-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FgnF+ghfvn0d0nHQfqoqgFW0Uu8YBufS+hZS4lqfdLGKP7dDLEIvqnWt+nSfQ4JP vJtUIzu+P5eptxiZBYttrA== 0000040730-97-000029.txt : 19970815 0000040730-97-000029.hdr.sgml : 19970815 ACCESSION NUMBER: 0000040730-97-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: CSE SROS: NASD SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MOTORS CORP CENTRAL INDEX KEY: 0000040730 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380572515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00143 FILM NUMBER: 97661987 BUSINESS ADDRESS: STREET 1: 100 RENAISSANCE CTR STREET 2: 3044 W GRAND BLVD CITY: DETROIT STATE: MI ZIP: 48202-3091 BUSINESS PHONE: 3135565000 10-Q 1 FIRST PART OF 10-Q L:\secdraft\version4\jun-97.doc 13 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 June 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 June 30, 1997, there were outstanding 720,199,762 shares of the issuer's $1-2/3 par value common stock and 101,446,357 shares of Class H $0.10 par value common stock. - 1 - 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 Six Months Ended June 30, 1997 and 1996 3 Consolidated Balance Sheets as of June 30, 1997, December 31, 1996 and June 30, 1996 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 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 27 Item 4. Submission of Matters to a Vote of Security Holders 29 Item 6. Exhibits and Reports on Form 8-K 31 Signature 32 Exhibit 3(ii) By-Laws of General Motors Corporation, as amended 33 Exhibit 11 Computation of Earnings Per Share Attributable to Common Stocks for the Three and Six Months Ended June 30, 1997 and 1996 62 Exhibit 12 Computation of Ratios of Earnings to Fixed Charges for the Six Months Ended June 30, 1997 and 1996 66 Exhibit 99 Hughes Electronics Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 67 Exhibit 27 Financial Data Schedule (for SEC information only) - 2 - PART I GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1977 1996 1997 1996 ------- -------- -------- ------- (Dollars in Millions Except Per Share Amounts) Net sales and revenues Manufactured products $39,724 $40,169 $77,164 $74,826 Financial services 3,204 3,125 6,401 6,304 Other income (Note 4) 2,218 1,486 3,822 2,892 ------- ------- ------- ------- Total net sales and revenues 45,146 44,780 87,387 84,022 ------ ------ ------ ------ Costs and expenses Cost of sales and other operating charges, exclusive of items listed below 33,008 33,116 64,038 63,247 Selling, general, and administrative expenses 3,984 3,578 7,575 6,648 Depreciation and amortization expenses 3,101 3,018 6,166 5,990 Interest expense 1,500 1,414 2,961 2,835 Plant closing expense - - 80 - Other deductions (Note 4) 320 452 568 866 -------- -------- -------- ------- Total costs and expenses 41,913 41,578 81,388 79,586 ------ ------ ------ ------ Income from continuing operations before income taxes and minority interests 3,233 3,202 5,999 4,436 Income taxes 1,153 1,098 2,142 1,530 Minority interests 18 (8) 37 (10) ------- --------- ------- --------- Income from continuing operations 2,098 2,096 3,894 2,896 Income (loss) from discontinued operations (Note 3) - (209) - 10 ------- ------ ------- ------- Net income 2,098 1,887 3,894 2,906 Dividends on preference stocks 20 20 40 40 ------- ------- ------- ------- Earnings on common stocks $2,078 $1,867 $3,854 $2,866 ===== ===== ===== ===== Earnings attributable to common stocks (Note 10) $1-2/3 par value from continuing operations $1,941 $2,001 $3,658 $2,705 Loss from discontinued operations - (15) - (5) --------- ------- --------- ------- Net earnings attributable to $1-2/3 par value $1,941 $1,986 $3,658 $2,700 ========= ====== ======== ====== Income (loss) from discontinued operations attributable to Class E $ - $(194) $ - $ 15 ===== === ===== ==== Net earnings attributable to Class H $137 $75 $196 $151 === == === === Average number of shares of common stocks outstanding (in millions) $1-2/3 par value 724 756 736 756 Class E - 479 - 470 Class H 101 98 101 98 Earnings per share attributable to common stocks (Note 10) $1-2/3 par value from continuing operations $2.68 $2.65 $4.98 $3.58 Loss from discontinued operations - (0.02) - (0.01) ------- ---- ------- ---- Net earnings attributable to $1-2/3 par value $2.68 $2.63 $4.98 $3.57 ===== ===== ===== ===== Income (loss) from discontinued operations attributable to Class E $ - $(0.41) $ - $0.04 ===== ==== ===== ==== Net earnings attributable to Class H $1.35 $0.77 $1.94 $1.55 ==== ==== ==== ==== Cash dividends per share of common stocks $1-2/3 par value $0.50 $0.40 $1.00 $0.80 Class E $ - $0.15 $ - $0.30 Class H $0.25 $0.24 $0.50 $0.48 Reference should be made to the notes to consolidated financial statements. - 3 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, June 30, 1997 Dec. 31, 1996 (Unaudited) 1996 (Unaudited) (Dollars in Millions) ASSETS Cash and cash equivalents $11,674 $14,063 $12,461 Other marketable securities 9,343 8,199 5,903 ------- ------- ------- Total cash and marketable securities 21,017 22,262 18,364 Finance receivables - net 60,357 57,550 58,432 Accounts and notes receivable (less allowances) 7,461 6,557 7,249 Inventories (less allowances) (Note 5) 13,528 11,898 11,755 Contracts in process (less advances and progress payments) 2,264 2,187 2,440 Deferred income taxes 19,291 19,510 20,415 Equipment on operating leases (less accumulated depreciation) 32,300 30,112 28,944 Property Real estate, plants, and equipment 69,671 69,770 68,386 Less accumulated depreciation (40,911) (41,298) (41,299) ------ ------ ------ Net real estate, plants, and equipment 28,760 28,472 27,087 Special tools - net 8,893 9,032 8,324 ------- ------- ------- Total property 37,653 37,504 35,411 Intangible assets - net 15,029 12,691 10,282 Other assets - net 23,005 21,871 19,605 -------- -------- -------- Total assets $231,905 $222,142 $212,897 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable (principally trade) $14,197 $14,221 $13,231 Notes and loans payable 89,918 85,300 80,756 Deferred income taxes 4,199 3,207 3,424 Postretirement benefits other than pensions (Note 6) 44,007 43,190 42,393 Pensions 7,774 7,599 6,442 Other liabilities and deferred credits 46,661 45,115 45,628 -------- -------- ------- Total liabilities 206,756 198,632 191,874 ------- ------- ------- Minority interests 716 92 163 Redeemable preferred stock of subsidiary (Note 11) 402 - - Stockholders' equity Preference stocks 1 1 1 Common stocks $1-2/3 par value (Note 9; issued, 721,480,932; 756,619,625; and 756,619,913 shares) 1,202 1,261 1,261 Class H (Note 2; issued, 101,641,092; 100,075,000 and 98,853,477 shares) 10 10 10 Capital surplus (principally additional paid-in capital) 17,250 19,189 19,080 Retained earnings 9,201 6,137 4,773 ------- ------- ------ Subtotal 27,664 26,598 25,125 Minimum pension liability adjustment (3,490) (3,490) (4,742) Accumulated foreign currency translation adjustments (642) (113) 44 Net unrealized gains on investments in certain debt and equity securities 499 423 433 ------- ------- -------- Total stockholders' equity 24,031 23,418 20,860 ------ ------ ------ Total liabilities and stockholders' equity $231,905 $222,142 $212,897 ======= ======= ======= Reference should be made to the notes to consolidated financial statements. - 4 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1997 1996 (Dollars in Millions) Net cash provided by operating activities $9,773 $9,583 ------ ----- Cash flows from investing activities Expenditures for property (4,268) (4,313) Investments in companies, net of cash acquired (1,652) (54) Investments in other marketable securities - acquisitions (18,147) (10,177) Investments in other marketable securities - liquidations 17,595 9,862 Finance receivables - acquisitions (79,997) (73,871) Finance receivables - liquidations 63,304 56,095 Proceeds from sales of finance receivables 12,930 18,466 Operating leases - acquisitions (10,649) (9,724) Operating leases - liquidations 6,227 5,701 Special inter-company payment from EDS - 500 Other 954 798 Net cash used in investing activities (13,703) (6,717) ------ ------ Cash flows from financing activities Net increase (decrease) in loans payable 3,269 (3,610) Increase in long-term debt 8,485 10,155 Decrease in long-term debt (7,061) (6,862) Proceeds from issuing common stocks 281 191 Repurchases of common stocks (2,292) - Cash dividends paid to stockholders (829) (837) Proceeds from sale of minority interest in DIRECTV(R) - 138 ------ ------ Net cash provided by (used in) financing activities 1,853 (825) ----- ------ Effect of exchange rate changes on cash and cash equivalents (312) (179) ----- ----- Net cash (used in) provided by continuing operations (2,389) 1,862 Net cash provided by discontinued operations - 103 ------ ------ Net (decrease) increase in cash and cash equivalents (2,389) 1,965 Cash and cash equivalents at beginning of the period 14,063 10,496 ------ ------ Cash and cash equivalents at end of the period $11,674 $12,461 ====== ====== Reference should be made to the notes to consolidated financial statements. - 5 - 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. - 6 - 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. GM will adopt SFAS No. 130 and No. 131 on January 1, 1998, as required. Note 2. Hughes Transactions On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. The transactions would include the tax-free spin-off of the Hughes defense business to holders of $1-2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company. The spin-off will not be proposed in a manner that would result in the recapitalization of Class H common stock into $1-2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the GM Restated Certificate of Incorporation, as amended. