minority interest in DIRECTV of $137.5 million. The increases in cash were offset by the cash used to fund capital expenditures, repay notes and loans payable and pay dividends to General Motors. In 1995, cash and cash equivalents decreased $362.3 million to $1,139.5 million at December 31, 1995, from $1,501.8 million at December 31, 1994. Operating activities generated cash of $986.2 million, however, cash used to fund capital expenditures, pay dividends to General Motors, and acquire new businesses more than offset the cash generated by operating activities. In the third quarter of 1996, Hughes reported that cash flows in 1997 and beyond were expected to be negatively impacted by a change in the credit terms between Hughes and GM-NAO for purchases of automotive electronics. With the announcement of the planned transactions in January 1997 (see Note 18 to the Hughes Consolidated Financial Statements), implementation of the change in credit terms has been deferred pending the consummation of such planned transactions. LIQUIDITY MEASUREMENT. As a measure of liquidity, the current ratio (ratio of current assets to current liabilities) was 1.69 at December 31, 1996, 1.58 at December 31, 1995, and 1.76 at December 31, 1994. The increase from 1995 to 1996 was principally due to the repayment of certain notes and loans payable. The decrease from 1994 to 1995 was principally due to the decrease in cash described above and increases in the notes and loans payable balance, primarily caused by a loan related to an acquisition. (See Note 13 to the Hughes Consolidated Financial Statements.) PROPERTY AND EQUIPMENT. Property, net of accumulated depreciation, increased $147.4 million in 1996 while telecommunications and other equipment, net of accumulated depreciation, decreased $41.6 million, primarily due to the sale and leaseback of GIIIR which more than offset additional expenditures related to the Galaxy satellite fleet. IV-51 121 Expenditures for property and equipment were $652.3 million in 1996 compared with $545.7 million and $490.5 million in 1995 and 1994, respectively. Management anticipates that capital expenditures in 1997 will increase approximately $100 million over 1996 and will be financed primarily from cash provided by operating activities. Telecommunications and other equipment expenditures were $187.9 million in 1996 compared with $274.6 million and $255.8 million in 1995 and 1994, respectively. Management anticipates that telecommunications and other equipment expenditures in 1997 will increase significantly compared with 1996 and will be financed primarily from cash provided by operating activities. Telecommunications and Space. Capital expenditures, including expenditures related to telecommunications and other equipment, increased to $449.8 million in 1996 from $436.5 million in 1995 and $399.3 million in 1994. The 1996 capital expenditures increase reflects additions to the Galaxy satellite fleet and construction of the California Broadcast Center, an uplink facility that supports Hughes' DIRECTV business in Latin America. The increase in 1995 was due primarily to additions to the Galaxy satellite fleet. Automotive Electronics. Capital expenditures decreased to $196.0 million in 1996, compared with $264.7 million in 1995, and $166.4 million in 1994. The decrease in the 1996 capital spending reflects the impact of delays in engineering capital expenditures and the higher than normal level of expenditures in 1995. The increased capital spending in 1995 reflects expenditures for additional program requirements related to new product changes associated with the 1996 model year combined with a decrease in tooling cost recoveries. Aerospace and Defense Systems. Capital expenditures in the Aerospace and Defense Systems segment for 1996, 1995, and 1994 were $171.1 million, $109.8 million, and $159.5 million, respectively. The 1996 increase relates to capital expenditures to support expanding business requirements. The 1995 decrease was due to the high level of expenditures in 1994 related to the consolidation of facilities in an effort to increase the operational efficiencies of manufacturing and engineering activities. DEBT AND CAPITALIZED LEASES. Long-term debt and capitalized leases were $34.5 million at December 31, 1996, a decrease from $258.8 million at December 31, 1995, and $353.5 million at December 31, 1994, reflecting scheduled principal repayments and the reclassification of certain amounts to current liabilities. The ratio of long-term debt and capitalized leases to the total of such debt and pro forma stockholder's equity decreased to 0.5% in 1996 from 4.4% in 1995 and 6.6% in 1994. As discussed below, additional debt will be incurred in conjunction with the PanAmSat merger. It is anticipated that a portion of this debt would be repaid from cash expected to be received pursuant to the planned transactions (see Note 18 to the Hughes Consolidated Financial Statements). OTHER BALANCE SHEET ITEMS. In evaluating both its pension and retiree medical liabilities, Hughes recognizes the impact of changes in long-term interest rates by adjusting the discount rate used in determining the actuarial present values of the projected benefit obligations. In 1996, the weighted average discount rate for Hughes' non-automotive pension obligations increased from 7.25% to 7.5% and the weighted average discount rate for Hughes' other postretirement benefits increased from 7.25% to 7.56%. ACQUISITIONS AND DIVESTITURES. In December 1996, Hughes announced that it had reached an agreement to acquire the Marine Systems Division of Alliant Techsystems, Inc. for $141.0 million in cash. The Marine Systems Division is a leader in lightweight torpedo manufacturing and the design and manufacturing of underwater surveillance, sonar and mine warfare systems. The acquisition was completed in the first quarter of 1997. In September 1996, Hughes and PanAmSat Corporation entered into an agreement to merge their respective satellite services operations into a new publicly-held company. Hughes would contribute its Galaxy(R) satellite services business in exchange for a 71.5% interest in the new company. Current PanAmSat stockholders would receive a 28.5% interest in the new company and $1.5 billion in cash. Such cash consideration and other funds required to consummate the merger are expected to be funded by new debt financing totaling $1.725 billion. This debt financing is expected to be provided by Hughes, which currently intends to borrow such funds from General Motors. IV-52 122 For accounting purposes, this transaction would be treated as a partial sale of the Galaxy business by Hughes and would result in a one-time, nonrecurring gain. The amount of this gain depends on several variables, but is expected to be between $400 and $600 million before tax. PanAmSat is a leading provider of international satellite services. The transaction, which is contingent upon receiving certain regulatory approvals, is expected to close during the second quarter of 1997. In March 1996, Hughes sold a 2.5% equity interest in DIRECTV(R), a wholly-owned subsidiary of Hughes, to AT&T for $137.5 million, with options to increase their ownership interest under certain conditions. The sale resulted in a $120.3 million pre-tax gain which is included in other income. In February 1995, Hughes completed the acquisition of CAE-Link Corporation, an established supplier of simulation, training, and technical services, primarily to the U.S. military and NASA, for $176.0 million. In December 1995, Hughes acquired Magnavox Electronic Systems Company, a leading supplier of military tactical communications, electronic warfare, and command and control systems, for $382.4 million. During 1995, Hughes divested several non-strategic enterprises resulting