Unknown;Steven R. Mark;
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 38-0572515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Renaissance Center, Detroit, Michigan 48243-7301
3044 West Grand Boulevard, Detroit, Michigan 48202-3091
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
As of September 30, 1997, 707,269,900 shares of the issuer's $1-2/3 par
value common stock and 102,459,164 shares of Class H $0.10 par value common
stock were outstanding.
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<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1997 and 1996 3
Consolidated Balance Sheets as of September 30, 1997,
December 31, 1996 and September 30, 1996 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II - Other Information (Unaudited)
Item 1. Legal Proceedings 26
Item 6. Exhibits and Reports on Form 8-K 27
Signature 28
Exhibit 11 Computation of Earnings Per Share Attributable to
Common Stocks for the Three and Nine Months Ended
September 30, 1997 and 1996 29
Exhibit 99 Hughes Electronics Corporation and Subsidiaries
Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and
Results of Operations 33
Exhibit 27 Financial Data Schedule (for SEC information only)
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<PAGE>
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------ ------ -------
(Dollars in Millions Except PerShare Amounts)
Net sales and revenues
Manufactured products $37,103 $34,590 $114,267 $109,416
Financial services 3,162 3,179 9,563 9,483
Other income (Note 4) 1,625 1,309 5,447 4,201
------ ------ ------- -------
Total net sales and revenues 41,890 39,078 129,277 123,100
------ ------ ------- -------
Costs and expenses
Cost of sales and other operating
charges, exclusive of items listed
below 31,484 29,624 95,522 92,871
Selling, general, and administrative
expenses 3,884 3,632 11,459 10,280
Depreciation and amortization expenses 3,030 2,927 9,196 8,917
Interest expense 1,508 1,423 4,469 4,258
Plant closing expense (adjustment) - (409) 80 (409)
Other deductions (Note 4) 388 383 956 1,249
------ ------ ------- -------
Total costs and expenses 40,294 37,580 121,682 117,166
------ ------ ------- -------
Income from continuing operations
before income taxes and minority
interests 1,596 1,498 7,595 5,934
Income taxes 533 258 2,675 1,788
Minority interests 4 31 41 21
------ ------ ------- ------
Income from continuing operations 1,067 1,271 4,961 4,167
Income from discontinued operations
(Note 3) - - - 10
------ ------ ------- ------
Net income 1,067 1,271 4,961 4,177
Premium on exchange of preference
stocks (Note 11) 26 - 26 -
Dividends on preference stocks 16 21 56 61
------ ------ ------- ------
Earnings on common stocks $1,025 $1,250 $4,879 $4,116
===== ===== ===== =====
Earnings attributable to common
stocks (Note 10)
$1-2/3 par value from continuing
operations $964 $1,188 $4,622 $3,892
Loss from discontinued operations - - - (5)
---- ----- ----- -----
Net earnings attributable to
$1-2/3 par value $964 $1,188 $4,622 $3,887
=== ===== ===== =====
Income from discontinued operations
attributable to Class E $ - $ - $ - $15
==== ==== ===== ==
Net earnings attributable to Class H $61 $62 $257 $214
== == === ===
Average number of shares of common
stocks outstanding (in millions)
$1-2/3 par value 713 756 728 756
Class E - - - 470
Class H 102 99 101 98
Earnings per share attributable to
common stocks (Note 10)
$1-2/3 par value from continuing
operations $1.35 $1.57 $6.35 $5.15
Loss from discontinued operations - - - (0.01)
---- ---- ---- ----
Net earnings attributable to
$1-2/3 par value $1.35 $1.57 $6.35 $5.14
==== ==== ==== ====
Income from discontinued operations
attributable to Class E $ - $ - $ - $0.04
==== ==== ==== ====
Net earnings attributable to Class H $0.60 $0.63 $2.54 $2.18
==== ==== ==== ====
Cash dividends per share of common
stocks
$1-2/3 par value $0.50 $0.40 $1.50 $1.20
Class E $ - $ - $ - $0.30
Class H $0.25 $0.24 $0.75 $0.72
Reference should be made to the notes to consolidated financial statements.
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<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Sept. 30, Sept. 30,
1997 Dec. 31, 1996
(Unaudited) 1996 (Unaudited)
(Dollars in Millions)
ASSETS
Cash and cash equivalents $10,406 $14,063 $13,399
Other marketable securities 10,490 8,199 6,421
------ ------- -------
Total cash and marketable securities 20,896 22,262 19,820
Finance receivables - net 58,966 57,550 56,495
Accounts and notes receivable (less allowances) 7,223 6,557 7,379
Inventories (less allowances) (Note 5) 12,820 11,898 12,129
Contracts in process (less advances and
progress payments) 2,169 2,187 2,159
Deferred income taxes 19,588 19,510 20,848
Equipment on operating leases (less accumulated
depreciation) 32,964 30,112 30,308
Property
Real estate, plants, and equipment 70,679 69,770 69,127
Less accumulated depreciation (41,287) (41,298) (41,508)
------ ------ ------
Net real estate, plants, and equipment 29,392 28,472 27,619
Special tools - net 9,128 9,032 8,556
------- ------- -------
Total property 38,520 37,504 36,175
Intangible assets - net 14,979 12,691 10,253
Other assets - net 25,010 21,871 20,323
-------- -------- --------
Total assets $233,135 $222,142 $215,889
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable (principally trade) $15,021 $14,221 $13,206
Notes and loans payable 90,914 85,300 81,328
Deferred income taxes 4,712 3,207 3,521
Postretirement benefits other than
pensions (Note 6) 44,427 43,190 42,775
Pensions 7,100 7,599 6,691
Other liabilities and deferred credits 46,426 45,115 46,424
-------- -------- -------
Total liabilities 208,600 198,632 193,945
------- ------- -------
Minority interests 735 92 144
General Motors - obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely
junior subordinated debentures of
General Motors (Note 11)
Series D 79 - -
Series G 143 - -
Stockholders' equity
Preference stocks 1 1 1
Common stocks
$1-2/3 par value (Note 9; issued, 707,772,699;
756,619,625; and 756,622,676 shares) 1,180 1,261 1,261
Class H (Note 2; issued, 102,648,686;
100,075,000 and 99,197,196 shares) 10 10 10
Capital surplus (principally additional
paid-in capital) 16,211 19,189 19,134
Retained earnings 9,846 6,137 5,697
------- ------- ------
Subtotal 27,248 26,598 26,103
Minimum pension liability adjustment (3,490) (3,490) (4,742)
Accumulated foreign currency translation
adjustments (727) (113) 50
Net unrealized gains on investments in
certain debt and equity securities 547 423 389
-------- -------- --------
Total stockholders' equity 23,578 23,418 21,800
-------- ------ ------
Total liabilities and stockholders'
equity $233,135 $222,142 $215,889
======= ======= =======
Reference should be made to the notes to consolidated financial statements.
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<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Sept. 30,
1997 1996
(Dollars in Millions)
Net cash provided by operating activities $13,123 $14,195
------ ------
Cash flows from investing activities
Expenditures for property (6,958) (6,764)
Investments in companies, net of cash acquired (1,788) (126)
Investments in other marketable securities
- acquisitions (24,790) (16,933)
Investments in other marketable securities
- liquidations 23,547 16,081
Finance receivables - acquisitions (128,300) (118,787)
Finance receivables - liquidations 105,401 92,875
Proceeds from sales of finance receivables 20,512 28,675
Operating leases - acquisitions (16,206) (14,502)
Operating leases - liquidations 10,138 7,745
Special inter-company payment from EDS - 500
Other 721 577
------ -------
Net cash used in investing activities (17,723) (10,659)
------ -------
Cash flows from financing activities
Net increase (decrease) in loans payable 3,162 (3,760)
Increase in long-term debt 11,658 13,497
Decrease in long-term debt (9,340) (9,469)
Proceeds from issuing common stocks 471 211
Repurchases of common stocks (3,353) -
Cash dividends paid to stockholders (1,252) (1,183)
Proceeds from sale of minority interest in DIRECTV(R) - 138
------ ------
Net cash provided by (used in) financing activities 1,346 (566)
----- ------
Effect of exchange rate changes on cash and cash
equivalents (403) (170)
Net cash (used in) provided by continuing operations (3,657) 2,800
Net cash provided by discontinued operations - 103
------- ------
Net (decrease) increase in cash and cash equivalents (3,657) 2,903
Cash and cash equivalents at beginning of the period 14,063 10,496
------ ------
Cash and cash equivalents at end of the period $10,406 $13,399
====== ======
Reference should be made to the notes to consolidated financial statements.
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<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Significant Accounting Policies
Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. The consolidated financial statements include the
accounts of General Motors Corporation (hereinafter referred to as the
Corporation) and domestic and foreign subsidiaries that are more than 50% owned,
principally General Motors Acceptance Corporation and Subsidiaries (GMAC) and
Hughes Electronics Corporation and Subsidiaries (Hughes) (collectively referred
to as General Motors or GM). In the opinion of management, all adjustments
(consisting of only normal recurring items), which are necessary for a fair
presentation have been included. The results for interim periods are not
necessarily indicative of results which may be expected for any other interim
period or for the full year. For further information, refer to the consolidated
financial statements and notes thereto included in the GM 1996 Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
Certain amounts for 1996 were reclassified to conform with the 1997
classifications.
Derivative Instruments
GM is party to a variety of foreign exchange, interest rate, and commodity
forward contracts and options entered into in connection with the management of
its exposure to fluctuations in foreign exchange rates, interest rates, and
certain commodities prices. These financial exposures are managed in accordance
with corporate policies and procedures.
GM established the Risk Management Committee to develop and monitor the
Corporation's financial risk strategies, policies and procedures. The Committee
reviews and approves all new risk management strategies, establishes approval
authority guidelines for approved programs and monitors compliance and
performance of existing risk management programs. GM does not enter into
derivative transactions for trading purposes.
As part of the hedging program approval process, GM's management is required
to identify the specific financial risk which the derivative transaction will
minimize, the appropriate hedging instrument to be used to reduce the risk, and
the correlation between the financial risk and the hedging instrument. Purchase
orders, letters of intent, vehicle production forecasts, capital planning
forecasts, and historical data are used as the basis for determining the
anticipated values of the transactions to be hedged. If it is determined that
the correlation between the financial exposure and the hedging instrument is
below a specified level, the transaction is generally not approved. In those
infrequent instances in which approval is received for a hedging transaction
that does not meet the correlation requirement, the derivative is marked to
market for accounting purposes. The hedge positions, as well as the correlation
between the transaction risks and the hedging instruments, are reviewed by
management on an ongoing basis.
Foreign exchange forward and option contracts are accounted for as hedges to
the extent they are designated, and are effective, as hedges of firm foreign
currency commitments. Additionally, certain foreign exchange option contracts
receive hedge accounting treatment to the extent such contracts hedge certain
anticipated foreign currency transactions. Other such foreign exchange contracts
and options are marked to market on a current basis.
Interest rate swaps 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 swap or the remaining term of the underlying
exposure, whichever is shorter. 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 swaptions) and other swaps that do not qualify for hedge
accounting are marked to market on a current basis.
GM also enters into commodity forward and option contracts. Since GM has the
discretion to settle these transactions either in cash or by taking physical
delivery, these contracts are not considered financial instruments for
accounting purposes. Commodity forward contracts and options are accounted for
as hedges to the extent they are designated, and are effective, as hedges of
firm or anticipated commodity purchase contracts. Other commodity forward
contracts and options are marked to market on a current basis.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 1. Significant Accounting Policies (concluded)
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that an entity classify items of other comprehensive income by their
nature in that financial statement. In addition, the accumulated balance of
other comprehensive income must be displayed separately from retained earnings
and additional paid-in capital in the equity section of the statement of
financial position. Reclassification of financial statements for earlier
periods, provided for comparative purposes, is required. SFAS No. 131
establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. SFAS No. 131
requires reporting segment profit or loss, certain specific revenue and expense
items and segment assets. It also requires reconciliations of total segment
revenues, total segment profit or loss, total segment assets, and other amounts
disclosed for segments to corresponding amounts reported in the financial
statements. Restatement of comparative information for earlier periods presented
is required in the initial year of application. Interim information is not
required until the second year of application, at which time comparative
information is required. SFAS No. 130 and No. 131 are effective for fiscal years
beginning after December 15, 1997.
Note 2. Hughes Business Matters
Hughes Transactions
On October 6, 1997, the GM Board of Directors approved the final terms for a
series of related transactions (the "Hughes Transactions") designed to address
strategic challenges facing the three principal businesses of Hughes and to
unlock stockholder value in GM. The transactions approved by the GM Board of
Directors include the tax-free spin-off of the defense electronics business of
Hughes, known as Hughes Defense, to holders of $1-2/3 par value and Class H
common stocks, to be followed immediately by the tax-free merger of that
business with Raytheon Company. 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, Class H common stock would be
recapitalized into a GM tracking stock linked to the telecommunications and
space business of Hughes.
The GM Board of Directors also approved the formula to be used to determine
the distribution ratio for the allocation of the Class A common stock of Hughes
Defense between GM $1-2/3 and Class H common stockholders in connection with the
Hughes Defense spin-off. GM would distribute approximately 103 million shares of
Class A common stock of Hughes Defense, which would represent about 30 percent
of the total equity of the combined Hughes Defense/Raytheon Company, to GM
$1-2/3 and Class H common stockholders if the Hughes Transactions are approved.
The distribution to GM Class H common stockholders will account for their
tracking stock interest in Hughes Defense, plus an additional amount valued at
approximately $1.733 billion to compensate for the elimination of their tracking
stock interest in Delco Electronics and other factors. GM $1-2/3 common
stockholders would receive the remaining shares of Class A common stock.
In July 1997, GM received a private letter ruling from the U.S. Internal
Revenue Service confirming that the spin-off of Hughes Defense would be tax free
to GM and its stockholders for U.S. federal income tax purposes. In addition, GM
and Raytheon have reached agreement with the U.S. Department of Justice
regarding the basis upon which the merger of Hughes Defense and Raytheon can
proceed consistent with the Government's enforcement of U.S. antitrust laws. The
agreement was filed, in the form of a proposed final judgment, with the U.S.