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. On July 14, 1997, GM received a ruling from the Internal Revenue Service that it's contemplated spin-off of the Hughes defense business would be tax-free to GM and its stockholders. The planned transactions must be approved by holders of $1-2/3 par value and Class H common stocks, among a number of other conditions. In addition, the merger of the Hughes defense business and Raytheon is subject to antitrust clearance and approval by Raytheon stockholders. No assurance can be given that the above transactions will be completed. GM expects to solicit stockholders' approval of the planned transactions during the fourth quarter of 1997, after certain conditions are satisfied. 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). - 7 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) 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 three and six month periods ended June 30, 1996 are 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 (loss) from discontinued operations totaled $1.9 billion and $4.3 billion for the three and six month periods ended June 30, 1996, respectively. Income (loss) from discontinued operations of $(209) million and $10 million for the three and six month periods ended June 30, 1996 is reported net of an income tax benefit of $109 million and income tax expense of $14 million, respectively. Note 4. Other Income and Other Deductions Other income and other deductions consisted of the following (in millions): Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Other income Nonfinancing interest $483 $406 $949 $779 Gain on PAS merger (Note 2) 490 - 490 - Insurance premiums 261 232 516 475 Mortgage servicing and processing fees 196 130 367 236 Mortgage investment and other income 177 85 307 168 Claims and commissions 137 138 258 333 Gain on sale of interest in Avis Europe (1) 128 - 128 - Income from sales of receivables programs 85 128 213 256 Insurance capital and investment gains 73 112 210 208 VW Settlement (2) - - 88 - Gain on sale of interest in DIRECTV (3) - - - 120 Other 188 255 296 317 ------ ------ ----- ----- Total other income $2,218 $1,486 $3,822 $2,892 ===== ===== ===== ===== Other deductions Insurance losses and loss adjustment expenses $153 $191 $292 $334 Provision for financing losses 127 135 257 290 Other 40 126 19 242 ---- --- ---- ---- Total other deductions $320 $452 $568 $866 === === === === (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): June 30, Dec. 31, June 30, 1997 1996 1996 Productive material, work in process, and supplies $6,789 $6,590 $6,428 Finished product, service parts, etc. 6,739 5,308 5,327 ------- ------- ------- Total inventories (less allowances) $13,528 $11,898 $11,755 ====== ====== ====== - 8 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) 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. 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 June 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 ===== 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 June 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 first six months of 1997, GM used $2 billion to acquire 35.5 million shares of $1-2/3 par value common stock, completing 80 percent of the Corporation's $2.5 billion stock repurchase program announced in January 1997. GM also used approximately $300 million to repurchase shares of $1-2/3 par value common stock for certain employee benefit plans during the first six months of 1997. Subsequently, on August 4, 1997, GM announced that it had completed the $2.5 billion stock repurchase program that began in the first half of 1997 and announced an additional $2.5 billion stock repurchase program of $1-2/3 par value common stock to be completed over a 12 month period. The stock repurchases to be made under the second repurchase program would represent about 5% of the outstanding shares of $1-2/3 par value common stock based on the New York Stock Exchange's closing price of $64.44 per share on Friday, August 1, 1997. - 9 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (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 (101 million and 98 million during the second quarters of 1997 and 1996, respectively) and the denominator of which was 400 million during the second quarters of 1997 and 1996. During the time that EDS was an indirect wholly-owned subsidiary of the Corporation, net earnings attributable to Class E common stock for the period represented the ASCNI of EDS for such period. The ASCNI of EDS for any quarterly period represented the separate consolidated net income of EDS for such period, excluding the effects of purchase accounting adjustments relating to the Corporation's acquisition of EDS, calculated for each such quarterly period and multiplied by a fraction, the numerator of which represented the weighted average number of shares of Class E common stock outstanding during the period (479 million for the second quarter of 1996) and the denominator of which was 479 million for the second quarter of 1996. Note 11. Preferred Stock Redeemable Preferred Stock of Subsidiary The preferred stock of PAS outstanding at the time of the merger (Note 2) is included in the accompanying consolidated balance sheet as redeemable preferred stock of subsidiary. Dividends on such redeemable preferred stock are payable quarterly in arrears. On or after April 15, 2000, the preferred stock is redeemable at the option of PAS, in whole or in part from time to time at a redemption price of 106.375% declining to 100% of liquidation value plus accrued and unpaid dividends. The redeemable preferred stock is subject to mandatory redemption in whole on April 15, 2005, at a price equal to the liquidation preference thereof plus accrued and unpaid dividends. Subject to certain conditions, PAS will be required to exchange all of the outstanding shares of redeemable preferred stock into 12 3/4% Senior Subordinated Notes due 2005. PAS currently expects the redeemable preferred stock to be exchanged for senior subordinated notes in the second half of 1997. Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts During July 1997, the General Motors Capital D Trust ("Series D Trust") issued $76 million in aggregate stated liquidation amount 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 $127 million in aggregate stated liquidation amount 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. - 10 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded (Unaudited) Note 11. Preferred Stock (concluded) 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 June 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 June 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 Six Months Ended June 30, June 30, 1997 1996 1997 1996 (Dollars in Millions) Net sales and revenues $25,823 $26,929 $50,682 $48,612 ------ ------ ------ ------ Pre-tax income 683 1,074 1,810 557 Income taxes 225 387 603 165 Earnings of nonconsolidated affiliates 16 18 31 34 ---- ---- ------ ---- Net income $474 $705 $1,238 $426 === === ===== === Net profit margin (1) 1.8% 2.6% 2.4% 0.9% - -------------------- (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 June 30, 1997 1996 GM as GM as a % of a % of Industry GM Industry Industry GM Industry (Units in Thousands) United States Cars 2,211 712 32.2% 2,424 842 34.7% Trucks 1,893 540 28.5% 1,863 532 28.5% ----- ----- ----- ----- Total United States 4,104 1,252 30.5% 4,287 1,374 32.0% Canada and Mexico 524 162 30.9% 422 131 31.2% ------ ------ ------ ------ Total North America 4,628 1,414 30.6% 4,709 1,505 32.0% ===== ===== ===== ===== Wholesale Sales - GM-NAO Cars 803 888 Trucks 612 638 ------ ------ Total 1,415 1,526 ===== ===== - 12 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Vehicle Unit Deliveries of Cars and Trucks - GM-NAO (concluded) Six Months Ended June 30, 1997 1996 GM as GM as a % of a % of Industry GM Industry Industry GM Industry (Units in Thousands) United States Cars 4,238 1,351 31.9% 4,475 1,503 33.6% Trucks 3,585 1,024 28.6% 3,506 1,023 29.2% ----- ----- ----- ----- Total United States 7,823 2,375 30.4% 7,981 2,526 31.6% Canada and Mexico 908 283 31.2% 751 234 31.3% ------ ------ ------ ------ Total North America 8,731 2,658 30.4% 8,732 2,760 31.6% ===== ===== ===== ===== Wholesale Sales - GM-NAO Cars 1,589 1,544 Trucks 1,228 1,148 ----- ----- Total 2,817 2,692 ===== ===== GM-NAO Financial Review GM-NAO reported net income of $474 million for the 1997 second quarter compared with net income of $705 million in the prior year quarter. The decrease in net income was primarily due to lower production volumes associated with the current year work stoppages at two assembly plants in Oklahoma City, Oklahoma, and Pontiac, Michigan, as discussed below, combined with higher retail incentives ($1,060 per unit in the second quarter of 1997 compared with $695 per unit in the second quarter of 1996) and increased commercial spending to support the numerous vehicle launches in progress. Lower material and manufacturing costs and sales of more profitable vehicles partially offset these increased costs. Excluding the effect of the current year work