in aggregate proceeds of approximately $127.2 million and a net gain of approximately $21.9 million. Also in 1995, Hughes recorded a $40.0 million charge for the estimated loss on disposition of a business unit and completed the divestiture of Hughes LAN Systems, for which a pre-tax charge of $35.0 million was taken in 1994. DIVIDEND POLICY. As discussed in Note 7 to the Hughes Consolidated Financial Statements, it is GM's current policy to pay aggregate annual cash dividends on the GM Class H common stock approximately equal to 35% of the Available Separate Consolidated Net Income of Hughes for the prior year. In January 1997, the Board of Directors of GM increased the quarterly dividend on GM Class H common stock from $0.24 per share to $0.25 per share. It is anticipated that if the previously described Hughes transactions are consummated, the General Motors Board of Directors will adopt a dividend policy relating to the new Class H common stock which the Board deems to be appropriate in light of the capital needs and growth opportunities of the Hughes telecommunications and space business and generally commensurate with that of other companies in the telecommunications and space business having similar capital needs and growth opportunities. SECURITY RATINGS. Hughes' security ratings are tied to the security ratings of General Motors. In October 1996, Standard & Poor's Ratings Services, a division of McGraw-Hill Companies, Inc. (S&P), revised its outlook on Hughes from stable to developing as a result of the uncertainty with respect to GM's investment strategy related to Hughes. S&P indicated that the developing outlook reflects the possibility that if a significant change in the relationship between GM and Hughes were to occur, the credit quality of Hughes could be either favorably or adversely affected, depending upon the nature of the transaction pursued. In November, 1996 and January 1997, S&P affirmed its long-term debt rating of Hughes at A-. The S&P A- credit rating is the seventh highest within the 10 investment grade ratings available from S&P for long-term debt, based on a strong capability to pay interest and repay principal, although somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Additionally, S&P also affirmed its A.2 rating on Hughes' commercial paper. S&P's ratings outlook for Hughes remains developing. In September 1996, Moody's Investors Service (Moody's) confirmed the long-term credit rating of Hughes at A.3, seventh highest within the 10 investment grade ratings available from Moody's for long-term debt. Moody's defines A.3 bonds as having "upper-medium grade" quality. Moody's rating for Hughes' commercial paper remained unchanged at P-2. The rating indicates that the issuer has a strong ability for repayment relative to other issuers. Following GM's and Hughes' January 1997 announcement with respect to the Hughes business segments (See Note 18 to the Hughes Consolidated Financial Statements), both S&P and Moody's reaffirmed their current ratings and outlook for Hughes' securities. Moody's, however, put Hughes' ratings on review for possible downgrade. IV-53 123 Debt ratings by the various rating agencies reflect each agency's opinion of the ability of issuers to repay debt obligations punctually. Lower ratings generally result in higher borrowing costs. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating. SUPPLEMENTAL DATA The Hughes Consolidated Financial Statements reflect the application of purchase accounting adjustments as described in Note 1 to the Hughes Consolidated Financial Statements. However, as provided in GM's Certificate of Incorporation, the earnings attributable to GM Class H common stock for purposes of determining the amount available for the payment of dividends on GM Class H common stock specifically excludes such adjustments. More specifically, amortization and disposal of these intangible assets associated with GM's purchase of Hughes Aircraft Company amounted to $122.3 million in 1996, $159.5 million in 1995 and $123.8 million in 1994. The 1995 amount included a $36.1 million charge, included in other income, for the write-off of such purchase accounting adjustments related to the disposition of certain non-strategic business units. Such amounts were excluded from the earnings available for the payment of dividends on GM Class H common stock and were charged against the earnings available for the payment of dividends on GM's $1 2/3 par value stock. Unamortized purchase accounting adjustments associated with GM's purchase of Hughes Aircraft Company were $2,723.5 million, $2,845.8 million, and $3,005.3 million at December 31, 1996, 1995, and 1994, respectively. In order to provide additional analytical data to the users of Hughes' financial information, supplemental data in the form of unaudited summary pro forma financial data are provided. Consistent with the basis on which earnings of Hughes available for the payment of dividends on the GM Class H common stock is determined, the pro forma data exclude purchase accounting adjustments related to General Motors' acquisition of Hughes Aircraft Company. Included in the supplemental data are certain financial ratios which provide measures of financial returns excluding the impact of purchase accounting adjustments. The pro forma data are not presented as a measure of GM's total return on its investment in Hughes. IV-54 124 HUGHES ELECTRONIC CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Total Revenues.......................... $15,917.9 $14,807.9 $14,099.4 Total Costs and Expenses................ 14,161.0 13,054.5 12,447.0 --------- --------- --------- Income before Income Taxes.............. 1,756.9 1,753.4 1,652.4 Income taxes............................ 605.7 645.6 572.8 --------- --------- --------- Income before cumulative effect of accounting change..................... 1,151.2 1,107.8 1,079.6 Cumulative effect of accounting change................................ -- -- (30.4) --------- --------- --------- Earnings Used for Computation of Available Separate Consolidated Net Income................................ $ 1,151.2 $ 1,107.8 $ 1,049.2 ========= ========= ========= Earnings Attributable to General Motors Class H Common Stock on a Per Share Basis Before cumulative effect of accounting change............................. $2.88 $2.77 $2.70 Cumulative effect of accounting change............................. -- -- (0.08) ----- ----- ----- Net earnings attributable to General Motors Class H Common Stock........ $2.88 $2.77 $2.62 ===== ===== =====
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, ---------------------- 1996 1995 ---- ---- (DOLLARS IN MILLIONS) ASSETS Total Current Assets.................... $ 7,079.0 $ 6,810.8 Property -- Net......................... 2,886.6 2,739.2 Telecommunications and Other Equipment -- Net...................... 1,133.5 1,175.1 Intangible Assets, Investments, and Other Assets -- Net................... 2,657.5 2,403.5 --------- --------- Total Assets....................... $13,756.6 $13,128.6 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Total Current Liabilities............... $ 4,199.6 $ 4,308.8 Long-Term Debt and Capitalized Leases... 34.5 258.8 Postretirement Benefits Other Than Pensions, Other Liabilities, and Deferred Credits...................... 3,066.1 2,881.1 Total Stockholder's Equity**....... 6,456.4 5,679.9 --------- --------- Total Liabilities and Stockholder's Equity**.......................... $13,756.6 $13,128.6 ========= =========
- ------------------------- * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. ** General Motors' equity in its wholly-owned subsidiary, Hughes. Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). IV-55 125 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* -- CONTINUED PRO FORMA SELECTED SEGMENT DATA