District Court for the District of Columbia on October 16, 1997. On October 24,
1997, the court entered a stipulation and order requiring the parties to abide
by the provisions of the agreement pending expiration of the 60-day statutory
notice and comment period and entry of final judgment, thereby permitting the
parties to consummate the merger of Hughes Defense and Raytheon.
GM would record the distribution of Hughes Defense to holders of $1-2/3 and
Class H common stock at fair value and would recognize a gain of approximately
$3.9 to $4.5 billion. In addition, it is estimated that there would be a
reduction of GM's overall stockholders' equity of between $0.6 and $1.6 billion
as a result of the Hughes Transactions.
A solicitation statement/prospectus of General Motors and Hughes Defense (in
the name of HE Holdings) has been filed with the Securities and Exchange
Commission and will be distributed to holders of GM $1-2/3 and Class H common
stock in order to secure their approval of the proposed Hughes Transactions. If
such approval is obtained, the Hughes Transactions could occur before the end of
the year. In addition, the merger of Hughes Defense and Raytheon is subject to
approval by Raytheon shareholders. No assurance can be given that the above
transactions will be completed.
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<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 2. Hughes Business Matters (concluded)
No offering of Hughes Defense common stock or the new GM Class H common stock
nor any solicitation by means of a proxy or written consent would be made except
through the use of the solicitation statement/prospectus.
Merger of Satellite Service Operations
In May 1997, Hughes and PanAmSat Corporation (PAS) completed the merger of
their respective satellite service operations into a new publicly-held company.
Hughes contributed its Galaxy(R) satellite services business in exchange for a
71.5% interest in the new company. Existing PAS stockholders received a 28.5%
interest in the new company and $1.5 billion in cash.
For accounting purposes, the merger was treated by Hughes as an acquisition
of 71.5% of PAS and was accounted for using the purchase method. Accordingly,
the purchase price was allocated to the net assets acquired, including
intangible assets, based on estimated fair values at date of acquisition. In
addition, the merger was treated as a partial sale of the Galaxy business by
Hughes and resulted in a one-time pre-tax gain of $490 million ($318 million
after-tax or $0.33 per share of $1-2/3 par value common stock and $0.80 per
share of Class H common stock).
Note 3. EDS Split-Off
On June 7, 1996, GM split-off Electronic Data Systems Corporation (EDS) to
former Class E stockholders on a tax-free basis for U.S. federal income tax
purposes. The financial data related to EDS for the nine month period ended
September 30, 1996 is classified as discontinued operations. The GM unaudited
consolidated financial statements for 1997 exclude the assets, liabilities and
operating results of EDS.
EDS systems and other contracts revenues from outside customers included in
income from discontinued operations totaled $4.3 billion for the nine month
period ended September 30, 1996. Income from discontinued operations of $10
million for the nine month period ended September 30, 1996 is reported net of
income tax expense of $14 million.
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<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 4. Other Income and Other Deductions
Other income and other deductions consisted of the following (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------ ------ -----
Other income
Nonfinancing interest $561 $436 $1,510 $1,215
Gain on PAS merger (Note 2) - - 490 -
Insurance premiums 252 223 767 698
Mortgage servicing and processing fees 161 148 528 384
Claims and commissions 126 215 382 428
Gain on sale of interest in Avis Europe (1) - - 128
Income from sales of receivables
programs 98 124 311 380
Insurance capital and investment gains 43 71 166 184
VW Settlement (2) - - 88 -
Gain on sale of interest in DIRECTV (3) - - - 120
Other 384 92 1,077 792
--- ----- ----- ----
Total other income $1,625 $1,309 $5,447 $4,201
===== ===== ===== =====
Other deductions
Insurance losses and loss
adjustment expenses $156 $140 $448 $474
Provision for financing losses 139 144 396 433
Other 93 99 112 342
-- ---- --- ----
Total other deductions $388 $383 $956 $1,249
=== === === =====
(1) During the 1997 second quarter, the sale of GM Europe's equity interest in
Avis Europe resulted in a pre-tax gain of $128 million ($103 million
after-tax or $0.14 per share of $1-2/3 par value common stock).
(2) During the 1997 first quarter, an agreement with Volkswagen A.G. (VW) that
settled a civil lawsuit GM brought against VW resulted in a pre-tax gain of
$88 million ($55 million after-tax or $0.07 per share of $1-2/3 par value
common stock), after deducting certain legal expenses.
(3) During the 1996 first quarter, the sale of a 2.5% interest in DIRECTV to
AT&T resulted in a pre-tax 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).
Note 5. Inventories
Major classes of inventories were as follows (in millions):
Sept. 30, Dec. 31, Sept.30,
1997 1996 1996
Productive material, work in process,
and supplies $7,003 $6,590 $7,075
Finished product, service parts, etc. 5,817 5,308 5,054
------- ------- -------
Total inventories (less allowances) $12,820 $11,898 $12,129
====== ====== ======
Note 6. Postretirement Benefits Other Than Pensions
GM has disclosed in the consolidated financial statements certain amounts
associated with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, GM does not admit or otherwise acknowledge that such
amounts or existing postretirement benefit plans of GM (other than pensions)
represent legally enforceable liabilities of GM.
- 9 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 7. Plant Closings and Restructuring
GM previously recorded charges to realign its North American plant capacity
and to provide for a reduction of Hughes' worldwide employment, a major
facilities consolidation, and a reevaluation of certain non-strategic
businesses.
The following table summarizes the activity in the GM plant closings
(excluding environmental) and Hughes restructuring reserves for the period from
January 1, 1997 to September 30, 1997 (in millions):
Balance at January 1, 1997 $1,397
1997 first quarter charges against reserves (44)
Interest expense 16
------
Balance at March 31, 1997 $1,369
-----
1997 second quarter charges against reserves (52)
Interest expense 16
------
Balance at June 30, 1997 $1,333
-----
1997 third quarter charges against reserves (46)
Interest expense 16
------
Balance at September 30, 1997 $1,303
=====
GM and Hughes periodically evaluate the adequacy of reserve balances and
estimated future expenditures, including assumptions used and the period over
which costs are expected to be incurred.
Note 8. Contingent Matters
Hughes has maintained a suit against the U.S. Government since September 1973
regarding the Government's infringement and use of a Hughes patent (the
"Williams Patent") covering "Velocity Control and Orientation of a Spin
Stabilized Body," principally satellites. On June 17, 1994, the U.S. Court of
Claims awarded Hughes damages of $114 million. Because Hughes believed that the
record supported a higher royalty rate, it appealed that decision. The U.S.
Government, contending that the award was too high, also appealed. On June 19,
1996, the Court of Appeals for the Federal Circuit (CAFC) affirmed the decision
of the Court of Claims which awarded Hughes $114 million in damages, together
with interest. The U.S. Government petitioned the CAFC for a rehearing. That
petition was denied in October 1996. The U.S. Government then filed a petition
with the U.S. Supreme Court seeking certiorari. On April 21, 1997 the U.S.
Supreme Court, citing a recent decision it had rendered in Warner-Jenkinson v.
Hilton Davis, remanded Hughes' suit over the Williams Patent back to the CAFC in
order to have the CAFC determine whether the ruling in the Williams Patent
matter was consistent with the U.S. Supreme Court's decision in the
Warner-Jenkinson case. The previous liability decision of the Court of Claims in
the Williams Patent matter, and its $114 million damage award to Hughes,
currently remain in effect pending reconsideration of the case by the CAFC.
Hughes is unable to estimate the duration of this reconsideration process. While
no amount has been recorded in the financial statements of Hughes to reflect the
$114 million award or the interest accumulating thereon, a resolution of this
matter could result in a gain that would be material to the earnings of GM
attributable to Class H common stock.
The Corporation 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. Some of the pending actions purport to be class
actions. The aggregate ultimate liability of the Corporation and its
subsidiaries under these government regulations, and under these claims and
actions, was not determinable at September 30, 1997. After discussion with
counsel, it is the opinion of management that such liability is not expected to
have a material adverse effect on the Corporation's consolidated operations or
financial position.
Note 9. Common Stock Repurchases
During the three months ended September 30, 1997, GM used approximately $850
million to acquire 13.7 million shares of $1-2/3 par value common stock, which
completed the $2.5 billion stock repurchase program announced in January 1997
and represented 14 percent of the Corporation's second $2.5 billion stock
repurchase program announced in August 1997. During the nine months ended
September 30, 1997, $2.85 billion in cash was used to repurchase 49.2 million
shares under the two stock repurchase programs. GM also used approximately $503
million to repurchase shares of $1-2/3 par value common stock for certain
employee benefit plans during the nine months ended September 30, 1997.
- 10 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded
(Unaudited)
Note 10. Earnings Per Share Attributable to Common Stocks
Earnings per share attributable to each class of GM common stock was
determined based on the attribution of earnings to each such class of common
stock for the period divided by the weighted average number of common shares for
each such class outstanding during the period, respectively. Common stock
equivalents were not included in the calculation of earnings per share
attributable to common stocks, as they were not material. In February 1997, the
Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share,
and SFAS No. 129, Disclosure of Information about Capital Structure. SFAS No.
128 specifies the computation, presentation and disclosure requirements for
earnings per share for entities with publicly-held common stock or potential
common stock. SFAS No. 129 requires an entity to explain the permanent rights
and privileges of outstanding securities. GM has determined that the impact of
adopting these new accounting standards will require it to provide additional
information in its consolidated financial statements concerning basic and
diluted earnings per share. The effects of adopting these new accounting
standards will not be material to GM's consolidated financial statements, when
adopted in the fourth quarter of 1997, as required.
Net earnings attributable to $1-2/3 par value common stock for the period
represent the earnings attributable to all GM common stocks for the period,
reduced by the Available Separate Consolidated Net Income (ASCNI) of Hughes and
EDS (Note 3) for the period.
Net earnings attributable to Class H common stock for the period represent
the ASCNI of Hughes for the period. The ASCNI of Hughes for any quarterly period
represents the separate consolidated net income of Hughes for such period,
excluding the effects of purchase accounting adjustments arising at the time of
the Corporation's acquisition of Hughes, calculated for such period and
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
quarter (102 million and 99 million during the third quarters of 1997 and 1996,
respectively) and the denominator of which was 400 million during the third
quarters of 1997 and 1996.
Note 11. Preferred Stock
General Motors Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts
During July 1997, the General Motors Capital D Trust ("Series D Trust")
issued approximately $79 million of its 8.67% Trust Originated Preferred
Securities ("TOPrS") Series D ("Series D Preferred Securities") in a one-for-one
exchange for 3,055,255 of the outstanding GM Series D 7.92% Depositary Shares,
each representing one-fourth of a share of GM Series D Preference Stock, $0.10
par value per share. In addition, the General Motors Capital G Trust ("Series G
Trust") issued approximately $143 million of its 9.87% TOPrS Series G ("Series G
Preferred Securities") in a one-for-one exchange for 5,064,489 of the
outstanding GM Series G 9.12% Depositary Shares, each representing one-fourth of
a share of GM Series G Preference Stock, $0.10 par value per share.
Concurrently with the exchanges and the related purchases by GM from the
Series D and Series G Trusts (the "Trusts") of the common securities of such
Trusts, representing approximately 3 percent of the total assets of such Trusts,
GM issued to the wholly-owned Trusts, as the Trusts' sole assets, its 8.67% and
9.87% Junior Subordinated Deferrable Interest Debentures, Series D and Series G,
due July 1, 2012 (the "Series D Debentures" and "Series G Debentures" or
collectively the "Debentures"), having aggregate principal amounts equal to the
aggregate stated liquidation amounts of the Series D and Series G Preferred
Securities and the related common securities, respectively ($78.7 million with
respect to the Series D Debentures and $130.5 million with respect to the Series
G Debentures).
The Series D Debentures are redeemable, in whole or in part, at GM's option
on or after August 1, 1999, at a redemption price equal to 100% of the
outstanding principal of the Series D Debentures plus accrued and unpaid
interest, or, under certain circumstances, prior to August 1, 1999, at a
redemption price equal to 105% of the outstanding principal of the Series D
Debentures from the Series D expiration date through July 31, 1998, declining
ratably on each August 1 thereafter to 100% on August 1, 1999, plus accrued and
unpaid interest.
The Series G Debentures are redeemable, in whole or in part, at GM's option
on or after January 1, 2001, at a redemption price equal to 100% of the
outstanding principal of the Series G Debentures plus accrued and unpaid
interest, or, under certain circumstances, prior to January 1, 2001, at a
redemption price equal to 114% of the outstanding principal of the Series G
Debentures from the Series G expiration date through December 31, 1997,
declining ratably on each January 1 thereafter to 100% on January 1, 2001, plus
accrued and unpaid interest.
GM has guaranteed the payment in full to the holders of the Series D and
Series G Preferred Securities (collectively the "Preferred Securities") of all
distributions and other payments on the Preferred Securities to the extent not
paid by the Trusts only if and to the extent that the Trusts have assets
therefor i.e., GM has made payments of interest or principal on the related
Debentures. These guarantees, when taken together with GM's obligations under
the Debentures and the Indentures relating thereto and the obligations under the
Declaration of Trusts of the Trusts, including the obligations to pay certain
costs and expenses of the Trusts, constitute full and unconditional guarantees
by GM of each Trust's obligations under its Preferred Securities.
* * * * * *
- 11 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the MD&A
included in the General Motors (GM) 1996 Annual Report on Form 10-K (the 1996
Form 10-K), the Hughes Electronics Corporation (Hughes) consolidated financial
statements and MD&A for the period ended December 31, 1996, included as Exhibit
99 to the 1996 Form 10-K, the GMAC Annual Report on Form 10-K for the period
ended December 31, 1996, the Hughes consolidated financial statements and MD&A
for the period ended September 30, 1997, included as Exhibit 99 to this GM 1997
Quarterly Report on Form 10-Q, and the GMAC Quarterly Report on Form 10-Q for
the period ended September 30, 1997, filed with the Securities and Exchange
Commission.