stoppages, GM-NAO's wholesale sales volumes would have been essentially unchanged at approximately 1.5 million units, while net income would have increased by approximately $144 million or more than 20% in the 1997 second quarter compared with the 1996 second quarter. Net income for the six months ended June 30, 1997 totaled $1.2 billion compared with $426 million for the prior year six month period. The increase in net income for the first six months of 1997 primarily reflected higher wholesale sales volumes and lower material and manufacturing costs. With all major industry participants increasing their focus on efficiency and cost improvements and with the announced increases in capacity by certain manufacturers, competition in the North American automotive industry will continue to intensify. In order to maintain and accelerate the positive product, operating, and earnings momentum it has experienced in recent years, GM-NAO is currently studying the long-term competitiveness of each of its lines of business. The findings of this study may result in changes to or the restructuring of those activities of GM-NAO that are not performing as effectively as necessary to help meet GM-NAO's objective of increasing market share, customer satisfaction, and profitability. The study is expected to be completed in late 1997 or early 1998. Presently, GM-NAO cannot estimate the impact that the findings of this study may have on its operations and on its and GM's results of operations. Local union members in Oklahoma City, Oklahoma, and Pontiac, Michigan, ceased production at two assembly plants on April 4 and April 22, 1997, respectively, where new local union agreements had not been completed. The work stoppage at the Oklahoma City facility ended on May 27, 1997, after GM and representatives of the local union reached a tentative agreement, that was subsequently ratified by the members of the local union. A tentative agreement between GM and representatives of the local union at the Pontiac facility was ratified on July 18, 1997 and production resumed on July 21, 1997. The work stoppages in Oklahoma City and Pontiac resulted in a loss of 96,000 units of production which had an aggregate unfavorable after-tax impact of approximately $490 million, or $0.67 per share of $1-2/3 par value common stock, on the 1997 second quarter results. The above estimated unfavorable after-tax impact represents the combined effects for GM-NAO ($375 million), Delphi ($85 million), and the Delco Electronics unit of Hughes ($30 million) and does not take into account the effect of possible recoveries that may occur through truck production increases that GM is likely to pursue in future periods. To the extent that future work stoppages disrupt the production and shipment of vehicles, the resulting deferral or decline in revenues may have an unfavorable impact on GM's results of operations. Net sales and revenues for the 1997 second quarter were $25.8 billion, which represented a decrease of approximately $1.1 billion or 4.1% compared with the prior year quarter. The decrease in net sales and revenues resulted from lower wholesale sales volumes primarily due to the current year work stoppages previously discussed. While sales of new models are gaining strong consumer acceptance, 1997 second quarter wholesale sales volumes were also somewhat constrained by restricted availability of certain new models. Net sales and revenues for the six months ended June 30, 1997 totaled $50.7 billion, which represented an increase of approximately $2.1 billion or 4.3% compared with the prior year six month period and was primarily due to a 125,000 increase in wholesale sales volumes. Wholesale sales volumes for the first six months of 1996 reflected the unfavorable impact of the 17-day work stoppages at the two component plants in Dayton, Ohio. Pre-tax income in the second quarter of 1997 decreased by $391 million compared with the prior year quarter primarily due to lower wholesale sales volumes and higher retail incentives, partially offset by lower material and manufacturing costs and sales of more profitable vehicle models. Pre-tax income for the six months ended June 30, 1997 increased by approximately $1.3 billion over the prior year period primarily due to increased wholesale sales volumes and lower material and manufacturing costs. - 13 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM-NAO Financial Review (concluded) GM vehicle deliveries in North America were 1,414,000 units in the 1997 second quarter, which represented a market share of 30.6% compared with 32.0% in the prior year quarter. The decrease was primarily due to restricted availability of certain models during the 1997 second quarter and the fact that vehicle deliveries in the 1996 second quarter included volumes for certain models that have since been discontinued. GM's North American market share for the six months ended June 30, 1997 was 30.4% compared with 31.6% in the prior year period. Although GM's market share was down compared with the second quarter of 1996, even with the impact of the current year work stoppages, the second quarter 1997 market share of 30.6% represented an increase over the first quarter 1997 market share of 30.3%. Increased market penetration is anticipated in the second half of 1997 with improved inventory of high demand products. Delphi Financial Highlights Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 (Dollars in Millions) Net sales and revenues $6,778 $7,307 $13,442 $13,496 ----- ----- ------ ------ Pre-tax income 468 528 705 649 Income taxes 170 184 242 231 Minority interests 5 (5) 6 (4) Earnings of nonconsolidated affiliates 7 16 21 20 ---- ---- ---- ---- Net income $310 $355 $490 $434 === === === === Net profit margin (1) 4.6% 4.9% 3.6% 3.2% - -------------------- (1) Net profit margin represents net income as a percentage of net sales and revenues. Delphi Financial Review Delphi reported net income of $310 million for the 1997 second quarter compared with $355 million in the prior year quarter. The 1997 second quarter net income decreased primarily due to lower production volume at GM-NAO related to the current year work stoppages previously discussed. Excluding the $85 million after-tax effect of these work stoppages, Delphi's net income would have increased by approximately $40 million or 11.3% in the 1997 second quarter compared with the 1996 second quarter. Net income for the six months ended June 30, 1997 increased to $490 million compared with $434 million for the prior year six month period. The increase in net income for the first six months of 1997 primarily reflected low 1996 net income due to the unfavorable impact of the work stoppages in the 1996 first quarter. Net sales and revenues for the 1997 second quarter were $6.8 billion, a decrease of $529 million or 7.2% compared with the prior year quarter, due to the current year work stoppages. Delphi's 1997 second quarter sales to customers outside the GM-NAO vehicle groups increased more than $170 million compared with the prior year period and represented approximately 37% of total sales, including all joint ventures. Net sales and revenues for the six months ended June 30, 1997 totaled $13.4 billion, compared with $13.5 billion in the prior year six month period. Pre-tax income in the second quarter of 1997 decreased by $60 million compared with the prior year quarter primarily due to the work stoppages, partially offset by lower material and manufacturing costs. Pre-tax income for the six months ended June 30, 1997 increased to $705 million from the prior year amount of $649 million reflecting higher production volume at GM-NAO and lower material and manufacturing costs. During the second quarter of 1997, Delphi continued its drive to strategically grow its operations worldwide through acquisitions, alliances, and joint ventures in Central and Eastern Europe, Asia, and the United States. On January 16, 1997, GM and Hughes announced a series of planned transactions that would include the transfer of Delco Electronics from Hughes to Delphi. See the Hughes Transactions section on page 22 for additional information. Delphi, with 63% of its consolidated and non-consolidated operations' sales to GM-NAO, is GM-NAO's principal supplier of automotive components and systems. Delphi also supplies 26 other original equipment manufacturers (OEMs) worldwide. Various factors impact Delphi sales to GM-NAO including production of vehicles in North America, the level of Delphi-supplied content per GM-NAO vehicle, the price of such automotive components and systems, and the competitiveness of Delphi's product offerings. Delphi's strategy is to supplement its existing strong supplier relationship with GM-NAO with additional OEM relationships around the world related to the design, development, and production of automotive components and systems. The global automotive components and systems market is highly competitive - 14 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Delphi Financial Review (concluded) and is presently undergoing significant restructuring and consolidation activities. As a result, Delphi is 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. In connection with this ongoing review, Delphi will continue to study the outlook for some of its major product lines and their capacity to achieve Delphi's goal 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, Delphi cannot