YEARS ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) TELECOMMUNICATIONS AND SPACE Revenues.................................................... $4,114.9 $3,092.7 $2,596.2 Revenues as a percentage of Hughes Revenues................. 25.9% 20.9% 18.4% Net Sales................................................... $3,992.2 $3,075.8 $2,633.8 Operating Profit(1)......................................... 259.8 189.2 271.0 Operating Profit Margin(2).................................. 6.5% 6.2% 10.3% Identifiable Assets at Year-End............................. $4,406.7 $3,820.0 $3,217.8 Depreciation and Amortization............................... 194.8 178.3 140.8 Capital Expenditures(3)..................................... 449.8 436.5 399.3 AUTOMOTIVE ELECTRONICS Revenues.................................................... $5,350.8 $5,561.3 $5,221.7 Revenues as a percentage of Hughes Revenues................. 33.6% 37.6% 37.0% Net Sales................................................... $5,311.3 $5,479.7 $5,170.6 Operating Profit(1)......................................... 654.0 869.0 794.8 Operating Profit Margin(2).................................. 12.3% 15.9% 15.4% Identifiable Assets at Year-End............................. $3,394.9 $3,267.4 $3,429.8 Depreciation and Amortization............................... 195.9 151.4 142.2 Capital Expenditures........................................ 196.0 264.7 166.4 AEROSPACE AND DEFENSE SYSTEMS Revenues.................................................... $6,338.4 $5,945.4 $6,023.6 Revenues as a percentage of Hughes Revenues................. 39.8% 40.2% 42.7% Net Sales................................................... $6,331.5 $5,899.7 $6,007.3 Operating Profit(1)......................................... 694.7 688.0 663.6 Operating Profit Margin(2).................................. 11.0% 11.7% 11.0% Identifiable Assets at Year-End............................. $5,296.9 $5,369.7 $4,262.4 Depreciation and Amortization............................... 157.6 132.0 158.5 Capital Expenditures........................................ 171.1 109.8 159.5 CORPORATE AND OTHER Operating Loss(1)........................................... $ (14.2) $ (78.9) $ (99.0) Identifiable Assets at Year-End............................. 658.1 671.5 935.2
- ------------------------- * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. Certain amounts for 1995 have been reclassified to conform with 1996 classifications. (1) Net Sales less Total Costs and Expenses other than Interest Expense. (2) Operating Profit as a percentage of Net Sales. (3) Includes expenditures related to telecommunications and other equipment amounting to $187.9 million, $274.6 million, and $255.8 million, respectively. IV-56 126 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* -- CONCLUDED PRO FORMA SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ---------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Operating profit (loss)................. $1,594 $1,667 $1,630 $1,460 $ (194) Income (Loss) before income taxes and cumulative effect of accounting changes............................... $1,757 $1,753 $1,652 $1,494 $ (127) Earnings (Loss) used for computation of available separate consolidated net income (loss)**....................... $1,151 $1,108 $1,049 $ 922 $ (922) Average number of GM Class H dividend base shares (1)....................... 399.9 399.9 399.9 399.9 399.9 Stockholder's equity**.................. $6,456 $5,680 $4,971 $4,199 $3,562 Dividends per share of GM Class H common stock................................. $ 0.96 $ 0.92 $ 0.80 $ 0.72 $ 0.72 Working capital......................... $2,879 $2,502 $2,696 $2,165 $1,692 Operating profit (loss) as a percent of net sales............................. 10.1% 11.3% 11.6% 10.9% (1.6)% Pre-tax income (loss) as a percent of net sales............................. 11.2% 11.9% 11.8% 11.1% (1.0)% Net income (loss) as a percent of net sales**............................... 7.3% 7.5% 7.5% 6.9% (7.6)% Return on equity**(2)................... 19.0% 20.8% 22.9% 23.7% (21.9)% Income (Loss) before interest and taxes as a percent of capitalization (3).... 27.0% 29.8% 32.9% 33.1% (1.3)% Pre-tax return on total assets (4)...... 13.1% 14.0% 14.5% 13.6% (1.2)%
- ------------------------- * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. ** Includes unfavorable cumulative effect of accounting changes of $30.4 million in 1994 and $872.1 million in 1992. (1) Class H dividend base shares is used in calculating earnings attributable to GM Class H common stock on a per share basis. This is not the same as the average number of GM Class H shares outstanding, which was 98.4 million in 1996. (2) Earnings (Loss) used for Computation of Available Separate Consolidated Net Income (Loss) divided by average stockholder's equity (General Motors' equity in its wholly-owned subsidiary, Hughes). Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). (3) Income (Loss) before interest and income taxes divided by average stockholder's equity plus average total debt. (4) Income (Loss) before Income Taxes divided by average Total Assets. ******* IV-57 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS
YEAR ENDED DECEMBER 31, 1996 --------------------------------- $1 2/3 PAR VALUE CLASS E CLASS H COMMON COMMON COMMON STOCK STOCK STOCK --------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Income from continuing operations....... $4,670 $ -- $ 283 Income (loss) from discontinued operations............................ (5) 15 -- ------ ------ ----- Net income............................ 4,665 15 283 Dividends on preference stocks.......... 81 -- -- ------ ------ ----- Earnings on common stocks............. 4,584 15 283 Dividends on common stocks.............. 1,209 145 94 ------ ------ ----- Net earnings retained (loss accumulated)....................... $3,375 $(130) $ 189 ====== ====== ===== Memo: Net earnings retained from continuing operations............................ $3,380 $ -- $ 189 ====== ====== ===== Loss accumulated from discontinued operations............................ $ (5) $(130) $ -- ====== ====== ===== Weighted average shares outstanding (in millions)............................. 756 470 98 ===== ==== === Per Share Data Net earnings retained per share from continuing operations................. $ 4.47 $ -- $1.92 Loss accumulated per share from discontinued operations............... (0.01) (0.26) -- Cash dividends per share................ 1.60 0.30 0.96 ------ ------ ----- Net earnings per share................ $ 6.06 $0.04 $2.88 ====== ====== =====
- ------------------------- Note: The difference between fully diluted and primary earnings per share is immaterial. IV-7 2 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS -- CONTINUED
YEAR ENDED DECEMBER 31, 1995 --------------------------------- $1 2/3 PAR VALUE CLASS E CLASS H COMMON COMMON COMMON STOCK STOCK STOCK --------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Income from continuing operations before cumulative effect of accounting change...................................... $5,768 $ -- $ 265 Income from discontinued operations......................... 105 795 -- Cumulative effect of accounting change...................... (52) -- -- ------ ----- ----- Net income................................................ 5,821 795 265 Preference shares tender offer premium...................... 153 -- -- Dividends on preference stocks.............................. 211 -- -- ------ ----- ----- Earnings on common stocks................................. 5,457 795 265 Dividends on common stocks.................................. 824 205 88 ------ ----- ----- Net earnings retained..................................... $4,633 $ 590 $ 177 ====== ===== ===== Memo: Net earnings retained from continuing operations............ $4,528 $ -- $ 177 ====== ===== ===== Income retained from discontinued operations................ $ 105 $ 590 $ -- ====== ===== ===== Weighted average shares outstanding (in millions)........... 750 405 96 ===== ==== === Per Share Data Net earnings retained per share from continuing operations before cumulative effect of accounting change............. $ 6.04 $ -- $1.85 Income retained per share from discontinued operations...... 0.14 1.44 -- Cumulative effect of accounting change...................... (0.07) -- -- Cash dividends per share.................................... 1.10 0.52 0.92 ------ ----- ----- Net earnings per share.................................... $ 7.21 $1.96 $2.77 ====== ===== =====