The disaggregated financial results for GM's automotive sectors (GM's North
American Operations (GM-NAO), Delphi Automotive Systems (Delphi) and GM's
International Operations (GMIO)) have been prepared using a management approach,
which is consistent with the basis and manner in which GM management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. In this regard, certain common expenses were
allocated among sectors less precisely than would be required for standalone
financial information prepared in accordance with generally accepted accounting
principles (GAAP) and certain expenses (primarily certain U.S. taxes related to
non-U.S. operations) were included in GM's "Other" sector. The financial results
represent the historical information used by management for internal decision
making purposes; therefore, other data prepared to represent the way in which
the business will operate in the future, or data prepared on a GAAP basis, may
be materially different.
GM-NAO Financial Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- ------- -------
(Dollars in Millions)
Net sales and revenues $24,047 $22,267 $74,729 $70,879
------ ------ ------ ------
Pre-tax income 608 238 2,418 795
Income taxes (credit) 172 (35) 775 130
Earnings (loss) of nonconsolidated
affiliates (13) 4 18 38
---- ---- ------ ----
Net income $423 $277 $1,661 $703
=== === ===== ===
Net profit margin (1) 1.8% 1.2% 2.2% 1.0%
- --------------------
(1) Net profit margin represents net income as a percentage of net sales and
revenues.
Vehicle Unit Deliveries of Cars and Trucks - GM-NAO
Three Months Ended September 30,
1997 1996
----------------------------------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- ---- -------- -------- ---- --------
(Units in Thousands)
United States
Cars 2,157 727 33.7% 2,179 698 32.1%
Trucks 1,802 526 29.2% 1,704 484 28.4%
----- ------ ----- -----
Total United States 3,959 1,253 31.7% 3,883 1,182 30.4%
Canada and Mexico 470 149 31.8% 362 111 30.7%
------ ------ ----- -----
Total North America 4,429 1,402 31.7% 4,245 1,293 30.5%
===== ===== ===== =====
Wholesale Sales - GM-NAO
Cars 729 721
Trucks 552 532
----- -----
Total 1,281 1,253
===== =====
- 12 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Vehicle Unit Deliveries of Cars and Trucks - GM-NAO (concluded)
Nine Months Ended September 30,
1997 1996
----------------------------------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- ---- -------- -------- ---- --------
(Units in Thousands)
United States
Cars 6,393 2,078 32.5% 6,655 2,201 33.1%
Trucks 5,388 1,550 28.8% 5,209 1,507 28.9%
------ ----- ----- -----
Total United States 11,781 3,628 30.8% 11,864 3,708 31.3%
Canada and Mexico 1,378 432 31.4% 1,113 345 31.1%
------ ----- ------ -----
Total North America 13,159 4,060 30.9% 12,977 4,053 31.2%
====== ===== ====== =====
Wholesale Sales - GM-NAO
Cars 2,317 2,266
Trucks 1,781 1,679
----- -----
Total 4,098 3,945
===== =====
GM-NAO Financial Review
GM-NAO reported net income of $423 million for the 1997 third quarter
compared with net income of $277 million in the prior year quarter. Excluding
the favorable effect of a nonrecurring adjustment to the plant closing reserve
of $253 million after tax, or $0.34 per share, in the 1996 third quarter, net
income was $24 million. The increase in net income in the 1997 third quarter was
primarily due to continued improvement in the profitability of new vehicles and
lower material and manufacturing costs. These factors were partially offset by
higher retail incentives ($992 per unit in the third quarter of 1997 compared
with $764 per unit in the third quarter of 1996) and increased commercial
spending to support the numerous vehicle launches in progress.
Net income for the nine months ended September 30, 1997 totaled approximately
$1.7 billion compared with $703 million for the prior year nine month period.
The increase in 1997 net income primarily reflected higher wholesale sales
volumes and lower material and manufacturing costs, offset by higher retail
incentives ($971 per unit in the 1997 period compared with $688 in the 1996
period).
Net sales and revenues for the 1997 third quarter were $24 billion, which
represented an increase of approximately $1.8 billion or 8% compared with the
prior year quarter. The increase in net sales and revenues resulted from higher
wholesale sales volumes, primarily in Canada and Mexico, and a favorable product
mix that included increased truck sales. Net sales and revenues for the nine
months ended September 30, 1997 totaled $74.7 billion, which represented an
increase of approximately $3.9 billion or 5.4% compared with the prior year
period, and improved primarily due to a 153,000 increase in wholesale sales
volumes.
Pre-tax income in the third quarter of 1997 increased by $370 million
compared with the prior year quarter. Excluding the favorable effect of the
nonrecurring adjustment to the plant closing reserve of $409 million pre-tax,
GM-NAO had a pre-tax loss of $171 million in the third quarter of 1996. The
increase in 1997 pre-tax income compared with the prior year was primarily due
to higher wholesale sales volumes, lower material and manufacturing costs, and
sales of more profitable vehicle models, partially offset by higher retail
incentives. Pre-tax income for the nine months ended September 30, 1997
increased by approximately $1.6 billion over the prior year period primarily due
to increased wholesale sales volumes and lower material and manufacturing costs.
GM-NAO realized a tax benefit in the 1996 third quarter, reflecting the
favorable resolution of items related to GM's consolidated tax returns for prior
years, a favorable tax position in Mexico, and the reinstatement of research and
experimentation credits for the last half of 1996.
GM vehicle deliveries in North America were 1,402,000 units in the 1997 third
quarter, which represented a market share of 31.7% compared with 30.5% in the
prior year quarter. The increase of 1.2 percentage points was primarily due to
increased availability of certain new models during the 1997 third quarter. GM's
North American market share for the nine months ended September 30, 1997 was
30.9% compared with 31.2% in the prior year period. Increased market penetration
is anticipated in the remainder of 1997 with growing availability of all-new and
redesigned 1998 model vehicles.
In response to the increasingly competitive North American market
environment, GM-NAO is currently studying the competitiveness of each of its
lines of business in order to maintain and accelerate the positive product,
operating, and earnings momentum it has experienced in recent years. See the
Competitiveness Studies section on page 21 for additional information.
- 13 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Delphi Financial Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- ------- ------- -------
(Dollars in Millions)
Net sales and revenues $6,044 $6,370 $19,486 $19,865
----- ----- ------ ------
Pre-tax income 30 187 735 838
Income taxes (credit) (6) (35) 236 197
Minority interests 2 4 8 -
Earnings of nonconsolidated affiliates 17 12 38 31
-- ---- ---- ----
Net income $55 $238 $545 $672
== === === ===
Net profit margin (1) 0.9% 3.7% 2.8% 3.4%
- --------------------
(1) Net profit margin represents net income as a percentage of net sales and
revenues.
Delphi Financial Review
Delphi reported net income of $55 million for the 1997 third quarter compared
with $238 million in the prior year quarter. The 1997 third quarter net income
decreased primarily due to the impact of price reductions driven by competitive
pressures, and accompanying manufacturing start-up costs associated with a high
level of product turnover in line with original equipment manufacturers' (OEMs)
new-model introductions. These factors were partially offset by material and
structural cost improvements. Net income for the nine months ended September 30,
1997 decreased to $545 million compared with $672 million for the prior year
nine month period. The decrease in net income for the nine months of 1997
primarily resulted from a $50 million after-tax charge associated with the
announced closure of the Delphi Trenton facility and continued pricing
pressures.
Net sales and revenues for the 1997 third quarter were $6 billion, a decrease
of $326 million or 5.1% compared with the prior year quarter, due primarily to
the sale to Peregrine, Inc. of four plants with annual sales of approximately $1
billion, and to pricing pressures. Delphi's 1997 third quarter sales to
customers outside the GM-NAO vehicle groups increased more than $67 million
compared with the prior year period, including all joint ventures. Net sales and
revenues for the nine months ended September 30, 1997 totaled $19.5 billion,
compared with $19.9 billion in the prior year nine month period. Approximately
37% of the nine month sales total, including all joint ventures, were to
customers outside the GM-NAO vehicle groups.
Pre-tax income in the third quarter of 1997 decreased by $157 million
compared with the prior year quarter primarily due to competitive price
pressures, and accompanying manufacturing start-up costs associated with a high
level of product turnover in line with OEMs' new model introductions, partially
offset by lower material and manufacturing costs. Pre-tax income for the nine
months ended September 30, 1997 decreased to $735 million from the prior year
amount of $838 million.
Delphi realized a tax benefit in the 1997 third quarter primarily due to
research and experimentation credits. Delphi's realization of a tax benefit in
the 1996 third quarter reflected the favorable resolution of items related to
GM's consolidated tax returns for prior years and the reinstatement of research
and experimentation credits for the last half of 1996.
On October 6, 1997, the GM Board of Directors approved the final terms for a
series of related transactions that would include the transfer of Delco
Electronics from Hughes to Delphi. See Note 2 to the consolidated financial
statements for additional information.
In response to the increasingly competitive automotive components and systems
market, Delphi is currently reviewing the adequacy of its strategy which focuses
on the competitiveness of its operations, growth opportunities, and increasing
market share through technology leadership, quality, cost, and responsiveness.
During the third quarter of 1997, Delphi announced its intention to seek
expressions of interest from potential buyers of its lighting, coil springs,
and seating businesses. These businesses, with combined revenues of
approximately $2 billion and global employment of over 11,000, are not core to
Delphi's strategic growth objectives. See the Competitiveness Studies section on
page 21 for additional information.
- 14 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMIO Financial Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------ ------ ------
(Dollars in Millions)
Net sales and revenues $8,641 $8,260 $26,635 $26,358
----- ----- ------ ------
Pre-tax income 168 268 1,368 1,477
Income taxes (credit) 47 (35) 444 344
Minority interests 18 (3) 28 (9)
Earnings (loss) of nonconsolidated
affiliates (2) 23 (10) 55
---- ---- ------ -----
Net income (loss)
GM Europe (GME) (21) 75 440 679
Other International 158 248 502 500
--- --- --- -----
Total net income $137 $323 $942 $1,179
=== === === =====
Net profit margin (1) 1.6% 3.9% 3.5% 4.5%
(1) Net profit margin represents net income as a percentage of net sales and
revenues.
Vehicle Unit Deliveries of Cars and Trucks - GMIO
Three Months Ended September 30,
1997 1996
-----------------------------------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- ---- -------- -------- ---- --------
(Units in Thousands)
International
Europe 4,593 463 10.1% 4,166 424 10.2%
Latin America, Africa and
the Middle East 1,212 218 18.0% 1,084 182 16.8%
Asia and Pacific 3,245 161 5.0% 3,338 164 4.9%
----- --- ----- ---
Total International 9,050 842 9.3% 8,588 770 9.0%
===== === ===== ===
Wholesale Sales - GMIO
Cars 596 544
Trucks 249 208
--- ---
Total 845 752
=== ===
Nine Months Ended September 30,
1997 1996
-----------------------------------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- ---- -------- -------- ---- ---------
(Units in Thousands)
International
Europe 13,859 1,421 10.3% 13,078 1,404 10.7%
Latin America, Africa and
the Middle East 3,420 583 17.1% 3,012 510 16.9%
Asia and Pacific 10,196 455 4.5% 10,211 474 4.6%
------ ------ ------ -----
Total International 27,475 2,459 8.9% 26,301 2,388 9.1%
====== ===== ====== =====
Wholesale Sales - GMIO
Cars 1,784 1,734
Trucks 680 598
----- -----
Total 2,464 2,332
===== =====
- 15 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMIO Financial Review
GMIO's 1997 third quarter net income was $137 million or 1.6% of net sales
and revenues, compared with $323 million or 3.9% of net sales and revenues in
the prior year quarter. The decrease in 1997 third quarter net income was
primarily due to intensely competitive market pressures in Europe and higher
expenses related to income taxes and ambitious capacity expansion programs in
key growth areas, particularly the Latin American and Asia and Pacific regions.
Net income for the nine months ended September 30, 1997 totaled $942 million
compared with approximately $1.2 billion for the prior year period. The decrease
in net income for the nine months of 1997 was due to lower net income for GME.
Net sales and revenues for the 1997 third quarter increased by 4.6% to $8.6
billion compared with $8.3 billion in the prior year quarter. The increased net
sales and revenues in the 1997 third quarter mainly reflected higher wholesale
sales volumes in Latin America and Europe. Net sales and revenues for the nine
months ended September 30, 1997, totaled $26.6 billion, which represented an
increase of approximately $277 million or 1.1% compared with the prior year nine
month period.
Pre-tax income for the 1997 third quarter was $168 million compared with $268
million in the prior year quarter. The decrease was primarily due to the
intensely competitive market pressures in Europe and higher expenses incurred on
expansion programs. GMIO realized an income tax benefit in 1996 primarily due to
lower overall foreign income tax rates.
GME reported a net loss totaling $21 million in the 1997 third quarter
compared with net income of $75 million in the prior year quarter. Net income
for GME for the nine months ended September 30, 1997 decreased $239 million
compared with the prior year period. The lower net income for the three and nine
months ended September 30, 1997 was due primarily to increased sales incentives
and marketing expenses in a highly competitive European market, combined with
increased expenses at SAAB related to the launch of the all-new 9-5 models in
Europe.
Net income from the remainder of GMIO's operations, which include the Latin
American and Asia and Pacific Operations, totaled $158 million in the third
quarter of 1997 compared with $248 million in the prior year quarter. The
decreased 1997 third quarter net income primarily resulted from expenses related
to expansion programs and the launch of the New Holden Commodore. Net income
from the remainder of GMIO's operations for the nine months ended September 30,
1997 totaled $502 million compared with $500 million in the prior year period
primarily reflecting higher wholesale sales volumes in Latin America offset by
higher marketing and capacity expansion program expenses during the 1997 period.
In response to the increasingly competitive European market, GMIO is studying
the competitiveness of each of its operations. See the Competitiveness Studies
section on page 21 for additional information.
- 16 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
General Motors Acceptance Corporation (GMAC) Financial Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Millions)
Financing revenue
Retail and lease financing $862 $946 $2,692 $2,859
Operating leases 1,827 1,856 5,446 5,379
Wholesale and term loans 417 362 1,320 1,229
----- ----- ----- -----
Total financing revenue 3,106 3,164 9,458 9,467
Interest and discount (1,308) (1,220) (3,886) (3,684)
Depreciation on operating leases (1,163) (1,164) (3,475) (3,437)
----- ----- ----- -----
Net financing revenue 635 780 2,097 2,346
Other income and insurance premiums
earned 1,001 837 2,848 2,410
----- ----- ----- -----
Net financing revenue and other 1,636 1,617 4,945 4,756
Expenses 1,081 1,077 3,177 3,148
----- ----- ----- -----
Pre-tax income 555 540 1,768 1,608
Income taxes 243 233 746 642
--- --- ----- ---
Net income $312 $307 $1,022 $966
=== === ===== ===
Net income from financing operations (1)$262 $252 $851 $842
Net income from insurance operations 50 55 171 124
---- ---- ----- ---
Net income $312 $307 $1,022 $966
=== === ===== ===
Return on average equity (2) 14.4% 14.6% 16.1% 15.3%
(1) Includes GMAC Mortgage Group, Inc. (GMACMG).