estimate the impact the findings of this study may have on its existing lines of business and Delphi's and GM's results of operations. GMIO Financial Highlights Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 (Dollars in Millions) Net sales and revenues $9,711 $9,101 $17,994 $18,098 ----- ----- ------ ------ Pre-tax income 727 629 1,200 1,209 Income taxes 233 209 397 379 Minority interests 7 (3) 10 (6) Earnings (loss) of nonconsolidated affiliates (13) 7 (8) 32 ---- ---- ----- ---- Net income GM Europe 312 319 461 604 Other International 176 105 344 252 --- --- --- --- Total net income $488 $424 $805 $856 === === === === Net profit margin (1) 5.0% 4.7% 4.5% 4.7% (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 June 30, 1997 1996 GM as GM as a % of a % of Industry GM Industry Industry GM Industry (Units in Thousands) International Europe 4,769 492 10.3% 4,415 491 11.1% Latin America, Africa and the Middle East 1,195 203 17.0% 997 168 16.9% Asia and Pacific 3,126 134 4.3% 3,273 152 4.6% ----- --- ----- --- Total International 9,090 829 9.1% 8,685 811 9.3% ===== === ===== === Wholesale Sales - GMIO Cars 634 602 Trucks 202 186 --- --- Total 836 788 === === - 15 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Vehicle Unit Deliveries of Cars and Trucks - GMIO (concluded) Six Months Ended June 30, 1997 1996 GM as GM as a % of a % of Industry GM Industry Industry GM Industry (Units in Thousands) International Europe 9,265 958 10.3% 8,912 980 11.0% Latin America, Africa and the Middle East 2,208 365 16.5% 1,928 328 17.0% Asia and Pacific 6,951 294 4.2% 6,873 310 4.5% ----- ---- ----- ---- Total International 18,424 1,617 8.8% 17,713 1,618 9.1% ====== ===== ====== ===== Wholesale Sales - GMIO Cars 1,188 1,190 Trucks 431 390 ------ ------ Total 1,619 1,580 ===== ===== GMIO Financial Review GMIO's 1997 second quarter net income was $488 million or 5.0% of net sales and revenues compared with $424 million or 4.7% of net sales and revenues in the prior year quarter. The increase in 1997 second quarter net income was primarily due to a gain related to the sale of GM Europe's (GME) interest in Avis Europe and higher sales volumes in Latin America, partially offset by higher sales incentives and marketing expenses across Europe. Net income for the six months ended June 30, 1997 totaled $805 million compared with $856 million for the prior year period. The decrease in net income for the first six months of 1997 was primarily due to lower net income for GME. Pre-tax income for the 1997 second quarter was $727 million compared with $629 million in the prior year quarter with the increase primarily due to a gain on the sale of GME's interest in Avis Europe and higher wholesale sales volumes in Latin America. Net sales and revenues for the 1997 second quarter increased by 6.7% to $9.7 billion compared with $9.1 billion in the prior year quarter. The increased net sales and revenues in the 1997 second quarter mainly reflected higher wholesale sales volumes in Latin America, partially offset by the impact of translating foreign currencies against a stronger U.S. dollar. Net sales and revenues for the six months ended June 30, 1997 totaled $18 billion, which represented a decrease of approximately $100 million or 0.6% compared with the prior year six month period. Net income for GME totaled $312 million in the 1997 second quarter, which included a $103 million after-tax gain related to the sale of GME's interest in Avis Europe, compared with $319 million in the prior year quarter. Net income for GME for the six months ended June 30, 1997 decreased $143 million compared with the prior year period. The lower net income for the three and six months ended June 30, 1997 was due primarily to higher sales incentives and marketing expenses in a highly competitive European market. With the continued excess industry capacity, most competitors have significantly reduced prices. In response to this ongoing industry capacity overhang and the more aggressive pricing environment, GME is currently studying the long-term competitiveness of each of its operations. The findings of this study may result in changes to or the realignment of those activities of GME that are not performing as effectively as necessary to help meet GME's long-term goal of increased profitability. The study is expected to be completed in late 1997 or early 1998. Presently, GME cannot estimate the impact that the findings of this study may have on its operations and on its and GM's results of operations. Net income from the remainder of GMIO's operations, which include the Latin American and Asia and Pacific Operations, totaled $176 million in the second quarter of 1997 compared with $105 million in the prior year quarter. The increased 1997 second quarter net income resulted from higher wholesale sales volumes in Latin America, which was partially offset by lower earnings from nonconsolidated affiliates due to lower sales volumes at Isuzu. Net income from the remainder of GMIO's operations for the six months ended June 30, 1997, totaled $344 million compared with $252 million in the prior year period, primarily reflecting higher wholesale sales volumes in Latin America. During the second quarter of 1997, two joint ventures in China, Shanghai GM and Pan Asia Technical Automotive Center (PATAC), held their stone laying and company formation ceremonies. Shanghai GM and PATAC are 50/50 joint venture companies between Shanghai Automotive Industry Corporation and GM. - 16 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES General Motors Acceptance Corporation (GMAC) Financial Highlights Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 (Dollars in Millions) Financing revenue Retail and lease financing $890 $956 $1,830 $1,913 Operating leases 1,817 1,785 3,619 3,523 Wholesale and term loans 470 384 903 868 ------ ---- ------ ---- Total financing revenue 3,177 3,125 6,352 6,304 Interest and discount (1,312) (1,225) (2,578) (2,464) Depreciation on operating leases (1,154) (1,123) (2,312) (2,274) ----- ----- ----- ----- Net financing revenue 711 777 1,462 1,566 Other income and insurance premiums earned 915 829 1,847 1,573 ------ ---- ----- ----- Net financing revenue and other 1,626 1,606 3,309 3,139 Expenses 1,043 1,045 2,096 2,071 ----- ----- ----- ----- Pre-tax income 583 561 1,213 1,068 Income taxes 245 211 503 409 --- --- --- --- Net income $338 $350 $710 $659 === === === === Net income from financing operations(1) $296 $318 $589 $590 Net income from insurance operations 42 32 121 69 -- --- --- --- Net income $338 $350 $710 $659 === === === === Return on average equity (2) 16.1% 16.7% 17.0% 15.7% (1) Includes GMAC Mortgage Group, Inc. (GMACMG). (2) Return on average equity represents net income as a percentage of average stockholder's equity outstanding for each month in the period. - 17 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMAC Financial Review GMAC's consolidated second quarter net income for 1997 totaled $338 million, a 3% decrease from the second quarter of 1996. For the same period, a 7% decline in net income from financing operations was attributed to reduced net financing margins on automotive financing operations. Net income from insurance operations during the second quarter of 1997 totaled $42 million, up 33% compared with the second quarter of 1996. The increase was primarily attributable to improved claim experience in mechanical service agreements (sometimes referred to as `extended warranties') and commercial insurance. During the three months ended June 30, 1997, GMAC financed 24% of new GM vehicles delivered in the U.S., down from 25.7% during the same period last year. Penetration for the first six months of 1997 was 25% compared with 25.9% for the same 1996 period. The 1997 decreases in retail market share were attributable to a reduction of GM sponsored leasing incentives, a continued decline in fleet transaction participation and increased competitive market conditions. U.S. wholesale inventory financing was provided on 831,000 and 1,672,000 new GM vehicles during the respective three and six month periods ended June 30, 1997, compared with 961,000 and 1,681,000 during the same 1996 periods. This financing represented 67.8% and 69.9% of GM's U.S. vehicle sales to dealers during the first six months of 1997 and 1996, respectively. Wholesale financing revenue during the second quarter and first six months of 1997 was up from 1996 due to increased earning asset levels. GMAC's worldwide cost of borrowing for the second quarter and first six months of 1997 averaged 6.31% and 6.28%, respectively, 15 and 32 basis points below the comparable prior year levels. Total borrowing costs for U.S. operations averaged 6.38% and 6.35% for the three and six month periods ended June 30, 1997, compared with 6.36% and 6.50% for the respective 1996 periods. The lower average borrowing costs for the first six months of 1997 were attributable to a greater proportion of floating rate short-term borrowings in GMAC's funding mix. The $20 million increase in consolidated net financing revenue and other income during the second quarter of 1997 over the same period in 1996 was primarily attributable to higher wholesale receivable balances and mortgage income partially offset by lower retail receivable revenues and increased debt expense incurred to fund the higher wholesale balances. In June 1997, GMAC announced an agreement providing for Integon, a