- ------------------------- Note: The difference between fully diluted and primary earnings per share is immaterial. IV-8 3 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS -- CONCLUDED
YEAR ENDED DECEMBER 31, 1994 --------------------------------- $1 2/3 PAR VALUE CLASS E CLASS H COMMON COMMON COMMON STOCK STOCK STOCK --------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Income from continuing operations before cumulative effect of accounting change...................................... $4,617 $ -- $ 249 Income from discontinued operations......................... 349 444 -- Cumulative effect of accounting change...................... (751) -- (7) ------ ----- ------ Net income................................................ 4,215 444 242 Dividends on preference stocks.............................. 321 -- -- ------ ----- ------ Earnings on common stocks................................. 3,894 444 242 Dividends on common stocks.................................. 593 125 74 ------ ----- ------ Net earnings retained..................................... $3,301 $ 319 $ 168 ====== ===== ====== Memo: Net earnings retained from continuing operations............ $2,952 $ -- $ 168 ====== ===== ====== Income retained from discontinued operations................ $ 349 $ 319 $ -- ====== ===== ====== Weighted average shares outstanding (in millions)........... 741 260 92 ===== ==== === Per Share Data Net earnings retained per share from continuing operations before cumulative effect of accounting change............. $ 4.94 $ -- $ 1.90 Income retained per share from discontinued operations...... 0.46 1.23 -- Cumulative effect of accounting change...................... (1.05) -- (0.08) Cash dividends per share.................................... 0.80 0.48 0.80 ------ ----- ------ Net earnings per share.................................... $ 5.15 $1.71 $ 2.62 ====== ===== ======
- ------------------------- Note: The difference between fully diluted and primary earnings per share is immaterial. IV-9 EX-12 3 EXHIBIT-12 1 EXHIBIT 12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31, --------------------------------- 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) Income from continuing operations before cumulative effect of accounting changes..................................... $ 4,953 $ 6,033 $ 4,866 U.S., foreign, and other income taxes....................... 1,723 2,316 2,232 Equity in income of associates.............................. (107) (216) (48) Cash dividends received from associates..................... 48 16 10 Amortization of capitalized interest........................ 54 51 50 ------- ------- ------- Income for continuing operations before cumulative effect of accounting changes, income taxes, undistributed income of associates, and amortization of capitalized interest...... 6,671 8,200 7,110 ------- ------- ------- Fixed charges included in income from continuing operations Interest and related charges on debt...................... 5,673 5,557 4,984 Portion of rentals deemed to be interest.................. 287 256 288 ------- ------- ------- Total fixed charges included in income from continuing operations........................................... 5,960 5,813.. 5,272 ------- ------- ------- Earnings available for fixed charges........................ $12,641 $14,013 $12,382 ======= ======= ======= Fixed charges Fixed charges included in income from continuing operations............................................. $ 5,960 $ 5,813 $ 5,272 Interest capitalized in the period........................ 49 50 33 ------- ------- ------- Total fixed charges.................................... $ 6,010 $5,863.. $ 5,305 ======= ======= ======= Ratios of earnings to fixed charges......................... 2.10 2.39 2.33
IV-10 EX-21 4 EXHIBIT-21 1 EXHIBIT 21 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1996 Subsidiary companies of the Registrant are listed below. With respect to the companies named, all voting securities are owned directly or indirectly by the Registrant, except where otherwise indicated.
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION ------------------ ---------------- Subsidiaries included in the Registrant's consolidated financial statements AC Battery Corporation...................................... Michigan Adam Opel Aktiengesellschaft................................ Germany Asset Leasing GmbH (95% owned by subsidiary).............. Germany Autohaus am Nordring GmbH, Berlin......................... Germany Carus Grundstucks-Vermietungsgesellschaft mbH & Co. Object Kuno 65 KG (94% owned by subsidiary)............ Germany Carus Grundstucks-Vermietungsgesellschaft mbH & Co. Object Leo 40 KG (94% owned by subsidiary)............. Germany GM Europe GmbH (100% owned by subsidiary)................. Germany General Motors GmbH & Co. OHG (99% owned by subsidiary)... Germany Opel-Automobilwerk Eisenach-PKW GmbH (80% owned by subsidiary)............................................ Germany Opel China GmbH........................................... France Opel Eisenach GmbH........................................ Germany Opel Hungary Automobile Production Ltd.................... Hungary Opel Polska Sp. z oo...................................... Poland Opel Turkiye Limited Sirketi (99.5% owned by subsidiary and 0.5% owned by General Motors Overseas Corporation)........................................... Turkey Saginaw Deutschland GmbH.................................. Germany Arabian Battery Holding Company............................. Delaware Arabian Financing Company................................... Delaware Argonaut Holdings, Inc. .................................... Delaware Auto Cable Industries (Pty) Limited (51% owned by General Motors Corporation)....................................... South Africa Auto Lease Payment Corporation.............................. Cayman Islands North American New Cars, Inc.............................. Delaware Automotive Battery Manufacturing, Inc. ..................... Delaware Battery Technology Services, Inc. .......................... Delaware Chevrolet Sociedad Anonima de Ahorro para Fines Determinados.............................................. Argentina Convesco Vehicle Sales GmbH (60% owned by General Motors Corporation).............................................. Federal Republic of Germany Controladora General Motors, S.A. de C.V. .................. Mexico Centro Tecnico Herramental, S.A. de C.V. (80% owned by subsidiary)............................................ Mexico Componentes Para Automotores, S.A. de C.V. ............... Mexico Delphi Alambrados Automotrices, S.A. de C.V. .......... Mexico Delphi Cableados, S.A. de C.V. ........................ Mexico Delphi Componentes Mecanicos de Matamoros, S.A. de C.V. ................................................. Mexico Delphi Ensamble de Cables y Componentes, S.A. de C.V. ................................................. Mexico Productos Delco de Chihuahua, S.A. de C.V. ............ Mexico Sistemas Electricos y Conmutadores, S.A. de C.V. ...... Mexico General Motors de Mexico, S.A. de C.V. ................... Mexico