(2) Return on average equity represents net income as a percentage of average
monthly stockholder's equity.
GMAC Financial Review
GMAC's consolidated third quarter net income for 1997 totaled $312 million, a
1.6% increase from the third quarter of 1996. For the same period, a 4% increase
in net income from financing operations was attributed primarily to growth in
mortgage financing operations. Earnings from automotive financing were
relatively unchanged period-to-period due to reduced net financing margins
partially offset by lower operating expenses. Net income from insurance
operations decreased 9% during the third quarter, and increased 38% for the nine
month period ended September 30, 1997, compared to the same periods in 1996. The
quarterly decrease can be attributed to lower capital gains partially offset by
improved underwriting results in automobile insurance and extended warranty
coverages. The nine month increase is primarily attributable to a $33.3 million
increase in capital gains and improved underwriting results.
During the three months ended September 30, 1997, GMAC financed 31.3% of new
GM vehicles delivered in the U.S., up from 24.9% during the same period last
year. Financing of new GM vehicles for the first nine months of 1997 was 27.2%
compared with 25.6% for the comparable 1996 period. The increases can be
attributed primarily to special rate financing and incentivized retail
installment sales programs sponsored by GM.
U.S. wholesale inventory financing was provided on 756,000 and 2,428,000 new
GM vehicles during the respective three and nine month periods ended September
30, 1997, compared with 799,000 and 2,479,000 during the same 1996 periods. This
financing represented 67.5% and 70.1% of GM's U.S. vehicle sales to dealers
during the nine months of 1997 and 1996, respectively. The decline in wholesale
financing levels can be attributed to competitive market conditions.
GMAC's worldwide cost of borrowing for the third quarter and nine months of
1997 averaged 6.34% and 6.30%, respectively, 15 and 26 basis points below the
comparable prior year levels. Total borrowing costs for U.S. operations averaged
6.44% and 6.38% for the three and nine month periods ended September 30, 1997,
compared with 6.44% and 6.48% for the respective 1996 periods. The lower average
borrowing costs for the nine months of 1997 were attributable to a greater
proportion of floating rate short-term borrowings in GMAC's funding mix.
Consolidated net financing revenue and other income increased 1.2% during the
third quarter of 1997 over the same period in 1996. The increase was primarily
attributable to higher mortgage investment and servicing income and wholesale
revenue, partially offset by lower retail and leasing receivable revenues and
increased debt expense incurred to fund higher wholesale balances.
As reported in GM's Quarterly Report on Form 10-Q for the period ended June
30, 1997 GMAC announced an agreement providing for Integon Corporation, a
non-standard automotive insurance provider, to merge with a wholly-owned
subsidiary of GMAC. In October 1997, regulatory and shareholder approvals were
received and the acquisition was completed for a purchase price of $528 million
plus the assumption of $250 million in long-term debt.
In August 1997, GMAC announced that it intended to acquire certain operating
assets of LSI Holdings, Inc., a subprime financing and servicing company, and is
establishing Nuvell Credit Corporation and Nuvell Financial Services Corporation
as two new subsidiaries that will conduct subprime financing and servicing
operations, respectively, in the United States. The transaction was completed
with an effective date of November 1, 1997. The acquisition will enable GMAC to
continue its growth strategy in the financial services industry.
- 17 -
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Hughes Financial Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------ ------
(Dollars in Millions Except Per Share Amounts)
Net sales
Outside customers $3,041 $2,591 $8,738 $7,561
GM and affiliates 1,077 1,219 3,773 3,895
----- ----- ------ -------
Total net sales 4,118 3,810 12,511 11,456
Other (loss) income-net (5) (2) 495 134
-------- -------- ------- --------
Total revenues 4,113 3,808 13,006 11,590
Income before income taxes and
minority interests 327 351 1,401 1,255
Income taxes 113 145 498 508
Minority interests in net (income)
losses of subsidiaries (4) 15 22 31
----- ---- ---- ----
Net income $210 $221 $925 $778
=== === === ===
Earnings used for computation
of available separate
consolidated net income (1) $240 $252 $1,017 $870
=== === ===== ===
Net earnings per share attributable
to Class H common stock $0.60 $0.63 $2.54 $2.18
Cash dividends per share of Class H
common stock $0.25 $0.24 $0.75 $0.72
- ----------------
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
(1) Excludes amortization of GM purchase accounting adjustments of approximately
$31 million for the third quarters of 1997 and 1996, and $92 million for the
nine-month periods ended September 30,1997 and 1996, related to GM's
acquisition of Hughes Aircraft Company.
Segment Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------ ------- -------
(Dollars in Millions)
Telecommunications and Space
Revenues $1,242 $989 $3,870 $2,862
Net sales $1,250 $994 $3,407 $2,765
Operating profit (1) $115 $62 $162 $194
Operating profit margin (2) 9.2% 6.2% 4.8% 7.0%
Automotive Electronics
Revenues $1,210 $1,275 $4,117 $4,099
Net sales $1,205 $1,268 $4,096 $4,068
Operating profit (1) $96 $166 $376 $562
Operating profit margin (2) 8.0% 13.1% 9.2% 13.8%
Aerospace and Defense Systems
Revenues $1,628 $1,525 $4,913 $4,547
Net sales $1,625 $1,529 $4,905 $4,544
Operating profit (1) $166 $167 $502 $486
Operating profit margin (2) 10.2% 10.9% 10.2% 10.7%
- ----------------
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
(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.
- 18 -
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Hughes Financial Review
Hughes Electronics reported net income of $210 million for the third quarter
of 1997 compared with $221 million in the third quarter of 1996. Excluding
amortization of purchase accounting adjustments related to GM's acquisition of
Hughes Aircraft Company, Hughes' earnings used for computation of available
separate consolidated net income was $240 million for the third quarter of 1997
compared to $252 million for the same period in 1996. The decrease in quarterly
earnings was primarily due to lower operating margins at Delco Electronics
caused by continued price reductions.
Third quarter revenues increased 8.0% between 1996 and 1997 due to revenue
increases in both the Telecommunications and Space and the Aerospace and Defense
Systems segments which more than offset the decline in Automotive Electronics
revenues. The 25.7% increase in revenues in the Telecommunications and Space
segment resulted from continued expansion of the DIRECTV subscriber base in the
United States and Latin America and increased revenues related to the PanAmSat
(PAS) merger. The 6.8% increase in revenues in the Aerospace and Defense Systems
segment was principally due to the build-up of several newer programs,
particularly information systems and services programs such as Hughes Air
Warfare Center, Desktop V, and Wide Area Augmentation System, and the
acquisition of the Marine Systems Group of Alliant Techsystems in March 1997.
The 5.1% decline in Automotive Electronics revenues reflects a 9.3% decrease in
Delco-supplied electronic content in GM vehicles, from $900 to $816 per vehicle,
which more than offset a 9.8% increase in international and non-GM sales from
$236 million to $259 million.
Operating profit for the third quarter, excluding amortization of purchase
accounting adjustments related to GM's acquisition of Hughes Aircraft Company,
declined 3.5% between 1996 and 1997. The operating profit margin on the same
basis was 9.1% for 1997 compared to 10.2% in 1996. These reductions were
primarily a result of the lower margins in the Automotive Electronics segment
driven by continued price reductions resulting from competitive pricing in
connection with GM's global sourcing initiative, and the impact from continued
international expansion. Also contributing to the operating profit margin
decline was a continued sales mix shift within Aerospace and Defense Systems
towards information systems and services programs. Partially offsetting these
declines were increased margins within the Telecommunications and Space segment
due to improved performance in the domestic DIRECTV business and operating
profit generated by PanAmSat.
On October 6, 1997, the General Motors Board of Directors approved the final
terms for a series of related transactions involving Hughes. See Note 2 to the
consolidated financial statements for additional information.
On November 3, 1997, Hughes entered into an agreement to sell substantially
all of the assets and liabilities of the Hughes Avicom International, Inc.
("Hughes Avicom") business to Rockwell Collins, Inc. for cash. The sale is
expected to close in the fourth quarter of 1997 pending regulatory approval and
result in a gain. The sale will allow Hughes to better focus on its core
telecommunications and space business. Hughes Avicom is a supplier of products
and services to the commercial airline market.
- 19 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
To facilitate analysis, the following sections present the 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 (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------ ------- -------
(Dollars in Millions)
Net sales and revenues $37,125 $34,607 $114,323 $109,461
------ ------ ------- -------
Costs and expenses
Cost of sales and other operating charges,
exclusive of items listed below 31,484 29,627 95,506 92,878
Selling, general, and administrative
expenses 3,157 2,850 9,331 8,253
Depreciation and amortization expenses 1,830 1,798 5,627 5,435
Plant closing expense (adjustment) - (409) 80 (409)
------ ------ ------- -------
Total costs and expenses 36,471 33,866 110,544 106,157
------ ------ ------- -------
Operating income 654 741 3,779 3,304
Other income less income deductions 613 416 2,682 1,568
Interest expense (225) (239) (663) (664)
------ ------ ------ ------
Income from continuing operations before
income taxes, minority interests, and earnings
of nonconsolidated affiliates 1,042 918 5,798 4,208
Income taxes 289 27 1,928 1,147
------ ------- ----- -----
Income from continuing operations before
minority interests and earnings of
nonconsolidated affiliates 753 891 3,870 3,061
Minority interests 13 31 50 21
Earnings of nonconsolidated affiliates 301 349 1,041 1,085
------ ------ ----- -----
Income from continuing operations 1,067 1,271 4,961 4,167
Income from discontinued operations - - - 10
----- ----- ----- -----
Net income $1,067 $1,271 $4,961 $4,177
===== ===== ===== =====
Net profit margin (1) 2.9% 3.7% 4.3% 3.8%
(1) Net profit margin represents net income as a percentage of net sales and
revenues.
Results of Operations With Financing and Insurance Operations on an Equity
Basis
In the third quarter of 1997, GM's net income totaled $1.1 billion or $1.35
per share of $1-2/3 par value common stock, compared to $1.3 billion or $1.57
per share of $1-2/3 par value common stock in the same 1996 period. Excluding
the favorable effect of a nonrecurring adjustment to the plant closing reserve
of $253 million after tax, or $0.34 per share, GM's net income in the 1996 third
quarter was $1 billion or $1.23 per share of $1-2/3 par value common stock. GM's
income from continuing operations for the nine months ended September 30, 1997
was $5 billion or $6.35 per share of $1-2/3 par value common stock, compared
with $4.2 billion or $5.15 per share of $1-2/3 par value common stock for the
nine months ended September 30, 1996.
Highlights of financial performance by GM's major business sectors for the
three months and nine months ended September 30 were as follows (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------ ------ ------
GM-NAO $423 $277 $1,661 $703
Delphi 55 238 545 672
GMIO 137 323 942 1,179
GMAC 312 307 1,022 966
Hughes 240 252 1,017 870
Other (100) (126) (226) (223)
----- ------ ----- -----
Income from continuing
operations $1,067 $1,271 $4,961 $4,167
===== ===== ===== =====
- 20 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Results of Operations With Financing and Insurance Operations on an Equity
Basis (concluded)
Reference should be made to the GM sectors' financial reviews that are
presented on pages 12 through 19 and incorporated by reference to supplement the
information presented herein.
Third quarter 1997 net sales and revenues were $37.1 billion, which
represented an increase of $2.5 billion compared with the prior year quarter.
The increase in net sales and revenues was due to higher wholesale sales
volumes, a favorable product mix including increased truck sales in North
America, and continued growth at Hughes. Net sales and revenues for the nine
months ended September 30, 1997 were $114.3 billion compared with $109.5 billion
for the nine months ended September 30, 1996, reflecting higher wholesales sales
volumes.
The gross margin percentage for the 1997 third quarter was 15.2% compared
with 14.4% in the prior year quarter. The gross margin percentage for the nine
months ended September 30, 1997 was 16.5%, compared with 15.1% for the nine
months ended September 30, 1996. The increases in the gross margin percentages
for the three and nine months periods primarily resulted from lower
material and manufacturing costs and the sale of more profitable new products.
Selling, general, and administrative expenses increased to $3.2 billion in
the third quarter of 1997 compared with $2.9 billion in the prior year quarter
and to $9.3 billion for the nine months ended September 30, 1997 compared with
$8.3 billion in the prior year period. The increases for the 1997 three and nine
month periods primarily reflected higher consumer influence spending associated
with the launches of new vehicles and increased expenses related to continued
efforts to grow the business in all of GM's business sectors. Depreciation and
amortization expenses increased in the third quarter of 1997 and for the nine
months ended September 30, 1997 compared with the prior year periods in
connection with expenditures for expansion initiatives and production and
quality improvements worldwide.
Other income less income deductions increased to $613 million for the 1997
third quarter compared with $416 million in the prior year quarter. Other income
less income deductions for the nine months ended September 30, 1997 increased to
$2.7 billion compared with $1.6 billion for the nine months ended September 30,
1996 primarily due to gains recognized in 1997 related to the PAS merger (see
Note 2 to the consolidated financial statements for additional information) and
the sale of GME's equity interest in Avis Europe, combined with favorable
settlements of legal claims and higher interest income.
GM completed the split-off of Electronic Data Systems Corporation (EDS) on
June 7, 1996, and accordingly, the financial results of EDS for the nine months
ended September 30, 1996 have been reported as discontinued operations.