non-standard automotive insurance provider, to merge with a wholly-owned subsidiary of GMAC. Subject to obtaining all necessary regulatory approvals and the approval of Integon shareholders, the transaction is expected to be completed by year-end 1997 for a cash price of approximately $525 million and the assumption of approximately $150 million and $100 million of Senior Notes and Capital Securities, respectively. The merger will enable GMAC to continue its growth strategy in the financial services industry. - 18 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Hughes Financial Highlights Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 (Dollars in Millions Except Per Share Amounts) Net sales Outside customers $2,932 $2,531 $5,698 $4,970 GM and affiliates 1,334 1,502 2,696 2,676 ----- ----- ----- ----- Total net sales 4,266 4,033 8,394 7,646 Other income-net 490 18 500 137 ----- ------ ----- ----- Total revenues 4,756 4,051 8,894 7,783 Income before income taxes and minority interests 775 436 1,075 904 Income taxes 275 172 385 364 Minority interests in net losses of subsidiaries 11 12 26 17 --- --- --- --- Net income $511 $276 $716 $557 === === === === Earnings used for computation of available separate consolidated net income (1) $542 $306 $777 $618 === === === === Net earnings per share attributable to Class H common stock $1.35 $0.77 $1.94 $1.55 Cash dividends per share of Class H common stock $0.25 $0.24 $0.50 $0.48 - ---------------- Certain 1996 amounts have been reclassified to conform with the 1997 presentation. (1) Excludes amortization of GM purchase accounting adjustments of $30 million for the second quarters of 1997 and 1996, and $61 million for the six-month periods ended June 30, 1997 and 1996, related to GM's acquisition of Hughes Aircraft Company. Segment Highlights Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 (Dollars in Millions) Telecommunications and Space Revenues $1,619 $941 $2,628 $1,874 Net sales $1,138 $950 $2,157 $1,771 Operating profit (1) $40 $57 $47 $131 Operating profit margin (2) 3.5% 6.0% 2.2% 7.4% Automotive Electronics Revenues $1,461 $1,554 $2,907 $2,825 Net sales $1,457 $1,540 $2,891 $2,800 Operating profit (1) $134 $236 $280 $396 Operating profit margin (2) 9.2% 15.3% 9.7% 14.1% Aerospace and Defense Systems Revenues $1,638 $1,510 $3,284 $3,022 Net sales $1,635 $1,512 $3,280 $3,014 Operating profit (1) $163 $161 $336 $319 Operating profit margin (2) 10.0% 10.7% 10.3% 10.6% 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. - 19 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Hughes Financial Review Hughes Electronics reported net income of $511 million for the second quarter of 1997 compared with $276 million for the second 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 $542 million for the second quarter of 1997 compared with $306 million for the same period in 1996. The 1997 second quarter included the $318 million after-tax gain ($0.80 per share of Class H common stock) recognized in connection with the PanAmSat Corporation (PAS) merger. Excluding the one-time gain, earnings for the second quarter of 1997 decreased 26.8% from the $306 million reported in the same period in 1996, and earnings per share of Class H common stock decreased $0.22 from $0.77 per share in the second quarter of 1996. The declines were principally due to lower operating margins at Delco Electronics as a result of reduced GM production volumes related to work stoppages at two key GM assembly plants, and continued price reductions. Second quarter revenues (excluding the $490 million pre-tax gain recognized in connection with the PAS merger) increased 17.4% between 1996 and 1997, due to revenue increases in both the Telecommunications and Space and Aerospace and Defense Systems segments which more than offset the decline in revenues in Automotive Electronics due to the work stoppages. On the same basis, the increase in revenues in the Telecommunications and Space segment was due to continued expansion of the DIRECTV subscriber base in the United States and Latin America, partially offset by lower sales of wireless telecommunications equipment particularly related to the BellSouth Cellular Corp. contract. The 8.5% increase in revenues in the Aerospace and Defense Systems segment was principally due to additional revenues resulting from the build-up of newer programs, particularly information systems and services programs such as Desktop V, Wide Area Augmentation System, and Hughes Air Warfare Center, and the acquisition in March 1997 of the Marine Systems Group of Alliant Techsystems, Inc. The 6.0% decrease in revenues for the Automotive Electronics segment was principally due to a 6.9% decrease in GM vehicles produced in the United States and Canada (excluding joint ventures) and a 2.2% decline in Delco-supplied electronic content, partially offset by a 10.8% increase in international and non GM-NAO sales. Operating profit, excluding amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company, declined 24.7% between the second quarter of 1996 and the second quarter of 1997. The operating profit margin on the same basis was 8.0% for the second quarter of 1997 compared with 11.2% for the same period in 1996. These reductions were primarily a result of the lower margins in the Automotive Electronics segment driven by decreased production volumes and price reductions resulting from competitive pricing in connection with GM's global sourcing initiative. Also contributing to the declines were lower wireless telecommunications equipment sales and margins, and start-up operating losses from the Company's Latin American DIRECTV subsidiary, Galaxy Latin America, within the Telecommunications and Space segment. On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. See the Hughes Transactions section on page 22 for additional information regarding the planned transactions. - 20 - 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 Six Months Ended June 30, June 30, 1997 1996 1997 1996 (Dollars in Millions) Net sales and revenues $39,741 $40,182 $77,198 $74,854 ------ ------ ------ ------ Costs and expenses Cost of sales and other operating charges, exclusive of items listed below 32,998 33,127 64,022 63,251 Selling, general, and administrative expenses 3,290 2,955 6,174 5,403 Depreciation and amortization expenses 1,918 1,849 3,797 3,637 Plant closing expense - - 80 - ------ ------ ------ ------- Total costs and expenses 38,206 37,931 74,073 72,291 ------ ------ ------ ------ Operating income 1,535 2,251 3,125 2,563 Other income less income deductions 1,330 583 2,069 1,152 Interest expense (219) (229) (438) (425) ------ ------ ------ ------ Income from continuing operations before income taxes, minority interests, and earnings of nonconsolidated affiliates 2,646 2,605 4,756 3,290 Income taxes 909 886 1,639 1,120 ------ ------ ----- ----- Income from continuing operations before minority interests and earnings of nonconsolidated affiliates 1,737 1,719 3,117 2,170 Minority interests 18 (8) 37 (10) Earnings of nonconsolidated affiliates 343 385 740 736 ------ ------ ------ ------ Income from continuing operations 2,098 2,096 3,894 2,896 Income (loss) from discontinued operations - (209) - 10 ------ ----- ------ ------ Net income $2,098 $1,887 $3,894 $2,906 ===== ===== ===== ===== Net profit margin (1) 5.3% 4.7% 5.0% 3.9% (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 second quarter of 1997, GM's income from continuing operations totaled $2.1 billion or $2.68 per share of $1-2/3 par value common stock. GM's 1997 second quarter income from continuing operations included a $490 million after-tax unfavorable impact from the current year work stoppages previously discussed. GM's income from continuing operations for the six months ended June 30, 1997 was $3.9 billion, or $4.98 per share of $1-2/3 par value common stock, compared with $2.9 billion or $3.58 per share of $1-2/3 par value common stock, for the first six months ended June 30, 1996. Highlights of financial performance by GM's major business sectors for the three months and six months ended June 30 were as follows (in millions): Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 GM-NAO $474 $705 $1,238 $426 Delphi 310 355 490 434 GMIO 488 424 805 856 GMAC 338 350 710 659 Hughes 542 306 777 618 Other (54) (44) (126) (97) ---- ----- ----- ----- Income from continuing operations $2,098 $2,096 $3,894 $2,896 ===== ===== ===== ===== - 21- 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 20 and incorporated by reference to supplement the information presented herein. Second quarter 1997 net sales and revenues were $39.7 billion, which represented a decrease of $441 million compared with the prior year quarter. The decrease in net sales and revenues was primarily due to lower wholesale sales volumes in North America due to the current year work stoppages. Net sales and revenues for the six months ended June 30, 1997 were $77.2 billion compared with $74.9 billion for the first six months of 1996, reflecting higher wholesales sales volumes. Wholesale sales volumes for the first six months of 1996 reflect the unfavorable impact of the 17-day work stoppages at two component plants in Dayton, Ohio. The gross margin percentage for the 1997 second quarter was 17.0% compared with 17.6% in the prior year quarter. The gross margin percentage for the six months ended June 30, 1997 was 17.1%, compared with 15.5% for the first six