IV-11 2
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION ------------------ ---------------- Sistemas Para Automotores de Mexico, S.A. de C.V. ........ Mexico Delphi Automotive Systems, S.A. de C.V. ............... Mexico Delphi Automotive Systems do Brasil Ltda. .................. Brazil Delphi Automotive Systems, Inc. ............................ Delaware Packard Electric Hebi Co., Limited (60% owned by subsidiary)............................................ China Delphi Automotive Systems China, Inc. ...................... Delaware Delphi Packard Electric (Guangzhou) Company, Ltd. ........ China Packard Electric Bai Cheng Co., Limited (58% owned by subsidiary)............................................ China Shanghai Delco International Battery Company, Ltd. ....... China Delphi Automotive Systems Deutschland GmbH.................. Germany Delphi Packard Deutschland GmbH (18.5% owned by subsidiary and 81.5% by General Motors Corporation)............... Germany Reinshagen GmbH........................................... Germany Unterstuetzungsgesellschaft der Kabelwerke Reinshagen GmbH................................................... West Germany Delphi Automotive Systems Overseas Corporation.............. Delaware Delphi Automotive Systems Poland Sp. zo.o. ................. Poland Delphi Automotive Systems Singapore PTE LTD................. Singapore Delphi Calsonic Compressors, S.A.S. ........................ France Delphi Energy and Engine Management Systems (M) Sdn Bhd..... Malaysia Delphi France Automotive Systems (50.4% owned by General Motors Corporation and 49.6% owned by Adam Opel Aktiengesellschaft)....................................... France Delphi Italia Automotive Systems S.r.1. (99% owned by subsidiary and 1% owned by Opel France S.A.).......... Italy Delphi Italia Service Center S.r.1. (98% owned by subsidiary and 2% owned by Opel France S.A.).......... Italy DRB s.a./n.v. (51% owned by subsidiary)................ France Diavia S.r.1. (owned by subsidiary).................... Italy Aura Srl (owned by subsidiary)....................... Italy Opel France S.A.(99% owned by subsidiary).............. France Texton S.A. ........................................... France ENCI S.A.R.L. (99.8% owned by subsidiary)............ France Texton P.L.C. (97.5% owned by subsidiary)............ United Kingdom Delphi Harrison -- Calsonic (84% owned by General Motors Corporation............................................... France Delphi L'EM Argentina S.A. (51% owned by General Motors Corporation and 49% owned by L'Equipe Monteur)............ Argentina Delphi Packard Austria Ges. m.b.H. ......................... Austria Packard Electric Vas kft (owned by subsidiary)............ Hungary Reinshagen Tournai S.A. (99% owned by subsidiary and 1% owned by Delphi Packard Austria Ges. m.b.H.)........... Belgium Delphi Packard Electric Sielin Argentina S.A. .............. Argentina Delphi Packard Electric Systems (M) Sdn Bhd................. Malaysia Delphi Packard Romania S.r.1. .............................. Romania Delphi Rimir, S.A. de C.V. ................................. Mexico Delphi Steering (Malaysia) Sdn Bhd.......................... Malaysia Delphi Unicables, S.A. ..................................... Spain Delphi Asientos, S.A. .................................... Spain Delphi Cetasa, S.L. ...................................... Spain Delphi Cisa S.A. ......................................... Spain Delphi Colvegasa, S.A. ................................... Spain Electro-Motive Maintenance Operations Pty Ltd............... Australia
IV-12 3
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION ------------------ ---------------- Exhaust Systems Corporation................................. Delaware GM Allison Japan Limited.................................... Japan GM Auto Receivables Co. .................................... Delaware GMC Truck Motors Development Corporation.................... Delaware GM-DI Leasing Corporation................................... Delaware GMLG Ltd. .................................................. Delaware MLS USA, Inc. ............................................ Delaware GM Ovonic L.L.C. (60% owned by General Motors Corporation).............................................. Michigan General Motors Acceptance Corporation....................... New York Banque Opel (98% owned by subsidiary)..................... France Capital Auto Receivables, Inc. ........................... Delaware General Acceptance (Thailand) Ltd.* (75% owned by General Motors Acceptance Corporation and 25% owned by Phra Nakorn Automobile Ltd.)................................ Thailand GMAC, Australia (Finance) Limited........................... Australia GMAC Comercial Automotriz Chile S.A. ....................... Chile GMAC Commercial Corporation................................. Delaware GMAC del Ecuador S.A........................................ Ecuador GMAC Holding S.A. de C.V. (99.95% owned by subsidiary and .05% owned by various GMAC subsidiaries).................. Mexico GMAC Arrendadora S.A. de C. V. ........................... Mexico General Motors Acceptance Corporation, S.A. de C.V. ...... Mexico Servicios GMAC S.A. de C.V. .............................. Mexico GMAC International Finance, B.V. (80% owned by GMAC and 20% owned by GMAC Commercial Corporation)..................... Netherlands GMAC Italia Leasing S.p.A. ................................. Italy GMAC Leasing Corporation.................................... Delaware Patlan Corporation........................................ Delaware GMAC Mortgage Group, Inc.................................... Michigan GMAC Commercial Mortgage Corporation...................... California GMAC Mortgage Corporation................................. Pennsylvania GMAC Mortgage Holdings, Inc. ............................. Delaware GMAC Mortgage Securities II, Inc. ........................ Michigan GMAC RF, INC. ............................................ Michigan Residential Money Centers, Inc. .......................... Delaware Risk Monitors, Inc. ...................................... Pennsylvania GMAC Sverige AB............................................. Sweden General Motors Acceptance Corporation, Australia............ Delaware Holden National Leasing Limited (74.9% owned by subsidiary)............................................ Australia General Motors Acceptance Corporation of Canada, Limited.... Canada Canadian Securitized Auto Receivables Corporation......... Canada GMAC Leaseco Limited...................................... Canada General Motors Acceptance Corporation, Colombia S.A. ....... Delaware General Motors Acceptance Corporation, Continental.......... Delaware GM Finance HB (90.5% owned by subsidiary)................. Sweden General Motors Acceptance Corporation Hungary Financial Services Limited Liability Company (90% owned by GMAC and 10% owned by Opel Hungary Rt)............................. Hungary General Motors Acceptance Corporation International......... Delaware
- --------------- * Joint Venture Partnership IV-13 4