Competitiveness Studies
The global automotive industry, including the components and systems market,
has become increasingly competitive and is presently undergoing significant
restructuring and consolidation activities. All of the major industry
participants are continuing to increase their focus on efficiency and cost
improvements, while announced capacity increases for the North American market
and excess capacity in the European market have led to continuing price
pressures. As a result, GM is currently studying the competitiveness of each of
its lines of business. The findings of these studies will result in changes to
or the realignment of those activities that are not performing as effectively as
necessary to meet GM's objectives of increasing market share, customer
satisfaction and profitability. To date, Delphi has announced its intention to
seek expressions of interest from potential buyers of its lighting, coil spring,
and seating businesses and Opel Belgium has informed its unions of its intention
to significantly lower structural costs, which could include a reduction of the
workforce by up to 1,900 employees. The studies are ongoing and the majority of
them are expected to be completed in the fourth quarter of 1997 or early 1998.
Currently, GM estimates that the studies will result in charges against income
for plant closures and asset impairments totaling approximately $2 billion to $3
billion after-taxes or $2.85 to $4.27 per share of $1-2/3 par value common
stock, to be recorded in the quarter during which the respective studies are
completed. GM will continue to study its efficiency and cost effectiveness and,
as necessary, will initiate further competitiveness studies.
Hughes Business Matters
On October 6, 1997, the GM Board of Directors approved the final
terms for a series of related transactions (the "Hughes Transactions") designed
to address strategic challenges facing the three principal businesses of Hughes
and to unlock stockholder value in GM. The transactions approved by the GM Board
of Directors include the tax-free spin-off of the defense electronics business
of Hughes, known as Hughes Defense, to holders of $1-2/3 par value and Class H
common stocks, followed immediately by the tax-free merger of that business with
Raytheon Company. 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, Class H common stock would be
recapitalized into a GM tracking stock linked to the telecommunications and
space business of Hughes. (See Note 2 to the consolidated financial statements
for additional information on the Hughes Transactions.)
- 21 -
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets With Financing and Insurance Operations on an
Equity Basis
(Unaudited)
Sept. 30, Dec. 31, Sept. 30,
1997 1996 1996
---------- -------- ---------
(Dollars in Millions)
ASSETS
Cash and cash equivalents $9,930 $13,320 $12,475
Other marketable securities 4,669 3,642 2,068
------ ------- -------
Total cash and marketable securities 14,599 16,962 14,543
Accounts and notes receivable (less allowances)
Trade 5,627 4,909 6,118
Nonconsolidated affiliates 1,722 927 1,452
Inventories (less allowances) 12,820 11,898 12,129
Contracts in process (less advances and
progress payments) 2,169 2,187 2,159
Equipment on operating leases (less
accumulated depreciation) 3,854 3,918 4,081
Deferred income taxes and other 2,820 3,140 5,374
------- ------- -------
Total current assets 43,611 43,941 45,856
Equity in net assets of nonconsolidated
affiliates 10,313 9,855 9,806
Deferred income taxes 20,341 20,075 18,460
Other investments and miscellaneous assets 13,926 11,712 11,728
Property - net 38,010 37,156 35,888
Intangible assets -net 14,803 12,523 10,080
-------- -------- --------
Total assets $141,004 $135,262 $131,818
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $11,871 $11,527 $10,679
Loans payable 1,766 1,214 1,202
Accrued liabilities and customer deposits 32,440 29,822 30,193
------ ------ ------
Total current liabilities 46,077 42,563 42,074
Long-term debt 6,002 5,192 5,256
Capitalized leases 184 198 163
Postretirement benefits other than
pensions 41,820 40,578 40,184
Pensions 4,275 5,966 5,104
Other liabilities and deferred income
taxes 16,444 15,650 15,237
Deferred credits 1,697 1,605 1,856
-------- -------- --------
Total liabilities 116,499 111,752 109,874
------- ------- -------
Minority interests 705 92 144
General Motors - obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely
junior subordinated debentures of
General Motors
Series D 79 - -
Series G 143 - -
Stockholders' equity 23,578 23,418 21,800
------- ------- -------
Total liabilities and stockholders'
equity $141,004 $135,262 $131,818
======= ======= =======
Liquidity and Capital Resources With Financing and Insurance Operations on an
Equity Basis
GM's cash and marketable securities totaled $14.6 billion at September 30,
1997, compared with $17 billion at December 31, 1996 and $14.5 billion at
September 30, 1996. The decrease in cash and marketable securities from December
31, 1996 to September 30, 1997 was primarily due to cash of $1.5 billion
contributed to the U.S. pension plans and approximately $2.85 billion in cash
used to acquire shares of $1-2/3 par value common stock under the
Corporation's two stock repurchase programs. Excluding the effect of the stock
repurchase programs, the increase in cash and marketable securities from
September 30, 1996 to September 30, 1997 was due primarily to higher cash levels
generated from continuing operations for the period.
Loans payable and long-term debt increased by approximately $1.4 billion to
$7.8 billion at September 30, 1997 from balances of $6.4 billion at December 31,
1996 and $6.5 billion at September 30, 1996, respectively. The increases in 1997
were primarily due to an increase of more than $600 million in long-term debt
assumed in the PAS merger, an increase of approximately $400 million in
long-term debt issued to redeem preferred stock outstanding related to PAS, and
other funding used for worldwide growth initiatives. Net liquidity, calculated
as cash and marketable securities less the total of loans payable, long-term
debt and capitalized leases was $6.6 billion at September 30, 1997, compared
with $10.4 billion at December 31, 1996 and $7.9 billion at September 30, 1996.
In August 1997, GM established a $1 billion commercial paper program and plans
to issue commercial paper to manage liquidity, enhance funding flexibility, and
lower its blended cost of capital.
Book value per share of $1-2/3 par value common stock increased to $30.17 at
September 30, 1997, from $27.95 at December 31, 1996 and $25.95 at September 30,
1996. Book value per share of Class H common stock increased to $15.09 at
September 30, 1997, from $13.97 at December 31, 1996 and $12.98 at September 30,
1996.
- 22 -
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Liquidity and Capital Resources for GMAC
At September 30, 1997, GMAC owned assets and serviced automotive receivables
totaling $113.6 billion, $5.5 billion above year-end 1996, and $7.0 billion
above September 30, 1996. Earning assets totaled $102.3 billion at September 30,
1997, compared with $95.7 billion and $93.2 billion at December 31 and September
30, 1996, respectively. The increases over year-end 1996 and September 30, 1996
levels were attributable to higher outstanding balances for wholesale and
operating lease receivables, real estate mortgages and investments in
securities.
As of September 30, 1997, GMAC's total borrowings were $82.9 billion, an
increase of $4.2 billion and $7.9 billion from December 31, 1996 and September
30, 1996, respectively. The higher borrowings were principally used to fund
increased earning asset levels. GMAC's ratio of debt to total stockholder's
equity at September 30, 1997 was 9.6:1, compared with 9.5:1 at December 31, 1996
and 9.1:1 at September 30, 1996. Continuing to utilize its asset securitization
program, GMAC sold additional retail finance receivables totaling $2.1 billion
(net) during the third quarter of 1997.
GMAC and its subsidiaries maintain substantial bank lines of credit which
totaled $39.6 billion at September 30, 1997, compared with $40.7 billion at
year-end 1996 and $40.8 billion at September 30, 1996. The unused portion of
these credit lines totaled $31.1 billion at September 30, 1997, $500 million
higher and $900 million lower compared to December 31 and September 30, 1996
balances, respectively.
Condensed Consolidated Statements of Cash Flows With Financing and Insurance
Operations on an Equity Basis (Unaudited)
Nine Months Ended
September 30,
1997 1996
(Dollars in Millions)
Net cash provided by operating activities $11,254 $11,053
------ ------
Cash flows from investing activities
Expenditures for property (6,648) (6,518)
Investments in companies, net of cash acquired (1,788) (126)
Investments in other marketable securities
- acquisitions (11,083) (8,226)
Investments in other marketable securities
- liquidations 10,056 7,352
Operating leases - acquisitions (3,963) (3,342)
Operating leases - liquidations 2,981 3,142
Special inter-company payment from EDS - 500
Other - 352
------ ------
Net cash used in investing activities (10,445) (6,866)
------ -----
Cash flows from financing activities
Net increase (decrease) in loans payable 552 (985)
Increase in long-term debt 358 1,918
Decrease in long-term debt (568) (788)
Proceeds from issuing common stocks 471 211
Repurchases of common stocks (3,353) -
Cash dividends paid to stockholders (1,252) (1,183)
Proceeds from sale of minority interest in DIRECTV - 138
----- -----
Net cash used in financing activities (3,792) (689)
----- ----
Effect of exchange rate changes on cash and cash
equivalents (407) (173)
----- -----
Net cash (used in) provided by continuing operations (3,390) 3,325
----- -----
Net cash provided by discontinued operations - 103
----- -----
Net (decrease) increase in cash and cash equivalents (3,390) 3,428
Cash and cash equivalents at beginning of the period 13,320 9,047
------ ------
Cash and cash equivalents at end of the period $9,930 $12,475
====== ======
Cash Flows With Financing and Insurance Operations on an Equity Basis
Net cash provided by operating activities was approximately $11.3 and $11.1
billion for the nine months ended September 30, 1997, and 1996, respectively.
The year-over-year increase was primarily the result of an increase in cash
generated from higher income from continuing operations, partially offset by
increased pension contributions and changes in other assets and liabilities.
During the nine months of 1997, GM made cash contributions of $1.5 billion to
the U.S. pension plans, which is expected to be adequate to maintain a fully
funded status on an economic basis for the remainder of the year. For the nine
months ended September 30, 1996, cash contributions to U.S. pension plans
totaled $800 million.
- 23 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Cash Flows With Financing and Insurance Operations on an Equity Basis
(concluded)
Net cash used in investing activities amounted to $10.4 billion for the nine
months ended September 30, 1997 compared with $6.9 billion in the prior year
period. The increase in net cash used in investing activities during the 1997
period was primarily due to approximately $1.5 billion of cash consideration
used to consummate the merger of the satellite service operations of Hughes and
PAS in 1997, combined with a $782 million net increase in cash used for
operating leases. In addition, the 1996 investing activities reflected a $500
million special intercompany payment from EDS.
Net cash used in financing activities totaled $3.8 billion for the nine
months ended September 30, 1997, compared with $689 million for the prior year
period. The increase was primarily due to the use of $2.85 billion during the
1997 period to acquire 49.2 million shares of $1-2/3 par value common stock
under the Corporation's two $2.5 billion stock repurchase programs, one of which
was completed in July. GM also used approximately $503 million to repurchase
shares of $1-2/3 par value common stock for certain employee benefit plans.
A third quarter cash dividend on $1-2/3 par value common stock of $0.50 per
share was paid on September 10, 1997. This dividend declaration raises cash
dividends in the nine months of 1997 to $1.50 per share compared with $1.20 per
share in the same 1996 period. A third quarter cash dividend on Class H common
stock of $0.25 per share was paid on September 10, 1997. This continues the
level established in the first quarter of 1997 and raises cash dividends in the
nine months of 1997 to $0.75 per share compared with $0.72 per share in the same
1996 period. On November 3, 1997, the GM Board of Directors declared a cash
dividend for the fourth quarter of 1997 on $1-2/3 par value and Class H common
stocks of $0.50 and $0.25 per share, respectively, payable December 10, 1997.
The GM Board of Directors also declared quarterly dividends on the Series B,
Series D, and Series G Depositary Shares of $0.57, $0.495, and $0.57 per share,
respectively, payable February 2, 1998.
Upon completion of the Hughes Transactions, which would include the
recapitalization of Class H common stock, future earnings (if any) from the
telecommunications and space business of Hughes Electronics would be retained
for the development of that business. Accordingly, GM does not currently intend
to initially pay any cash dividends on the recapitalized Class H common stock.
Cash Flows for GMAC
Cash provided by operating activities during the nine months ended September
30, 1997 totaled $3.8 billion, a decrease from the $4.7 billion provided during
the comparable 1996 period. The decrease was primarily attributable to increased
net purchases of both mortgage loans and mortgage trading securities, partially
offset by higher taxes payable and increases in payables to GM for vehicle
shipments to dealers under GMAC wholesale finance agreements.
Cash used for investing activities during the nine months of 1997 totaled
$8.6 billion, compared with $4.5 billion during the same period in 1996. The
period-to-period increase was primarily attributable to lower sale of receivable
proceeds resulting from decreased asset securitization activity.
During the nine months of 1997, cash provided by financing activities totaled
$4.5 billion, compared with approximately $0.7 billion of cash used by financing
activities during the nine months ended September 30, 1996. The $5.2 billion
change was primarily attributable to increased proceeds from the issuance of
short term debt used to fund increases in wholesale receivable balances.
Foreign Currency
GM records the financial performance of operations in Brazil using the U.S.
dollar as the functional currency due to GM's classification of the Brazilian
economy as highly inflationary. Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation" defines a highly inflationary economy as one
that has cumulative inflation of approximately 100% or more over a three-year
period. In mid-1997, the Brazilian three-year cumulative inflation rate fell
below the 100% level. Accordingly, GM is evaluating historical inflation rate
trends and certain other factors in order to determine whether it should no
longer classify the Brazilian economy as highly inflationary. If such a
reclassification is determined to be appropriate, GM would record the financial
performance for operations in Brazil using the local currency as the functional
currency. GM expects to complete its evaluation in late 1997 or early 1998 and
has not yet determined the effect a change in the Brazilian functional currency
would have on GM's consolidated financial statements.
Security Ratings
GM's $1 billion commercial paper program established in August 1997 received
the following security ratings from the various agencies:
Fitch Investors Service (Fitch) rated GM's commercial paper program F-1.
Fitch's F-1 rating for commercial paper and other short-term obligations is the
second highest of four investment grade ratings available from Fitch and 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.
Moody's Investors Service (Moody's) assigned the GM commercial paper program
a credit rating of P-2, which is the second highest within Moody's three
commercial paper investment grade ratings. Moody's P-2 rating indicates that the
issuer has a strong ability for repayment relative to other issuers.
- 24-
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Security Ratings - concluded
Duff & Phelps Credit Rating Co. (D&P) assigned a short-term debt rating of
D-1+ to GM's commercial paper program. The D-1+ rating by D&P, the highest of
five investment grade ratings available, signifies the highest certainty of
timely payment based on outstanding liquidity, including internal operating
factors and/or access to alternative sources of funds, with safety just below
risk-free U.S. Treasury short-term obligations.