months of 1996. The decrease in the second quarter 1997 gross margin primarily resulted from the decrease in wholesale sales volumes and higher sales incentives in North America, partially offset by lower material and manufacturing costs. Selling, general, and administrative expenses increased to $3.3 billion in the second quarter of 1997 compared with $3 billion in the prior year quarter and to $6.2 billion for the six months ended June 30, 1997 compared with $5.4 billion in the prior year period. The increases for the 1997 three and six 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 second quarter of 1997 and for the six months ended June 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 $1.3 billion for the 1997 second quarter compared with $583 million in the prior year quarter primarily due to a $490 million pre-tax gain ($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) related to the merger of the satellite service operations of Hughes and PAS and a $128 million pre-tax gain ($103 million after-tax or $0.14 per share of $1-2/3 par value common stock) related to the sale of GME's equity interest in Avis Europe. Other income less income deductions for the six months ended June 30, 1997 was $2.1 billion compared with $1.2 billion for the first six months of 1996 primarily due to the previously discussed gains related to the PAS merger 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 three and six months ended June 30, 1996 have been reported as discontinued operations. GM's 1996 second quarter net income, which included a loss from discontinued operations of $209 million, totaled $1.9 billion or $2.63 per share of $1-2/3 par value common stock. Hughes Transactions On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. The transactions would include the tax-free spin-off of the Hughes defense business to holders of $1-2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company. The spin-off will not be proposed in a manner that would result in the recapitalization of Class H common stock into $1-2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the GM Restated Certificate of Incorporation, as amended. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to Delphi. Finally, Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. The distribution of the Hughes defense business to holders of $1-2/3 par value common stock and Class H common stock would be recorded at fair value with a gain of approximately $3.9 billion to $4.5 billion recognized and reported as "other income" in GM's consolidated financial statements. On July 14, 1997, GM received a ruling from the Internal Revenue Service that it's contemplated spin-off of the Hughes defense business would be tax-free to GM and its stockholders. The planned transactions must be approved by holders of $1-2/3 par value and Class H common stocks, among a number of other conditions. In addition, the merger of the Hughes defense business and Raytheon is subject to antitrust clearance and approval by Raytheon stockholders. No assurance can be given that the above transactions will be completed. GM expects to solicit stockholders' approval of the planned transactions during the fourth quarter of 1997, after certain conditions are satisfied. - 22 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets With Financing and Insurance Operations on an Equity Basis (Unaudited) June 30, Dec. 31, June 30, 1997 1996 1996 (Dollars in Millions) ASSETS Cash and cash equivalents $10,855 $13,320 $11,501 Other marketable securities 4,062 3,642 1,538 ------- ------- ------- Total cash and marketable securities 14,917 16,962 13,039 Accounts and notes receivable (less allowances) Trade 5,887 4,909 5,846 Nonconsolidated affiliates 1,478 927 2,413 Inventories (less allowances) 13,528 11,898 11,755 Contracts in process (less advances and progress payments) 2,264 2,187 2,440 Equipment on operating leases (less accumulated depreciation) 4,047 3,918 3,747 Deferred income taxes and other 3,161 3,140 5,412 ------- ------- ------- Total current assets 45,282 43,941 44,652 Equity in net assets of nonconsolidated affiliates 10,061 9,855 9,761 Deferred income taxes 19,692 20,075 17,981 Other investments and miscellaneous assets 13,586 11,712 12,225 Property - net 37,211 37,156 35,200 Intangible assets -net 14,864 12,523 10,116 -------- -------- -------- Total assets $140,696 $135,262 $129,935 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $11,235 $11,527 $10,559 Loans payable 1,281 1,214 1,155 Accrued liabilities and customer deposits 31,431 29,822 29,011 ------ ------ ------ Total current liabilities 43,947 42,563 40,725 Long-term debt 5,967 5,192 5,264 Capitalized leases 188 198 175 Postretirement benefits other than pensions 41,393 40,578 39,791 Pensions 5,822 5,966 5,349 Other liabilities and deferred income taxes 16,385 15,650 15,959 Deferred credits 1,845 1,605 1,649 -------- -------- -------- Total liabilities 115,547 111,752 108,912 ------- ------- ------- Minority interests 716 92 163 Redeemable preferred stock of subsidiary 402 - - Stockholders' equity 24,031 23,418 20,860 -------- -------- -------- Total liabilities and stockholders' equity $140,696 $135,262 $129,935 ======= ======= ======= Liquidity and Capital Resources With Financing and Insurance Operations on an Equity Basis GM's cash and marketable securities totaled $14.9 billion at June 30, 1997, compared with $17 billion at December 31, 1996 and $13 billion at June 30, 1996. The decrease in cash and marketable securities from December 31, 1996 to June 30, 1997 was primarily due to approximately $2 billion in cash used to acquire 35.5 million shares of $1-2/3 par value common stock under the stock repurchase program announced in January 1997. Subsequently, on August 4, 1997, GM announced that it had completed the $2.5 billion stock repurchase program that began in the first half of 1997 and announced an additional $2.5 billion stock repurchase program of $1-2/3 par value common stock to be completed over a 12 month period. The stock repurchases to be made under the second repurchase program would represent about 5% of the outstanding shares of $1-2/3 par value common stock based on the New York Stock Exchange's closing price of $64.44 per share on Friday, August 1, 1997. The increase in cash and marketable securities from June 30, 1996 to June 30, 1997 was due primarily to higher cash levels generated from continuing operations for the period. During the second quarter of 1997, loans payable and long-term debt increased by over $800 million to $7.2 billion at June 30, 1997 from balances of $6.4 billion at December 31, 1996 and June 30, 1996, respectively. The increases were primarily due to an increase of more than $600 million in long-term debt assumed in the PAS merger previously discussed 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 $7.5 billion at June 30, 1997, compared with $10.4 billion at December 31, 1996 and $6.4 billion at June 30, 1996. Book value per share of $1-2/3 par value common stock increased to $29.99 at June 30, 1997, from $27.95 at December 31, 1996 and $24.79 at June 30, 1996. Book value per share of Class H common stock increased to $14.99 at June 30, 1997, from $13.97 at December 31, 1996 and $12.40 at June 30, 1996. - 23 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Liquidity and Capital Resources for GMAC At June 30, 1997, GMAC owned assets and serviced automotive receivables totaling $111.7 billion, $3.6 billion above year-end 1996, and $4.8 billion above June 30, 1996. Earning assets totaled $100.9 billion at June 30, 1997, compared with $95.7 billion and $93.3 billion at December 31 and June 30, 1996, respectively. The increase over year-end 1996 was primarily attributable to higher outstanding balances for wholesale receivables. Year-to-year increases in asset levels were attributed to growth of operating leases and greater wholesale and real estate mortgage balances. As of June 30, 1997, GMAC's total borrowings were $82.5 billion, an increase of $3.8 billion and $8.1 billion from December 31, 1996 and June 30, 1996, respectively. The higher borrowings outstanding were used to fund increased earning asset levels. GMAC's ratio of debt to total stockholder's equity at June 30, 1997 was 9.7:1, compared with 9.5:1 at December 31, 1996 and 8.9:1 at June 30, 1996. Continuing to utilize its asset securitization program, GMAC sold additional retail finance receivables totaling $1.5 billion (net) during the second quarter of 1997. GMAC and its subsidiaries maintain substantial bank lines of credit which totaled $40.2 billion at June 30, 1997, compared with $40.7 billion at year-end 1996 and $40.4 billion at June 30, 1996. The unused portion of these credit lines totaled $31.5 billion at June 30, 1997, $900 million and $100 million higher than December 31 and June 30, 1996, respectively. Condensed Consolidated Statements of Cash Flows With Financing and Insurance Operations on an Equity Basis (Unaudited) Six Months Ended June 30, 1997 1996 (Dollars in Millions) Net cash provided by operating activities $7,582 $6,048 ----- ----- Cash flows from investing activities Expenditures for property (4,070) (4,176) Investments in companies, net of cash acquired (1,652) (54) Investments in other marketable securities - acquisitions (7,963) (5,261) Investments in other marketable securities - liquidations 7,543 4,917 Operating leases - acquisitions (2,610) (2,065) Operating