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION ------------------ ---------------- General Motors Acceptance Corporation Italia S.p.A. ........ Italy General Motors Acceptance Corporation Nederland N.V. ....... Netherlands GMAC Espana, S.A. de Financiacion......................... Spain General Motors Acceptance Corporation, North America........ Delaware General Motors Acceptance Corporation (N.Z.) Limited........ New Zealand General Motors Acceptance Corporation de Portugal-Servicos Financeiros, S.A. (99% owned by subsidiary and 1% owned by General Motors Acceptance Corporation International)...... Portugal General Motors Acceptance Corporation, South America........ Delaware General Motors Acceptance Corporation del Ecuador S.A. GMAC-Management (Holding).............................. Ecuador General Motors Acceptance Corporation de Venezuela, C.A. .................................................. Venezuela General Motors Acceptance Corporation Suisse S.A. .......... Switzerland General Motors Austria Beteiligungsgesellschaft m.b.H. ..... Austria OPEL Leasinggesellschaft mbH (74% owned by subsidiary).... Austria Lease Auto Receivables, Inc. ............................... Delaware Motors Insurance Corporation................................ New York Cadmic Agency Corporation................................. Delaware Car Care Plan (Holdings) Limited (99.9% owned by subsidiary and 0.1% owned by GMOC Administrative Services Corporation).................................. England Car Care Plan (Securities Division) Limited (99.9% owned by Car Care Plan (Holdings) Limited and 0.1% owned by GMOC Administrative Services Corporation).... England CIM Insurance Corporation................................. New York GM Motor Club, Inc. ...................................... North Carolina MIC General Insurance Corporation......................... Michigan MIC Life Insurance Corporation............................ Delaware MIC Property and Casualty Insurance Corporation........... Michigan MIC Re Corp. ............................................. Delaware MIC Services Corporation.................................. Delaware Motors Insurance Company Limited.......................... England Motors Insurance Purchasing Group, Inc. .................. Michigan Motors Mechanical Reinsurance Company, Limited............ Barbados NAVCO Corp. .............................................. Missouri Trinity General Agency, Inc. ............................. Texas Opel Bank GmbH.............................................. Germany Opel Leasing GmbH & Co. OHG* (partnership between Opel Bank GmbH and Opel Leasing Verwaltungs GmbH)........... Germany Opel Leasing Verwaltungs GmbH (60% owned by Opel Bank GmbH, 20% owned by General Motors Acceptance Corporation, and 20% owned by Adam Opel Aktiengesellschaft).................................... Germany Opel Bank Hungary Rf...................................... Hungary Polbank, S.A. (68.02% owned by General Motors Acceptance Corporation)........................................... Poland P.T. GMAC Lippo Finance* (80% owned by General Motors Acceptance Corporation)................................ Indonesia Wholesale Auto Receivables Corporation.................... Delaware General Motors de Argentina S.A. (99% owned by General Motors Corporation)....................................... Argentina General Motors Asia, Inc. .................................. Delaware General Motors (Thailand) Ltd. ........................... Thailand General Motors Asian and Pacific Operations................. Singapore
IV-14 5
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION ------------------ ---------------- General Motors Automobiles Philippines, Inc. ............... Philippines General Motors do Brasil Ltda. ............................. Brazil Brazauto Trading (Cayman) Limited......................... Cayman Islands GM Factoring Sociedade de Fomento Comercial Ltda. ........ Brazil General Motors of Canada Limited............................ Canada General Motors Chile S.A., Industria Automotriz............. Chile General Motors China (Components), Inc. .................... Delaware Beijing Wanyuan GM Automotive Electronic Control Co., Ltd. (51% owned by subsidiary).............................. People's Republic of China Hubei Delphi Automotive Generator Co., Ltd. (51% owned by subsidiary)............................................ China Saginaw Norinco Lingyun Drive Shaft Co., Ltd. (60% owned by subsidiary)......................................... China Zhejiang Delphi Asia-Pacific Brake Co. Ltd. (60% owned by subsidiary)............................................ China General Motors China, Inc. ................................. Delaware General Motors Colmotores, S.A. (82.6% owned by General Motors Corporation)....................................... Colombia General Motors Commercial Corporation....................... Delaware General Motors del Ecuador S.A. ............................ Ecuador General Motors (Europe) AG.................................. Switzerland General Motors Export Corporation........................... Delaware General Motors Foreign Sales Corporation.................... U.S. Virgin Islands General Motors Holding Espana, S.A. (72.5% owned by General Motors Corporation and 26.1% owned by Adam Opel Aktiengesellschaft)....................................... Spain Delphi Automotive Systems Espana, S.A. ................ Spain Delphi Componentes, S.A. .............................. Spain Opel Espana de Automoviles, S.A........................ Spain General Motors Holdings (U.K.).............................. England General International (UK) Limited (50% owned by subsidiary and 50% owned by GMOC Administrative Services Corporation).................................. England General Motors Acceptance Corporation (U.K.) Public Limited Company........................................ England General Motors Acceptance Corporation (U.K.) Finance plc................................................... England GMAC Leasing (U.K.) Limited............................ England GMAC Leasing (U.K.) (No. 1) Limited.................... England GMAC Leasing (U.K.) (No. 2) Limited.................... England GMAC Leasing (U.K.) (No. 3) Limited.................... England General Motors Locomotive Group India Private Limited..... India IBC Vehicles Limited (81.92% owned by subsidiary)......... United Kingdom Millbrook Land and Co. Ltd. .............................. England Millbrook Pension Management Ltd. (99% owned by subsidiary)............................................ England Millbrook Proving Ground Ltd. ............................ England VHC Sub-Holdings (UK) Ltd. ............................... England Vauxhall Motors (Finance) Plc.......................... England Vauxhall Motors Limited................................ England General Motors Indonesia, Inc. ............................. Delaware General Motors Interamerica Corporation..................... Delaware General Motors International Operations, Inc. .............. Delaware General Motors Investment Management Corporation............ Delaware General Motors Japan Ltd. .................................. Japan General Motors Korea, Inc. ................................. Delaware
IV-15 6