Standard and Poor's Ratings Services, a division of McGraw-Hill Companies,
Inc. (S&P), assigned a rating of A-2 to GM's commercial paper program, which is
the third highest within S&P's four commercial paper investment grade ratings.
The A-2 rating indicates a satisfactory capacity for timely payment with a lower
degree of relative safety compared with issues designated as A-1+, S&P's highest
rating for commercial paper.
Employment and Payrolls
1997 1996
Worldwide Employment at September 30, (in thousands)
GM-NAO 239 245
Delphi 175 180
GMIO 116 110
GMAC 18 17
Hughes 87 84
Other 11 11
---- ----
Total 646 647
=== ===
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------ ------ ------
Worldwide payrolls - continuing
operations (in billions) $7,464 $7,490 $22,828 $22,462
===== ===== ====== ======
* * * * * *
- 25 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
(a) Material pending legal proceedings, other than ordinary routine litigation
incidental to the business, to which the Corporation became, or was, a party
during the quarter ended September 30, 1997 or subsequent thereto, but before
the filing of this report are summarized below.
Environmental Matters
In August, 1997 the Delaware Department of Natural Resources & Environmental
Control (DDNREC) issued a Notice of Administrative Penalty Assessment to the GM
Wilmington Assembly Plant seeking civil penalties in excess of $100,000 for
alleged violations of the Delaware volatile organic compound rules. GM filed a
request for hearing, and is pursuing discussions with DDNREC to resolve the
matter.
Other Matters
As previously reported, eight suits, denominated by plaintiffs as class actions,
were filed in Delaware Chancery Court against General Motors and its directors
challenging the spin-off of Hughes Electronics Corporation's defense business
and related transactions. A ninth suit, Nicholas M. Patinkin v. General Motors
Corporation, et al, was filed on March 31, 1997 which makes essentially the same
allegations as the previously filed suits. All nine suits have been consolidated
under the caption, In Re General Motors Class H Shareholders Litigation.
***
With respect to the previously reported matter, In re General Motors Anti-lock
Brake Products Liability Litigation, the plaintiffs' motion for reconsideration
of the dismissal of the eleven consolidated actions was denied. Plaintiffs have
appealed to the U.S. Court of Appeals for the Eight Circuit.
***
With respect to the previously reported matter, Jacobson, et. al. v Hughes
Aircraft Co. et. al., the Ninth Circuit has denied the request of Hughes for
a rehearing.
***
(b) Previously reported legal proceedings which have been terminated, either
during the quarter ended September 30, 1997, or subsequent thereto, but before
the filing of this report are summarized below:
With respect to the previously reported tentative settlement of a claim by the
State of North Dakota that GM had disposed of hazardous waste in a non-hazardous
waste landfill in North Dakota, GM and the State of North Dakota have resolved
the matter pursuant to an administrative Consent Agreement (Case No. 97-1147 HWM
N.D.C.C. 23-20.3) effective September 29, 1997. Under the Consent Agreement GM
removed all of the drums of aluminum grinding waste which could be feasibly
removed and made a voluntary contribution of $120,000 to the state's
Environmental Quality Restoration Fund. In addition, GM agreed to pay $20,000
representing the remaining portion of a suspended penalty under a prior Order
between the State and GM.
***
As previously reported, on July 12, 1996 the Corporation was served with a
putative Class Action Complaint filed in the Circuit Court of Greene County,
Alabama alleging that the paint on 1985 through 1995 model year GM vehicles is
defective (Robert J. Reinning et al. v. General Motors Corporation). On
September 11, 1997, the Court dismissed the case without prejudice at the
request of the plaintiffs.
* * * * * *
- 26 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS (Including Those Incorporated by Reference).
Exhibit
Number Exhibit Name Page 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)* List of Omitted Schedules and Other Attachments,
filed as Exhibit 2(d) to the Current Report on
Form 8-K of General Motors Corporation dated
January 16, 1997 N/A
2(d) Agreement and Plan of Merger by and between General
Motors Corporation and GM Mergeco Corporation, dated
as of October 17, 1997, included as Appendix A to the
Solicitation Statement/Prospectus dated as of
November 10, 1997, which is a part of the Registration
Statement on Form S-4 of General Motors Corporation
(Registration No. 333-37215) N/A
3(ii) By-Laws of General Motors Corporation, as amended to
August 4, 1997, incorporated by reference to the General
Motors June 30, 1997 Quarterly Report on Form 10-Q N/A
4(e)(i) Amended and Restated Declaration of Trust of General
Motors Capital Trust D, incorporated by reference to
Exhibit 4(c)(i) to the Current Report on Form 8-K
of General Motors Corporation dated July 1, 1997 N/A
4(e)(ii) Amended and Restated Declaration of Trust of General
Motors Capital Trust G, incorporated by reference to
Exhibit 4(c)(ii) to the Current Report on Form 8-K
of General Motors Corporation dated July 1, 1997 N/A
4(f)(i) Indenture between General Motors Corporation and
Wilmington Trust Company, incorporated by reference
to Exhibit 4(d)(i) to the Current Report on Form 8-K
of General Motors Corporation dated July 1, 1997 N/A
4(f)(ii) First Supplemental Indenture between General Motors
Corporation and Wilmington Trust Company With Respect
To The Series D Junior Subordinated Debentures,
incorporated by reference to Exhibit 4(d)(ii) to the
Current Report on Form 8-K of General Motors Corporation
dated July 1, 1997 N/A
4(f)(iii) Second Supplemental Indenture between General Motors
Corporation and Wilmington Trust Company With Respect
To The Series G Junior Subordinated Debentures,
incorporated by reference to Exhibit 4(d)(iii) to
the Current Report on Form 8-K of General Motors
Corporation dated July 1, 1997 N/A
4(g)(i) Series D Preferred Securities Guarantee Agreement,
General Motors Capital Trust D, incorporated by reference
to Exhibit 4(g)(i) to the Current Report on Form 8-K of
General Motors Corporation dated July 1, 1997 N/A
4(g)(ii) Series G Preferred Securities Guarantee Agreement,
General Motors Capital Trust G, incorporated by reference
to Exhibit 4(g)(ii) to the Current Report on
Form 8-K of General Motors Corporation dated July 1, 1997 N/A
* The registrant hereby undertaken to furnish supplementally a copy of any
omitted schedule or other attachment to the Securities and Exchange
Commission upon request.
- 27 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - concluded
11 Computation of Earnings Per Share Attributable to
Common Stocks for the Three and Nine Month Periods
Ended September 30, 1997 and 1996 29
99 Hughes Electronics Corporation and Subsidiaries
Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and
Results of Operations 33
27 Financial Data Schedule (for SEC information only)
(b) REPORTS ON FORM 8-K.
Two reports on Form 8-K, dated July 1, 1997 and July 14, 1997 , were filed
during the quarter ended September 30, 1997 reporting matters under Item 5,
Other Events.
* * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
(Registrant)
November 12, 1997 /s/Peter R. Bible
(Date) (Peter R. Bible, Chief Accounting Officer)
- 28 -
EXHIBIT 11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
ATTRIBUTABLE TO COMMON STOCKS
(Unaudited)
Three Months Ended
September 30, 1997
------------------
$1-2/3
Par Value Class H
Common Common
Stock Stock
--------- --------
(Dollars in Millions
Except Per Share Amounts)
Net income $1,006 $61
Premium on exchange of preference stocks 26 -
Dividends on preference stocks 16 -
----- ---
Earnings on common stocks 964 61
Dividends on common stocks 355 26
--- --
Net earnings retained $609 $35
=== ==
Weighted average shares outstanding (in millions) 713 102
Per Share Data
Net earnings retained per share $0.85 $0.35
Cash dividends per share 0.50 0.25
---- ----
Net earnings per share $1.35 $0.60
==== ====
Note: The difference between fully diluted and primary earnings per share is
immaterial.
- 29 -
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
ATTRIBUTABLE TO COMMON STOCKS - Continued
(Unaudited)
Three Months Ended
September 30, 1996
------------------------
$1-2/3
Par Value Class H
Common Common
Stock Stock
--------- --------
(Dollars in Millions
Except Per Share Amounts)
Net income $1,209 $62
Dividends on preference stocks 21 -
------ ---
Earnings on common stocks 1,188 62
Dividends on common stocks 301 24
--- --
Net earnings retained $887 $38
=== ==
Weighted average shares outstanding (in millions) 756 99
Per Share Data
Net earnings retained per share $1.17 $0.39
Cash dividends per share 0.40 0.24
---- ----
Net earnings per share $1.57 $0.63
==== ====
Note: The difference between fully diluted and primary earnings per share is
immaterial.
- 30 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
ATTRIBUTABLE TO COMMON STOCKS - Continued
(Unaudited)
Nine Months Ended
September 30, 1997
-----------------------
$1-2/3
Par Value Class H
Common Common
Stock Stock
--------- ---------
(Dollars in Millions
Except Per Share Amounts)
Net income $4,704 $257
Premium on exchange of preference stocks 26 -
Dividends on preference stocks 56 -
------ -----
Earnings on common stocks 4,622 257
Dividends on common stocks 1,094 76
----- ----
Net earnings retained $3,528 $181
===== ===
Weighted average shares outstanding (in millions) 728 101
Per Share Data
Net earnings retained per share $4.85 $1.79
Cash dividends per share 1.50 0.75
---- ----
Net earnings per share $6.35 $2.54
==== ====
Note: The difference between fully diluted and primary earnings per share is
immaterial.
- 31 -
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
ATTRIBUTABLE TO COMMON STOCKS - Concluded
(Unaudited)
Nine Months Ended
September 30, 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 $3,953 $ - $214
Income (loss) from discontinued operations (5) 15 -
------- -- -----
Net income 3,948 15 214
Dividends on preference stocks 61 - -
------ ----- -----
Earnings on common stocks 3,887 15 214
Dividends on common stocks 906 145 71
------ --- ----
Net earnings retained (loss accumulated) $2,981 $(130) $143
===== === ===
Net earnings retained from continuing
operations $2,986 $ - $143
===== === ===
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 $3.95 $ - $1.46
Loss accumulated per share from
discontinued operations (0.01) (0.26) -
Cash dividends per share 1.20 0.30 0.72
---- ---- ----
Net earnings per share $5.14 $0.04 $2.18
==== ==== ====
Note: The difference between fully diluted and primary earnings per share is
immaterial.
- 32 -
Unknown;Steven R. Mark;
EXHIBIT 99
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED STATEMENT OF INCOME AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- -------- ------- -------
(Dollars in Millions Except Per Share Amounts)
Revenues
Net sales
Outside customers $3,040.3 $2,590.8 $8,737.8 $7,560.9
General Motors and affiliates 1,077.2 1,219.3 3,773.5 3,895.4
Other (loss) income - net (4.8) (2.3) 495.2 134.1
--------- --------- --------- ---------
Total revenues 4,112.7 3,807.8 13,006.5 11,590.4
------- ------- -------- --------
Costs and expenses
Cost of sales and other operating charges,
exclusive of items listed below 3,126.2 2,890.5 9,668.0 8,781.6
Selling, general, and administrative
expenses 435.9 383.6 1,312.4 1,041.9
Depreciation and amortization 179.6 146.7 491.2 407.9
Amortization of GM purchase accounting
adjustments related to Hughes
Aircraft Company 30.5 30.5 91.7 91.7
Interest expense - net 14.0 5.1 41.7 11.7
-------- --------- --------------------
Total costs and expenses 3,786.2 3,456.4 11,605.0 10,334.8
------- ------- -------- --------
Income before income taxes and
minority interests 326.5 351.4 1,401.5 1,255.6
Income taxes 112.8 144.7 498.1 508.4
Minority interests in net (income) losses
of subsidiaries (4.0) 14.8 21.7 31.4
------ ------ ------ ------
Net income 209.7 221.5 925.1 778.6
Adjustments to exclude the effect of
GM purchase accounting adjustments
related to Hughes Aircraft Company 30.5 30.5 91.7 91.7
---- ---- ---- ----
Earnings Used for Computation of
Available Separate Consolidated
Net Income $240.2 $252.0 $1,016.8 $870.3
===== ===== ======= =====
Available Separate Consolidated Net Income
Average number of shares of General Motors
Class H Common Stock outstanding
(in millions)(numerator) 102.0 98.8 101.2 98.2
Class H dividend base (in millions)
(denominator) 399.9 399.9 399.9 399.9
Available Separate Consolidated
Net Income $61.3 $62.3 $257.1 $213.5
==== ==== ===== =====
Earnings Per Share Attributable to General
Motors Class H Common Stock $0.60 $0.63 $2.54 $2.18
==== ==== ==== ====
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
Reference should be made to the Notes to Consolidated Financial Statements.
- 33 -
<PAGE>
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30,
1997 December 31,
(Unaudited) 1996
------------- -----------
(Dollars in Millions
Except Per Share Amount)
ASSETS
Current assets
Cash and cash equivalents $1,443.1 $1,161.3
Accounts and notes receivable
Trade receivables (less allowances) 1,303.9 1,200.6
General Motors and affiliates 126.1 113.4
Contracts in process, (less advances and progress
payments) 2,169.4 2,186.5
Inventories (less allowances)
Productive material, work in process, and supplies 1,577.6 1,383.1
Finished product 184.1 145.4
Prepaid expenses, including deferred income taxes 694.6 568.1
------- -------
Total current assets 7,498.8 6,758.4
------- -------
Property-net 2,934.0 2,886.6
Telecommunications and other equipment - net 2,586.4 1,133.5
Intangible assets - net 5,757.8 3,466.0
Investments and other assets - principally at cost
(less allowances) 2,436.1 2,235.6
-------- --------
Total assets $21,213.1 $16,480.1
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable
Outside $982.3 $896.4
General Motors and affiliates 13.0 27.5
Advances on contracts 753.3 868.9
Notes and loans payable 687.7 248.1
Income taxes payable 218.8 132.9
Accrued liabilities 1,706.2 2,025.8
------- -------
Total current liabilities 4,361.3 4,199.6
------- -------
Long-term debt and capitalized leases 2,836.1 34.5
Postretirement benefits other than pensions 1,692.5 1,658.9
Other liabilities and deferred credits 1,873.8 1,386.4
Minority interests 639.4 20.8
Stockholder's equity
Capital stock (outstanding, 1,000 shares,
par value) and additional paid-in capital 6,365.2 6,347.2
Net income retained for use in the business 3,593.9 2,968.8
------- -------
Subtotal 9,959.1 9,316.0
Minimum pension liability adjustment (113.5) (113.5)
Accumulated foreign currency translation adjustments (35.6) (22.6)
Total stockholder's equity 9,810.0 9,179.9
------- -------
Total liabilities and stockholder's equity $21,213.1 $16,480.1
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
Reference should be made to the Notes to Consolidated Financial Statements.