leases - liquidations 1,667 2,826 Special inter-company payment from EDS - 500 Other (29) 202 ------ ------ Net cash used in investing activities (7,114) (3,111) ----- ----- Cash flows from financing activities Net increase (decrease) in loans payable 66 (1,034) Increase in long-term debt 195 1,898 Decrease in long-term debt (37) (760) Proceeds from issuing common stocks 281 191 Repurchases of common stocks (2,292) - Cash dividends paid to stockholders (829) (837) Proceeds from sale of minority interest in DIRECTV - 138 ------ ----- Net cash used in financing activities (2,616) (404) ----- ---- Effect of exchange rate changes on cash and cash equivalents (317) (182) Net cash (used in) provided by continuing operations (2,465) 2,351 Net cash provided by discontinued operations - 103 Net (decrease) increase in cash and cash equivalents (2,465) 2,454 Cash and cash equivalents at beginning of the period 13,320 9,047 Cash and cash equivalents at end of the period $10,855 $11,501 Cash Flows With Financing and Insurance Operations on an Equity Basis Net cash provided by operating activities was approximately $7.6 billion for the six months ended June 30, 1997, compared with net cash provided by operating activities of over $6 billion in the prior year period. The increase was primarily the result of an increase in cash generated from higher income from continuing operations. - 24 - 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 $7.1 billion for the six months ended June 30, 1997 compared with $3.1 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 (see Note 2 to the GM consolidated financial statements), combined with a $1.7 billion net increase in cash used for operating leases. Net cash used in financing activities totaled $2.6 billion for the six months ended June 30, 1997, compared with $404 million for the prior year period. The increase was primarily due to the use of $2 billion during the first half of 1997 to acquire 35.5 million shares of $1-2/3 par value common stock, completing 80 percent of the Corporation's $2.5 billion stock repurchase program announced in January 1997. GM also used approximately $300 million to repurchase shares of $1-2/3 par value common stock for certain employee benefit plans. A second quarter cash dividend on $1-2/3 par value common stock of $0.50 per share was paid on June 10, 1997. This dividend declaration raises cash dividends in the first six months of 1997 to $1.00 per share compared with $0.80 per share in the same 1996 period. A second quarter cash dividend on Class H common stock of $0.25 per share was paid on June 10, 1997. This continues the level established in the first quarter of 1997 and raises cash dividends in the first six months of 1997 to $0.50 per share compared with $0.48 per share in the same 1996 period. On August 4, 1997, the GM Board of Directors declared a cash dividend for the third quarter of 1997 on $1-2/3 par value and Class H common stocks of $0.50 and $0.25, respectively, payable September 10, 1997. Cash Flows for GMAC Cash provided by operating activities during the six months ended June 30, 1997 totaled $3.2 billion, a decrease from the $3.9 billion provided during the comparable 1996 period. The decrease was attributed mainly to increased net purchases of both mortgage loans and mortgage trading securities, offset primarily by increases in payables to GM for vehicle shipments to dealers under GMAC wholesale finance agreements. Cash used for investing activities during the first six months of 1997 totaled $7.2 billion, compared with $3.6 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 first six months of 1997, cash provided by financing activities totaled $4 billion, compared with approximately $900 million of cash used by financing activities during the first six months of 1996. The $4.9 billion change was primarily attributable to increased proceeds from the issuance of short term debt used to fund increases in wholesale receivable balances. Security Ratings On April 24, 1997, Standard and Poor's Ratings Services, a division of McGraw-Hill Companies, Inc. (S&P), affirmed its security ratings of GM, GMAC, and various overseas affiliates of GMAC. S&P also revised the ratings outlook from stable to positive based on GM's generation of very strong overall earnings and cash flows over the past three years, which S&P indicated reflects the effectiveness of restructuring measures at GM's North American automotive operations. In addition, S&P affirmed its security ratings of Hughes and indicated that the security ratings outlook for Hughes remains developing. On June 18, 1997, Fitch Investors Services (Fitch) upgraded GM's senior debt rating to A from A- and its preference shares rating to A- from BBB+. In addition, GM's Capital Trust D and Capital Trust G Trust Originated Preferred Securities (TOPrS) were rated A- (see Note 11 to the GM consolidated financial statements) . Fitch also upgraded GMAC's outstanding senior debt rating to A from A- and all of its commercial paper ratings were affirmed at F-1. The senior debt ratings of certain GMAC affiliates, which included GMAC Australia (Finance) Limited, GMAC of Canada Limited, and GMAC International Finance B.V., were upgraded to A from A-, while commercial paper and other short-term obligations ratings of other GMAC affiliates, which included GMAC Nederland N.V. and GMAC (U.K.) Finance plc., were affirmed at F-1. Fitch's A and A- ratings are the sixth and seventh highest within the 10 investment grade ratings available from Fitch for long-term debt, with such debt considered to be investment grade and of high credit quality based on the obligor's strong ability to pay interest and repay principal. The debt may be more vulnerable to adverse changes in economic conditions and circumstances than debt with higher ratings. Fitch's A- and BBB+ ratings are the seventh and eighth highest within the 10 investment grade ratings available from Fitch for preferred or preference stocks. Preferred or preference stocks in the "A" category are of good quality with asset protection and coverages of related dividends considered adequate and expected to be maintained, while preferred or preference stocks in the "BBB" category are considered to be reasonably safe but lack the protection of the "A" to "AAA" categories. 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. The outlook, which indicates the likely direction of the rating, was revised by Fitch to stable from improving for both GM and GMAC. - 25- GENERAL MOTORS CORPORATION AND SUBSIDIARIES Employment and Payrolls 1997 1996 Worldwide Employment at June 30, (in thousands) GM-NAO 243 256 Delphi 176 179 GMIO 114 109 GMAC 18 17 Hughes 88 84 Other 10 11 --- ---- Employees associated with continuing operations 649 656 === === Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 Worldwide payrolls - continuing operations (in billions) $7,631 $7,432 $15,364 $14,972 ===== ===== ====== ====== 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. GM will adopt SFAS No. 130 and No. 131 on January 1, 1998, as required. * * * * * * - 26- 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 June 30, 1997 or subsequent thereto, but before the filing of this report are summarized below. Environmental Matters On May 16, 1997, GM reached a 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. The state alleged that 99 drums of an aluminum grinding waste that were disposed of by GM's Powertrain Group Bay City facility over several years exceeded the hazardous waste regulatory threshold for lead, and, therefore, had been improperly disposed of in the non-hazardous landfill. GM's internal assessment determined that the aluminum grinding waste had been part of a much larger ferrous metal grinding waste stream which had been tested and shown to be non-hazardous and that other aluminum grinding waste streams at the facility had been tested and also been shown to be non-hazardous. When the aluminum grinding waste was segregated from the ferrous metal grinding waste, the facility, relying on a permissible method called "generator knowledge", considered the waste to be non-hazardous and it was accepted as such by the landfill. As part of the settlement, GM will undertake a good faith effort to remove the drums of aluminum grinding waste and to make a voluntary contribution of $120,000 to the state's Environmental Quality Restoration Fund. * * * As previously reported, several actions seeking compensatory and punitive damages in unspecified amounts were filed against Hughes by plaintiffs alleging that they suffered injuries as a result of the migration into the Tucson, Arizona water supply of alleged toxic substances that were disposed of at a facility owned by the United States Government which Hughes operates under a contract with the U.S. Air Force. These actions included a putative class action filed in Arizona State Court, Cordova v. Hughes Aircraft Company, an individual action filed on behalf of approximately 800 plaintiffs in Federal District Court in Arizona, Yslava v. Hughes Aircraft Company, and a class action filed in Federal District Court in Arizona, Lanier v. Hughes Aircraft Company. Other governmental and private entities are known to have also been sources of substances which may have migrated into the Tucson water supply. Hughes believes that it has strong defenses to the claims asserted against it and that it may have claims for contribution against