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION ------------------ ---------------- General Motors Market Development of Canada Limited......... Canada General Motors Nederland B.V. .............................. Netherlands Allison Transmission Europe B.V. ......................... Netherlands General Motors Poland Spolka, zo.o. ...................... Poland General Motors Yugoslavia, d.o.o. ........................ Yugoslavia Opel C&S spol. s.r.o. .................................... Czechoslovakia Opel Nederland B.V. ...................................... Netherlands General Motors Nordiska AB.................................. Sweden General Motors Overseas Corporation......................... Delaware Delphi Automotive Systems Australia Ltd. ................. Australia Delphi Energy and Engine Management Systems UK Overseas Corporation............................................ Delaware Delphi Overseas Corporation............................... Delaware Delphi Chassis Systems UK Limited...................... England/Wales Delphi Saginaw Steering Systems U.K. Limited........... England G.M. Holding (Portugal) SGPS, Lda. (50% owned by subsidiary and 50% owned by General Motors Corporation)........................................... Portugal Delphi Packard Sistemas Electricos, S.A. ............ Portugal INLAN -- Industria de Componentes Mecanicos, S.A. ... Portugal Opel Portugal, Lda. ................................. Portugal GMOC Administrative Services Corporation.................. Delaware Fisher Body Limited (50% owned by subsidiary and 50% owned by GM (UK) Pension Trustees Limited)............ Ireland GM (UK) Pension Trustees Limited (50% owned by subsidiary and 50% owned by Vauxhall Motors Limited).............................................. United Kingdom GMOC Australia Pty. Ltd. ................................. Australia General Motors-Holden's Automotive Limited (49% owned by subsidiary and 51% owned by United Australian Automotive Industries Limited)......................... Australia General Motors Overseas Commercial Vehicle Corporation.... Delaware General Motors Venezolana, C.A. .......................... Venezuela Holden's Motor Overseas Corporation Limited............... Delaware Lidlington Engineering Company, Ltd. ..................... Delaware Truck and Bus Engineering U.K., Limited................... Delaware General Motors Overseas Distribution Corporation............ Delaware Delphi Automotive Systems Luxembourg S.A. ................ Luxembourg Delphi Packard Elektrik Sistemleri Ltd. Sti. (97.6% owned by subsidiary and 2.4% owned by General Motors Overseas Corporation)........................................... Turkey GMODC Finance N.V. ....................................... Netherlands Antilles General Motors Import & Distribution GmbH................. Germany General Motors Investment Services Company N.V. .......... Belgium General Motors Peru S.A. ................................... Peru General Motors Receivables Corporation...................... Delaware General Motors Uruguay, S.A. ............................... Uruguay General Motors U.S. Trading Corp. .......................... Nevada Grand Pointe Holdings, Inc. ................................ Michigan Holden New Zealand Limited.................................. New Zealand General Motors New Zealand Pensions Limited............... New Zealand Hughes Electronics Corporation.............................. Delaware Delco Electronics Corporation............................. Delaware Delco Electronics Asia/Pacific Pte Ltd. ............... Singapore
IV-16 7
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION ------------------ ---------------- Delco Electronics Overseas Corporation................. Delaware Delco Electronics Service Corporation.................. Delaware Delco Electronics Singapore Pte. Ltd. ................. Singapore Delco Electronics (Suzhou) Co., Ltd. .................. China Delnosa, S.A. de C.V. ................................. Mexico Deltronicos de Matamoros, S.A. de C.V. ................ Mexico f&g megamos Sicherheitselektronik GmbH................. Germany FUBA Automotive LLC.................................... Michigan Mecel AB............................................... Sweden DIRECTV Global, Inc. ..................................... Delaware H E Microwave Corporation................................. Delaware HE Holdings, Inc. (dba Hughes Electronics)................ Delaware Advanced Electronics Systems International............. California DIRECTV Enterprises, Inc. (97.5% owned by subsidiary)........................................... Delaware Hughes Aircraft Company................................ Delaware Hughes Aircraft of Canada Limited...................... Canada Hughes Aircraft Holdings Canada Ltd. .................. Canada Hughes Aircraft Systems International.................. California Hughes Australia International PTY Ltd. ............... Australia Hughes-Avicom International, Inc. ..................... California Hughes Electronics Manufacturing Service Company....... Delaware Hughes Espana S.A. .................................... Spain Hughes Europe N.V. .................................... Belgium Hughes Foreign Sales Corporation....................... U.S. Virgin Islands Hughes International Corporation....................... Delaware Hughes International de Mexico, S.A. de C.V. .......... Mexico Hughes International Sales Corporation................. California Hughes International Sales Corporation No. 2........... California Hughes Investment Management Company................... California Hughes Microelectronics Limited........................ United Kingdom Hughes Middle East Limited............................. Delaware Hughes Network Systems, Inc. .......................... Delaware Hughes Power Products, Inc. (60% owned by subsidiary and 40% owned by General Motors Corporation).......... Delaware Hughes Research Laboratories, Inc. .................... Delaware Hughes Systems Management International................ California Hughes Telecommunications & Space Company.............. Delaware Hughes (U.K.) Limited.................................. England International Electronics Systems, Inc. ............... California L-T Ranches, Inc. ..................................... California MDP, Ltd. ............................................. California Systems Building Corp. ................................ Arizona Hughes Electronics International, Inc. ................... Delaware Hughes Electronics Holding GmbH........................ Germany Hughes International GmbH.............................. Germany Hughes Electronics Realty, Inc. .......................... Delaware IBC Vehicles (Distribution) Limited (60% owned by General Motors Corporation).............................................. United Kingdom
IV-17 8
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION ------------------ ---------------- Luton Design Centre Limited (owned by GMOC Administrative Services Corporation)..................................... United Kingdom MB Cable Confection Sdn Bhd................................. Malaysia Opel Austria GmbH........................................... Austria Delphi Automotive Systems Vienna GmbH..................... Austria Opel Hungary Automotive Distribution Ltd. ................ Hungary Opel Hungary Automotive Manufacturing Ltd. ............... Hungary Opel Belgium N.V. .......................................... Belgium OPEL Guangzhou Precision Machining Co. Ltd. ................ China Opel Ireland Limited........................................ Ireland Opel Italia S.p.A. (99.9% owned by General Motors Corporation and 0.1% owned by General Motors Overseas Distribution Corporation)................................. Italy Opel Norge AS............................................... Norway Opel Oy..................................................... Finland Opel Suisse S.A. ........................................... Switzerland GM-Saab Communication GmbH (55% owned by subsidiary)...... Switzerland Packard CTA Pty. Ltd. (60% owned by General Motors Corporation).............................................. Australia Packard Electric Ireland Limited............................ Ireland Packard Hughes Interconnect Company......................... Delaware Packard Hughes Interconnect Connection Systems............ California Packard Hughes Interconnect Engineering Services.......... Delaware Packard Hughes Interconnect Wiring Systems................ California Packard Electric Systems Samara Cable Company (51% owned by General Motors Corporation)............................... Russia Provencorp S.A.............................................. Argentina PT General Motors Buana Indonesia (60% owned by General Motors Corporation)....................................... Indonesia P.T. Packard Kabelindo Murni Indonesia (60% owned by General Motors Corporation)....................................... Indonesia Radiadores Richard, S.A. (60% owned by General Motors Corporation).............................................. Argentina Riverfront Holdings, Inc. .................................. Delaware Saab Opel Sverige AB........................................ Sweden Saturn Corporation.......................................... Delaware Saturn Distribution Corporation........................... Delaware Saturn County Bond Corporation.............................. Delaware