- 34 -
<PAGE>
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-----------------
1997 1996
------ -------
(Dollars in Millions)
Net cash provided by operating activities $767.4 $844.3
----- -----
Cash flows from investing activities
Investment in companies, net of cash acquired (1,609.5) (28.7)
Expenditures for property and special tools (351.4) (485.0)
Increase in telecommunications and other equipment (456.4) (145.5)
Proceeds from sale and leaseback of satellite
transponders with GMAC - 252.0
Proceeds from disposal of property 28.2 60.9
Decrease in notes receivable 12.4 5.7
------- -----
Net cash used in investing activities (2,376.7) (340.6)
------- -----
Cash flows from financing activities
Net increase (decrease) in notes and loans payable 435.3 (397.2)
Increase in long-term debt 1,767.0 12.8
Decrease in long-term debt (11.2) (26.6)
Proceeds from sale of minority interest in subsidiary - 137.5
Cash dividends paid to General Motors (300.0) (288.0)
------- ------
Net cash provided by (used in) financing activities 1,891.1 (561.5)
------- ------
Net increase (decrease) in cash and cash equivalents 281.8 (57.8)
Cash and cash equivalents at beginning of the period 1,161.3 1,139.5
------- -------
Cash and cash equivalents at end of the period $1,443.1 $1,081.7
======= =======
Reference should be made to the Notes to Consolidated Financial Statements.
- 35 -
<PAGE>
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting. In the opinion of management, all adjustments (consisting
of only normal recurring items) which are necessary for a fair presentation have
been included. The results for interim periods are not necessarily indicative of
results which may be expected for any other interim period or for the full year.
For further information, refer to the consolidated financial statements and
notes thereto included in General Motors' (GM) 1996 Annual Report on Form 10-K,
the unaudited information relating to Hughes filed as Exhibit 99 in GM's
Quarterly Reports on Form 10-Q dated March 31, 1997 and June 30, 1997, and
Current Reports on Form 8-K filed subsequent to the filing date for the GM 1996
Annual Report on Form 10-K.
Note 2.
Other (loss) income - net for the nine months ended September 30, 1997
includes a $489.7 million pre-tax gain recognized in connection with the
PanAmSat merger (See Note 5); the nine months ended September 30, 1996 includes
a $120.3 million pre-tax gain from the sale of a 2.5% equity interest in
DIRECTV(R) to AT&T.
Note 3.
During the first quarter of 1997, the Company's DIRECTV subsidiary changed the
amortization period for certain subscriber acquisition costs related to a
consumer rebate and manufacturers' incentive program. Based on guidance from the
staff of the Securities and Exchange Commission, the period over which such
costs are amortized has been reduced from three years to one year, equal to the
length of the subscriber's prepaid programming commitment. The effect of this
change on prior periods was not material.
Note 4.
On October 6, 1997, the GM Board of Directors approved the final terms for a
series of related transactions (the "Hughes Transactions") designed to address
strategic challenges facing the three principal businesses of Hughes and to
unlock stockholder value in GM. The transactions approved by the GM Board of
Directors include the tax-free spin-off of the defense electronics business of
Hughes, known as Hughes Defense, to holders of GM $1-2/3 par value and Class H
common stocks, to be followed immediately by the tax-free merger of that
business with Raytheon Company. 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 Class H common stock would be
recapitalized into a GM tracking stock linked to the telecommunications and
space business of Hughes.
The GM Board of Directors also approved the formula to be used to determine
the distribution ratio for the allocation of the Class A common stock of Hughes
Defense between GM $1-2/3 and Class H common stockholders in connection with the
Hughes Defense spin-off. GM would distribute approximately 103 million shares of
Class A common stock of Hughes Defense, which will represent about 30 percent of
the total equity of the combined Hughes Defense/Raytheon Company, to GM $1-2/3
and Class H common stockholders if the Hughes Transactions are approved.
The distribution to GM Class H common stockholders will account for their
tracking stock interest in Hughes Defense, plus an additional amount valued at
approximately $1.733 billion to compensate for the elimination of their tracking
stock interest in Delco Electronics and other factors. GM $1-2/3 common
stockholders would receive the remaining shares of Class A common stock.
In July 1997, GM received a private letter ruling from the U.S. Internal
Revenue Service confirming that the spin-off of Hughes Defense would be tax free
to GM and its stockholders for U.S. federal income tax purposes. In addition, GM
and Raytheon have reached agreement with the U.S. Department of Justice
regarding the basis upon which the merger of Hughes Defense and Raytheon can
proceed consistent with the Government's enforcement of U.S. antitrust laws. The
agreement was filed, in the form of a proposed final judgment, with the U.S.
District Court for the District of Columbia on October 16, 1997. On October 24,
1997, the court entered a stipulation and order requiring the parties to abide
by the provisions of the agreement pending expiration of the 60-day statutory
notice and comment period and entry of final judgment, thereby permitting the
parties to consummate the merger of Hughes Defense and Raytheon.
A solicitation statement/prospectus of General Motors and Hughes Defense (in
the name of HE Holdings) has been filed with the Securities and Exchange
Commission and will be distributed to holders of GM $1-2/3 and Class H common
stock in order to secure their approval of the proposed Hughes Transactions. If
such approval is obtained, the Hughes Transactions could occur before the end of
the year. In addition, the merger of Hughes Defense and Raytheon is subject to
approval by Raytheon shareholders. No assurance can be given that the above
transactions will be completed.
No offering of Hughes Defense common stock or the new GM Class H common stock
nor any solicitation by means of a proxy or written consent would be made except
through the use of the solicitation statement/prospectus.
- 36 -
<PAGE>
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded
(Unaudited)
Note 5.
In May 1997, Hughes and PanAmSat Corporation (PAS) completed the merger of
their respective satellite service operations into a new publicly-held company.
Hughes contributed its Galaxy(R) satellite services business in exchange for a
71.5% interest in the new company. Existing PAS stockholders received a 28.5%
interest in the new company and $1.5 billion in cash. Such cash consideration
and other funds required to consummate the merger were funded by new debt
financing totaling $1.725 billion. This debt financing was provided by Hughes,
which borrowed such funds from GM.
For accounting purposes, the merger was treated by Hughes as an acquisition of
71.5% of PAS and accounted for using the purchase method. Accordingly, the
purchase price was allocated to the net assets acquired, including intangible
assets, based on estimated fair values at date of acquisition. In addition, the
merger was treated as a partial sale of the Galaxy business by Hughes and
resulted in a one-time pre-tax gain of $489.7 million ($318.3 million after-tax
or $0.80 per share of GM Class H common stock).
The preferred stock of PAS outstanding at the time of the merger was exchanged
into 12 3/4% Senior Subordinated Notes on September 30, 1997.
On November 3, 1997, Hughes entered into an agreement to sell substantially
all of the assets and liabilities of the Hughes Avicom International, Inc.
("Hughes Avicom") business to Rockwell Collins, Inc. for cash. The sale is
expected to close in the fourth quarter of 1997 pending regulatory approval and
result in a gain.
Note 6.
Earnings per share attributable to GM's Class H common stock was determined
based on the Available Separate Consolidated Net Income (ASCNI) of Hughes
divided by the weighted average number of common shares outstanding. 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).
The ASCNI of Hughes for any quarterly period represents the separate
consolidated net income of Hughes for such period, 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), calculated for such period and 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 quarter (102 million and 98.8 million
during the third quarters of 1997 and 1996, respectively) and the denominator of
which was 399.9 million during the third quarters of 1997 and 1996.
Note 7.
Hughes has disclosed in the 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.
Note 8.
As previously reported, Hughes has maintained a suit against the U.S.
Government since September 1973 regarding the Government's infringement and use
of a Hughes patent (the "Williams Patent") covering "Velocity Control and
Orientation of a Spin Stabilized Body," principally satellites. On June 17,
1994, the U.S. Court of Claims awarded Hughes damages of $114 million. Because
Hughes believed that the record supported a higher royalty rate, it appealed
that decision. The U.S. Government, contending that the award was too high, also
appealed. On June 19, 1996, the Court of Appeals for the Federal Circuit (CAFC)
affirmed the decision of the Court of Claims which awarded Hughes $114 million
in damages, together with interest. The U.S. Government petitioned the CAFC for
a rehearing. That petition was denied in October 1996. The U.S. Government then
filed a petition with the U.S. Supreme Court seeking certiorari. On April 21,
1997 the U.S. Supreme Court, citing a recent decision it had rendered in
Warner-Jenkinson v. Hilton Davis, remanded Hughes' suit over the Williams Patent
back to the CAFC in order to have the CAFC determine whether the ruling in the
Williams Patent matter was consistent with the U.S. Supreme Court's decision in
the Warner-Jenkinson case. The previous liability decision of the Court of
Claims in the Williams Patent matter, and its $114 million damage award to
Hughes, currently remain in effect pending reconsideration of the case by the
CAFC. Hughes is unable to estimate the duration of this reconsideration process.
While no amount has been recorded in the financial statements of Hughes to
reflect the $114 million award or the interest accumulating thereon, a
resolution of this matter could result in a gain that would be material to the
earnings of GM attributable to Class H common stock.
- 37 -
<PAGE>
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis should be read in
conjunction with the Hughes management's discussion and analysis included in
GM's 1996 Annual report to the SEC on Form 10-K, the management's discussion and
analysis relating to Hughes included in Exhibit 99 to GM's Quarterly Reports on
Form 10-Q dated March 31, 1997 and June 30, 1997, and Current Reports on Form
8-K filed subsequent to the filing date for GM's 1996 Form 10-K. In addition,
the following discussion excludes the purchase accounting adjustments related to
GM's acquisition of Hughes Aircraft Company (see Supplemental Data beginning on
page 41).
Statements made concerning expected financial performance, ongoing financial
performance strategies, and possible future actions which Hughes intends to
pursue to achieve the strategic objectives for each of its three principal
business segments constitute forward-looking information. The implementation of
these strategies and 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, GM's North
American Operations (GM-NAO) volumes, technological risk and interruptions to
production attributable to causes outside Hughes' control.
Transactions Update
On October 6, 1997, the GM Board of Directors approved the final terms for a
series of related transactions (the "Hughes Transactions") designed to address
strategic challenges facing the three principal businesses of Hughes and to
unlock stockholder value in GM. The transactions approved by the GM Board of
Directors include the tax-free spin-off of the defense electronics business of
Hughes, known as Hughes Defense, to holders of GM $1-2/3 par value and Class H
common stocks, to be followed immediately by the tax-free merger of that
business with Raytheon Company. 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 Class H common stock would be
recapitalized into a GM tracking stock linked to the telecommunications and
space business of Hughes. (See Note 4 to the Hughes consolidated financial
statements for additional information on the Hughes Transactions.)
Results of Operations
Hughes reported 1997 third quarter earnings, before the effects of purchase
accounting adjustments related to GM's acquisition of Hughes Aircraft Company,
of $240.2 million, a 4.7% decrease from the $252.0 million reported in the third
quarter of 1996. Earnings per share of GM Class H common stock decreased to
$0.60 per share from $0.63 per share in the third quarter of 1996. These
declines were principally due to lower operating margins at Delco Electronics
caused by continued price reductions, partially offset by increased margins in
the Telecommunications and Space segment resulting from DIRECTV subscriber
growth and the PanAmSat merger.
Revenues for the third quarter of 1997 were $4,112.7 million, an 8.0%
increase from the $3,807.8 million reported in the third quarter of 1996. Costs
and expenses as a percentage of revenues increased slightly to 91.3% from 90.0%
in the third quarter of 1996. Income taxes were $112.8 million, or 31.6% of
income before income taxes and minority interests, for the third quarter of 1997
compared with $144.7 million, or 37.9% of income before income taxes and
minority interests, in the third quarter of 1996.
The decrease in the effective tax rate for both the quarter and nine month
period ended September 30, 1997 from approximately 41% to approximately 35%
resulted primarily from the use of tax credits.
Operating profit was $375.8 million for the quarter ended September 30, 1997,
a 3.5% decrease from the operating profit of $389.3 million reported during the
comparable period in 1996. The operating profit margin was 9.1% for the third
quarter of 1997 compared with 10.2% in the third quarter of 1996.
Telecommunications and Space segment revenues for the quarter ended September
30, 1997 were $1,242.2 million, an increase of 25.7% over revenues of $988.5
million reported in the prior year's third quarter. This growth was primarily
due to continued expansion of the DIRECTV subscriber base in the United States
and Latin America and increased revenues as a result of the PanAmSat merger.
Operating profit in the third quarter of 1997 increased to $115.0 million
compared with $62.0 million reported in the same period of 1996. This increase
was largely the result of improved performance in the domestic DIRECTV business
and operating profit generated by PanAmSat. As a result, the third quarter
operating profit margin increased to 9.2% compared with 6.2% last year.
- 38 -
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The global telecommunications industry is highly competitive and
undergoing rapid technological and structural change. The ability of the
telecommunications and space business of Hughes to realize its strategic goals
is accordingly subject to numerous uncertainties. However, based on the current
business plan for the telecommunications and space business of Hughes and Hughes
management's current assessment of industry conditions, Hughes management
currently anticipates that the revenues and earnings of the telecommunications
and space business of Hughes should each be able to grow at a compound rate of
at least 20 percent per year through 2001. In general, the Telecommunications
and Space segment systems businesses (principally the satellite manufacturing
and network systems) are expected to have more moderate growth in revenues
and earnings, with greater growth coming in the services businesses (principally
the direct-to-home broadcast and satellite services).
With respect to the worldwide DIRECTV businesses, particularly in the United
States, Hughes is considering a number of strategic initiatives designed to
expand its market share and enhance its competitive position. These include new
distribution channels, new services, broader programming and marketing and other
promotional strategies designed to address "barriers to entry" identified by
consumers. To the extent that such strategies are implemented, subscriber
acquisition costs are likely to increase and, as a result, the execution of such
strategies is likely to affect the timing and amount of revenues and the overall
profitability of the DIRECTV businesses. However, Hughes believes that early
capture of market share and the establishment of market leadership are important
to maximization of the long-term value of the DIRECTV businesses.
On November 3, 1997, Hughes entered into an agreement to sell substantially
all of the assets and liabilities of the Hughes Avicom International, Inc.
("Hughes Avicom") business to Rockwell Collins, Inc. for cash. The sale is
expected to close in the fourth quarter of 1997 pending regulatory approval and
result in a gain. The sale will allow Hughes to better focus on its core
telecommunications and space business. Hughes Avicom is a supplier of products
and services to the commercial airline market.
The Automotive Electronics segment reported third quarter 1997 revenues of
$1,209.5 million, a decrease of 5.1% from revenues of $1,274.6 million for the
same period in 1996. The decline reflects a 9.3% decrease in Delco-supplied
electronic content in GM vehicles, from $900 to $816 per vehicle, which more
than offset a 9.8% increase in international and non-GM sales from $236 million
to $259 million. Operating profit declined to $95.9 million in the third quarter
of 1997 from $166.3 million in the comparable 1996 period. The decline was
primarily due to price reductions resulting from competitive pricing in
connection with GM's global sourcing initiative, and the impact from continued
international expansion. As a result, third quarter operating profit margin
declined to 8.0% from 13.1% in 1996.
As the principal supplier of automotive electronics to GM-NAO, Hughes' sales
of automotive electronics will continue to be heavily dependent on GM's
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 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 recent years as price and volume declines associated with GM's global
souring initiatives more than offset Hughes' ability to achieve costs
reductions. In response to the increased pressure on margins and to enhance
future competitiveness, management is taking action to reduce the cost structure
of the business. As a result of the factors described above, the operating
margin is expected to be at low double digits for the remainder of 1997, and
then show modest improvement in 1998 and 1999.
In connection with Delco's planned integration with Delphi as part of the
Hughes Transactions, Delco is participating with Delphi in a review of the
adequacy of its strategy which focuses on the competitiveness of its operations,
growth opportunities and increasing market share through technology leadership,
quality, cost and responsiveness. Delco and Delphi are continuing to study the
outlook for some of their major
- 39 -
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
product lines and their capacity to achieve Delphi's goals of increased growth
and profitability. The findings of this study may result in the modifying,
selling or closing of certain lines of business that are not performing as
effectively as necessary to enable Delphi to meet its strategic plans, while
further expanding and growing product lines which will help to meet corporate
objectives. The study is expected to be completed in late 1997 or early 1998.
Presently, Delco and Delphi cannot estimate the impact the findings of this
study may have on Delco's existing lines of business and results of operations.
The Aerospace and Defense Systems segment reported 1997 third quarter revenues
of $1,628.4 million, a 6.8% increase over revenues of $1,524.5 million reported
last year. The growth was principally due to the build-up of several newer
programs, particularly information systems and services programs such as Hughes
Air Warfare Center, Desktop V, and Wide Area Augmentation System, and the
acquisition of the Marine Systems Group of Alliant Techsystems in March 1997.
Operating profit for the third quarter of 1997 decreased slightly to $165.7
million compared with $167.1 million for the comparable period in 1996. The 1997
third quarter operating profit margin decreased to 10.2% as compared to 10.9% in
1996 primarily due to a continued sales mix shift toward information systems and
services programs. Future operating profits could be adversely impacted by
further reductions in the U.S. defense budget.
Liquidity and Capital Resources
Cash and cash equivalents at September 30, 1997 were $1,443.1 million, an
increase of $281.8 million from the $1,161.3 million reported at December 31,
1996. The increase was primarily due to the positive impact on cash of $258.8
million as a result of the PAS merger, the proceeds of $629.5 million from
short-term commercial paper borrowings under an existing credit facility, and
cash generated by operating activities, partially offset by the acquisition of
the Marine Systems Group of Alliant Techsystems, Inc. for $143.3 million,
capital expenditures, cash dividends paid to GM, and the repayment of $208.8
million of short-term borrowings.
The completion of the PAS merger in the second quarter of 1997 had a
significant impact on the liquidity and debt of Hughes. Existing PAS cash and
non-current marketable securities of $296.9 million and $330 million,
respectively, were acquired by Hughes as a result of the merger. Total Hughes
long-term debt increased by the acquisition financing of $1,725 million provided
by GM, as well as the assumption of the existing PAS debt of $613.4 million.
Existing redeemable preferred stock of PAS amounting to $395.8 million was also
assumed in connection with the merger and was subsequently exchanged into 12
3/4% Senior Subordinated Notes on September 30, 1997.
Capital expenditures, including expenditures for telecommunications and other
equipment, were $761.6 million through September 30, 1997, compared with $627.6
million for the same period in 1996 reflecting increased expenditures in the
Telecommunications and Space segment, primarily for satellites.
Long-term debt and capitalized leases were $2,836.1 million at September 30,
1997, consisting primarily of PAS related debt described above. The ratio of
long-term debt and capitalized leases to the total of such debt and pro forma
stockholder's equity was 28.3% at September 30, 1997 and 0.1% at December 31,
1996.
As a measure of liquidity, Hughes' current ratio (ratio of current assets to
current liabilities) of 1.72 at September 30, 1997 remained relatively unchanged
from 1.61 at December 31, 1996. Working capital increased to $3,137.5 million at
September 30, 1997 from $2,558.8 million at December 31, 1996.
Hughes expects the remaining 1997 cash requirements prior to the consummation
of the planned Hughes Transactions to result in additional short-term borrowings
of up to $600.0 million under the Hughes commercial paper program.
Cash flows for the fourth quarter of 1997 and beyond are expected to be
negatively impacted by a change in the credit terms between Delco and GM-NAO for
purchases of automotive electronics. Prior to the 1997 third quarter, GM-NAO had
generally paid Delco for product shipments immediately upon billing. The policy
governing Delco/GM-NAO credit terms was changed such that Delco and GM-NAO are
implementing credit terms substantially equivalent to those given to GM-NAO's
non-affiliated suppliers. This change in credit terms is subject to a four year
phase-in period. However, if the spin-off of the Hughes defense business is
completed with Delco transferred to Delphi, the credit terms for Delco will
change, effective immediately after such transactions are completed, without any
phase-in period.
- 40 -
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that an entity classify items of other comprehensive income by their
nature in that financial statement. In addition, the accumulated balance of
other comprehensive income must be displayed separately from retained earnings
and additional paid-in capital in the equity section of the statement of
financial position. Reclassification of financial statements for earlier
periods, provided for comparative purposes, is required. SFAS No. 131
establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. SFAS No. 131
requires reporting segment profit or loss, certain specific revenue and expense
items and segment assets. It also requires reconciliations of total segment
revenues, total segment profit or loss, total segment assets, and other amounts
disclosed for segments to corresponding amounts reported in the financial
statements. Restatement of comparative information for earlier periods presented
is required in the initial year of application. Interim information is not
required until the second year of application, at which time comparative
information is required. SFAS No. 130 and No. 131 are effective for fiscal years
beginning after December 15, 1997.
Security Ratings
On April 24, 1997, Standard and Poor's Rating Services, a division of
McGraw-Hill Companies, Inc., affirmed its security ratings of Hughes and
indicated that the security ratings outlook for Hughes remains developing.
Supplemental Data
The Consolidated Financial Statements reflect the application of purchase
accounting adjustments as previously discussed. However, as provided in GM's
Restated Certificate of Incorporation, as amended, 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 of the intangible assets associated
with GM's purchase of Hughes Aircraft Company amounted to $30.5 million for the
third quarters of 1997 and 1996. 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 $2,631.8 million at September
30, 1997 and $2,723.5 million at December 31, 1996.
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.
- 41 -
<PAGE>
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA*
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- -------- -------- --------
(Dollars in Millions Except Per Share Amounts)
Total Revenues $4,112.7 $3,807.8 $13,006.5 $11,590.4
Total Costs and Expenses 3,755.7 3,425.9 11,513.3 10,243.1
------- ------- -------- --------
Income before Income Taxes and
Minority Interests 357.0 381.9 1,493.2 1,347.3
Income Taxes 112.8 144.7 498.1 508.4
Minority Interests in Net (Income)
Losses of Subsidiaries (4.0) 14.8 21.7 31.4
------ ------ -------- -------
Earnings Used for Computation of
Available Separate Consolidated
Net Income $240.2 $252.0 $1,016.8 $870.3
===== ===== ======= =====
Earnings Per Share Attributable to
General Motors Class H Common Stock $0.60 $0.63 $2.54 $2.18
==== ==== ==== ====
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, December 31,
ASSETS 1997 1996
------------ ------------
(Dollars in Millions)
Total Current Assets $7,498.8 $6,758.4
Property - Net 2,934.0 2,886.6
Telecommunications and Other Equipment - Net 2,586.4 1,133.5
Intangible Assets, Investments, and Other Assets - Net 5,562.1 2,978.1
--------- ---------
Total Assets $18,581.3 $13,756.6
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Total Current Liabilities $4,361.3 $4,199.6
Long-Term Debt and Capitalized Leases 2,836.1 34.5
Postretirement Benefits Other Than Pensions,
Other Liabilities, Deferred Credits, Minority
Interests and Redeemable Preferred Stock of
Subsidiary 4,205.7 3,066.1
Total Stockholder's Equity ** 7,178.2 6,456.4
Total Liabilities and Stockholder's Equity ** $18,581.3 $13,756.6
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
* The summary excludes purchase accounting adjustments related to GM's
acquisition of Hughes Aircraft Company.
** GM's 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).
- 42 -
<PAGE>
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* - Continued
PRO FORMA SELECTED SEGMENT DATA
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------- -------
(Dollars in Millions)
Telecommunications and Space
Revenues
Amount $1,242.2 $988.5 $3,870.3 $2,862.1
As a percentage of Hughes Revenues 30.2% 26.0% 29.8% 24.7%
Net Sales $1,249.9 $993.9 $3,407.0 $2,765.2
Operating Profit(1) $115.0 $62.0 $162.3 $193.5
Operating Profit Margin(2) 9.2% 6.2% 4.8% 7.0%
Depreciation and Amortization(3) $79.0 $53.9 $196.2 $141.8
Capital Expenditures(4) $332.9 $109.3 $551.9 $344.9
Automotive Electronics
Revenues
Amount $1,209.5 $1,274.6 $4,116.6 $4,099.1
As a percentage of Hughes Revenues 29.4% 33.5% 31.6% 35.4%
Net Sales $1,205.1 $1,267.6 $4,095.9 $4,068.0
Operating Profit(1) $95.9 $166.3 $375.9 $562.0
Operating Profit Margin(2) 8.0% 13.1% 9.2% 13.8%
Depreciation and Amortization $58.1 $48.2 $169.9 $147.5
Capital Expenditures $36.9 $53.5 $109.2 $155.9
Aerospace And Defense Systems
Revenues
Amount $1,628.4 $1,524.5 $4,912.6 $4,546.7
As a percentage of Hughes Revenues 39.6% 40.0% 37.8% 39.2%
Net Sales $1,624.8 $1,529.3 $4,904.7 $4,543.5
Operating Profit(1) $165.7 $167.1 $502.0 $486.4
Operating Profit Margin(2) 10.2% 10.9% 10.2% 10.7%
Depreciation and Amortization(3) $39.5 $43.9 $116.0 $109.9
Capital Expenditures $28.5 $50.6 $96.6 $105.7
Corporate And Other
Operating Profit (Loss)(1) $(0.8) $(6.1) $(0.5) $(17.0)
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
* The summary excludes purchase accounting adjustments related to GM's
acquisition of Hughes Aircraft Company.
(1) Net Sales less Total Costs and Expenses other than Interest Expense.
(2) Operating Profit as a percentage of Net Sales.
(3) Excludes amortization of purchase accounting adjustments related to GM's
acquisition of Hughes Aircraft Company amounting to $5.3 million in each of
the third quarters and $15.9 million in each of the nine-month periods for
the Telecommunications and Space segment; and $25.2 million in each of the
third quarters and $75.6 million in each of the nine-month periods for the
Aerospace and Defense Systems segment.
(4) Includes expenditures related to telecommunications and other equipment
amounting to $280.6 million, $38.7 million, $410.2 million, and $142.6
million, respectively.
- 43 -
<PAGE>
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* - Concluded
PRO FORMA SELECTED FINANCIAL DATA
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- -------- ------- --------
(Dollars in Millions Except Per Share Amounts)
Operating profit $375.8 $389.3 $1,039.7 $1,224.9
Income before income taxes and
minority interests $357.0 $381.9 $1,493.2 $1,347.3
Earnings used for computation of available
separate consolidated net income $240.2 $252.0 $1,016.8 $870.3
GM Class H dividend base shares (1) 399.9 399.9 399.9 399.9
Stockholder's Equity $7,178.2 $6,271.8 $7,178.2 $6,271.8
Dividends per share of GM Class H
common stock $0.25 $0.24 $0.75 $0.72
Working capital $3,137.5 $3,017.7 $3,137.5 $3,017.7
Operating profit as a percent of
net sales 9.1% 10.2% 8.3% 10.7%
Income before income taxes and minority
interests as a percent of net sales 8.7% 10.0% 11.9% 11.8%
Net income as percent of net sales 5.8% 6.6% 8.1% 7.6%
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
* The summary excludes GM purchase accounting adjustments related to the
acquisition of Hughes Aircraft Company.
(1) GM Class H dividend base shares is used in calculating earnings per share
attributable to GM Class H common stock. This is not the same as the
average number of GM Class H shares outstanding, which was 102 million for
the third quarter of 1997 and 98.8 million for the third quarter of 1996.
* * * * * *
- 44 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GENERAL
MOTORS CORPORATION SEPTEMBER 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THIRD QUARTER 1997 FORM 10-Q.
</LEGEND>
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<NAME> GENERAL MOTORS CORPORATION
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<PERIOD-START> JAN-01-1997
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222
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