131 directly or indirectly owned subsidiaries Companies not included in the Registrant's consolidated financial statements, for which no financial statements are submitted: 14 other directly or indirectly owned domestic and foreign subsidiaries 11 active subsidiaries 3 inactive subsidiaries 39 fifty-percent owned companies and 66 less than fifty-percent owned companies the investments in which are accounted for by the equity method. IV-18 9 In addition, the Registrant owns 100% of the voting control of the following companies: 345 dealerships operating under dealership assistance plans and engaged in retail distribution of General Motors products 237 dealerships operating in the United States 108 dealerships operating in foreign countries Companies not shown by name, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. During 1996, there were changes in the number of subsidiaries and companies of the Registrant, as follows: 3 directly and 22 indirectly owned domestic subsidiaries, and 16 directly and 33 indirectly owned foreign subsidiaries were organized or acquired. 3 directly and 69 indirectly owned domestic subsidiaries, and 1 direct and 218 indirectly owned foreign subsidiaries were dissolved or sold. A fifty-percent interest and less than fifty-percent interests were acquired in 6 companies and 6 companies, while interests in 5 fifty-percent owned and 45 less than fifty-percent owned companies were terminated. 1 indirectly fifty-percent owned foreign subsidiary moved to greater than fifty-percent owned. 1 indirectly owned foreign subsidiary moved to fifty-percent owned. 1 indirectly owned less than fifty-percent foreign subsidiary moved to fifty-percent owned. 1 indirectly owned less than fifty-percent domestic subsidiary moved to greater than fifty-percent owned. 1 inactive domestic subsidiary was dissolved. The number of dealerships operating under dealership assistance plans decreased by a net of 28. ******* IV-19 EX-23 5 EXHIBIT-23 1 EXHIBIT 23 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSENT OF INDEPENDENT AUDITORS The Board of Directors General Motors Corporation: We consent to the incorporation by reference of our reports dated January 28, 1997 appearing in this Annual Report on Form 10-K of General Motors Corporation for the year ended December 31, 1996, in the following Registration Statements:
REGISTRATION FORM STATEMENT NO. DESCRIPTION - ---- ------------- ----------- S-3 33-41557 General Motors Corporation Debt Securities S-3 33-64229 General Motors Corporation Debt Securities S-3 333-13797 General Motors Corporation Debt Securities S-3 33-47343 (Post- General Motors Corporation $1 2/3 Par Value Common Stock Effective Amendment No. 1) S-3 33-49035 General Motors Corporation $1 2/3 Par Value Common Stock (Amendment No. 1) S-3 33-56671 General Motors Corporation $1 2/3 Par Value Common Stock (Amendment No. 1) S-3 33-49309 General Motors Corporation Dividend Reinvestment Plan S-8 333-17975 The General Motors Personal Savings Plan for Hourly-Rate Employees in the United States S-8 33-54841 General Motors Amended 1987 Stock Incentive Plan S-8 333-17923 General Motors Savings-Stock Purchase Program for Salaried Employees in the United States S-8 33-32322 Hughes Aircraft Company Salaried Employees' Thrift and Savings Plan Hughes Aircraft Company Tucson Bargaining Employees' Thrift and Savings Plan Hughes Aircraft Company California Hourly Employees' Thrift and Savings Plan Hughes Thrift and Savings Plan S-8 33-54835 The GMAC Mortgage Corporation Savings Incentive Plan S-8 333-22955 Hughes Electronics Corporation Incentive Plan S-8 333-21029 Saturn Individual Savings Plan for Represented Members S-8 333-17937 Saturn Personal Choices Savings Plan for Non-Represented Members S-8 33-28714 Marketing & Systems Development Corporation 1985 Incentive Stock Option Plan
/s/ DELOITTE & TOUCHE LLP - --------------------------------------- DELOITTE & TOUCHE LLP Detroit, Michigan March 19, 1997 IV-20 EX-27 6 EXHIBIT-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GENERAL MOTORS CORPORATION DECEMBER 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO 1996 FORM 10-K. 0000040730 GENERAL MOTORS CORPORATION 1,000,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 14,063 8,199 64,107 0 11,895 0 78,802 41,298 222,142 0 85,300 0 1 1,271 22,146 222,142 145,341 164,069 123,922 135,603 159 669 5,695 6,676 1,723 4,953 10 0 0 4,963 6.06 0
EX-99 7 EXHIBIT-99 1 EXHIBIT 99 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS The following consolidated financial statements of Hughes Electronics 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 a system of internal accounting controls that is designed to provide reasonable assurance that the books and records reflect the transactions of the companies and that its established policies and procedures are carefully followed. Perhaps the most important feature in the system of control is that it is continually reviewed for its effectiveness and is augmented by written policies and guidelines, the careful selection and training of qualified personnel, and a strong program of internal audit. Deloitte & Touche LLP, an independent auditing firm, is engaged to audit the consolidated financial statements of Hughes Electronics Corporation and subsidiaries and issue reports thereon. The audit is conducted in accordance with generally accepted auditing standards which comprehend the consideration of internal accounting controls and tests of transactions to the extent necessary to form an independent opinion on the financial statements prepared by management. The Independent Auditors' Report appears on the next page. The Board of Directors, through its Audit Committee, is responsible for assuring that management fulfills its responsibilities in the preparation of the consolidated financial statements and engaging the independent auditors. The Committee reviews the scope of the audits and the accounting principles being applied in financial reporting. The independent auditors, representatives of management, and the internal auditors meet regularly (separately and jointly) with the Committee to review the activities of each, to ensure that each is properly discharging its responsibilities, and to assess the effectiveness of the system of internal accounting controls. It is management's conclusion that the system of internal accounting controls at December 31, 1996 provides reasonable assurance that the books and records reflect the transactions of the companies and that its established policies and procedures are complied with. To ensure complete independence, Deloitte & Touche LLP has full and free access to meet with the Committee, without management representatives present, to discuss the results of the audit, the adequacy of internal accounting controls, and the quality of the financial reporting. /s/ C. MICHAEL ARMSTRONG /s/ CHARLES H. NOSKI /s/ ROXANNE S. AUSTIN - --------------------------------- -------------------------- --------------------------- C. Michael Armstrong Charles H. Noski Roxanne S. Austin Chairman of the Board and Vice Chairman and Senior Vice President, Chief Executive Officer Chief Financial Officer Treasurer and Controller
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