the other entities. In July, 1996, the Cordova court denied plaintiff's motion for class certification and, subsequently, an amended complaint in intervention on behalf of more than 400 plaintiffs asserting individual claims was filed. The facts alleged in these cases are similar to the facts alleged in the previously reported action entitled Valenzuela v. Hughes Aircraft Company. As previously reported, the Valenzuela action was settled pursuant to an agreement under which Hughes' principal insurers provided $70.7 million and Hughes provided $13.8 million. At the time of such settlement, Hughes and its insurers were litigating in the United States District Court in Arizona their respective ultimate liability to one another for the amounts paid in connection with the Valenzuela claims. This litigation, entitled Smith, et al. v. Hughes Aircraft Company and related cases, was commenced in 1988 by various insurers seeking a declaratory judgment that the Valenzuela claims are not covered under the terms of the insurance policies issued to Hughes. These and other insurers have taken a similar position with respect to the more recently filed actions and are also litigating that position against Hughes regarding insurance coverage for the Valenzuela claims in the Arizona and California federal and state courts. In September, 1991, the Smith court entered summary judgment in favor of Hughes' insurers who issued policies from 1971 to 1985, based upon "pollution exclusions" contained in those policies. In November, 1993, the Ninth Circuit affirmed in substantial part this particular ruling. Further proceedings continue in the District Court. The contract under which Hughes has operated the Air Force facility contains provisions under which indemnification from the Air Force may be provided for certain liabilities which Hughes may incur in connection with its operation of the facility to the extent such liabilities are not covered by insurance. Hughes intends to prosecute all appropriate claims it may have for insurance coverage and, if necessary, to pursue all appropriate claims for indemnification or contribution relating to the actions described above. * * * - 27 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Other Matters With respect to the previously reported matter in which a jury in California State Court awarded two former Hughes employees, Lane and Villalpando, a total of $89.5 million in damages against Hughes based principally on allegations of racial discrimination and retaliation, which award, as also previously reported, had been reduced by the Court of Appeal to $17.33 million, the California Supreme Court on March 19, 1997 granted Hughes' request for a review of the $17.33 million judgment, and ordered the Court of Appeal to vacate its decision and reconsider the case. On March 27, 1997 the Court of Appeal issued such an order and requested supplemental briefs. On July 28, 1997 the Court of Appeal reissued essentially the same opinion and award. Hughes' petition for reconsideration is pending and, if necessary, it will request review by the California Supreme Court. * * * 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 case 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 June 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. * * * With respect to three previously reported class actions filed against General Motors, as well as a number of other vehicle and parts manufacturers and dealers, claiming that the front seat air bags installed in 1993 to 1997 model vehicles are defective: Eloisa Rodriquez, et al. v. General Motors Corporation, Ford Motor Company, Chrysler Corporation, Volvo of North America, Inc., Armadillo Motor Company, Inc. and Wickstrom Chevrolet Co., Inc., filed on April 11, 1997, in the District Court of Maverick County, Texas; Ellen Smith, et al. v. General Motors Corporation, Ford Motor Corporation, Chrysler Corporation, Sylacauga Auto Plex, et al., filed on April 25, 1997, in Circuit Court of Coosa County, Alabama; and Frederick Lewis, et al. v. Volvo of North America, Inc., General Motors Corporation, Ford Motor Corporation, Chrysler Corporation, and Spinato Chrysler Plymouth, Inc. dba Bergeron Volvo filed in Civil District Court for the Parish of Orleans, Louisiana, the Alabama matter has been remanded to state court. GM intends to vigorously defend these actions. * * * With respect to the previously reported matter In Re General Motors Anti-Lock Brake Products Liability Litigation, plaintiffs filed a consolidated complaint which GM successfully moved to dismiss. The court granted dismissal on June 11, 1997, without leave to amend. Plaintiffs are seeking reconsideration and are expected to appeal if they are not successful. * * * (b) Previously reported legal proceedings which have been terminated, either during the quarter ended June 30, 1997, or subsequent thereto, but before the filing of this report are summarized below: Environmental Matters With regard to the previously reported Civil Administrative Complaint, In the Matter of: General Motors Corporation, U.S. EPA Docket NO. RUST 002-93, issued by EPA against the Corporation alleging that 65 petroleum and hazardous substance underground storage tanks (USTs) operated at its Technical Center in Warren, Michigan, have been in violation of certain EPA UST regulations, GM and EPA entered into a Consent Agreement and Final Order on June 27, 1997, resolving all EPA claims pertaining to the matter. The Consent Agreement and Final Order requires GM to pay a civil penalty of $58,000. * * * - 28- GENERAL MOTORS CORPORATION AND SUBSIDIARIES Environmental Matters (concluded) With regard to the previously reported notice given by the Wayne County Department of Health Air Pollution Division ("Wayne County") in November of 1996, to General Motors that Wayne County was seeking fines in excess of $100,000 in connection with alleged intermittent emissions of offensive odors since 1993 at GM's Oil Reclamation Facility at Clark Street in Detroit, Michigan, GM and Wayne County have resolved the matter with GM's agreement to pay $99,000 to Wayne County and donate $50,000 to three local schools. GM has also decided to close the oil reclamation facility. * * * * * * ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) The annual meeting of stockholders of the Registrant was held on May 23, 1997. At that meeting, the following matters were submitted to a vote of the stockholders of General Motors Corporation: 1997 General Motors Annual Meeting Final Voting Results (All classes of common stock) Proposal Voting Results Votes* Percent** Item No. 1 Nomination and Election of Directors The Judges subscribed and delivered a certificate reporting that the following nominees for directors had received the number of votes* set opposite their respective names. Anne L. Armstrong For 579,268,355 98.6% Withheld 8,070,167 1.4 Percy N. Barnevik For 579,581,429 98.7 Withheld 7,757,094 1.3 John H. Bryan For 579,585,425 98.7 Withheld 7,753,098 1.3 Thomas E. Everhart For 579,448,463 98.7 Withheld 7,890,059 1.3 Charles T. Fisher, III For 579,503,112 98.7 Withheld 7,835,410 1.3 George M. C. Fisher For 579,615,820 98.7 Withheld 7,722,703 1.3 J. Willard Marriott, Jr. For 579,492,184 98.7 Withheld 7,846,339 1.3 Ann D. McLaughlin For 577,145,659 98.3 Withheld 10,192,864 1.7 Harry J. Pearce For 579,596,955 98.7 Withheld 7,741,568 1.3 Eckhard Pfeiffer For 579,595,574 98.7 Withheld 7,742,948 1.3 John G. Smale For 579,413,865 98.7 Withheld 7,924,657 1.3 John F. Smith, Jr. For 579,493,833 98.7 Withheld 7,844,689 1.3 Louis W. Sullivan For 579,246,115 98.6 Withheld 8,092,407 1.4 Dennis Weatherstone For 579,547,572 98.7 Withheld 7,790,951 1.3 Thomas H. Wyman For 579,424,155 98.7 Withheld 7,914,367 1.3 Item No. 2 A proposal of the Board of For 582,169,751 99.1% Directors that the stockholders Against 2,465,960 0.4 ratify the selection of Abstain 2,702,811 0.5 Deloitte & Touche LLP as independent public accountants for the year 1997. Item No. 3 A proposal of the Board of For 466,747,447 92.4% Directors that the stockholders Against 31,983,852 6.3 ratify the approval of the Abstain 6,352,263 1.3 Non-Employee Director Long-Term Stock Incentive Plan. - 29 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Concluded Proposal Voting Results Votes* Percent** Item No. 4 A proposal of the Board of For 449,163,964 89.0% Directors that the stockholders Against 49,586,470 9.8 ratify to approve the incentive Abstain 6,191,111 1.2 program consisting of the 1997 Annual Incentive Plan, the 1997 Stock Incentive Plan, and the 1997 Performance Achievement Plan. Item No. 5 A stockholder proposal to limit For 21,790,160 4.3% the number of years future Against 473,736,648 93.8 outside Directors serve. Abstain 9,421,320 1.9 Item No. 6 A proposal by stockholders that For 138,371,961 27.4% the Board of Directors provide Against 358,946,216 71.1 for cumulative voting in the Abstain 7,621,860 1.5 election of directors. Item No. 7 A stockholder proposal to For 34,724,542 6.9% re-start separate chief executive Against 459,112,730 91.1 and independent board chairman Abstain 9,911,924 2.0 positions. Item No. 8 A stockholder proposal to For 32,751,863 6.5% require 90% of directors be Against 463,332,897 91.8 independent. Abstain 8,854,727 1.7 Item No. 9 A stockholder proposal regarding For 27,460,081 5.4% stock options for directors. Against 466,997,267 92.5 Abstain 10,479,741 2.1 * Numbers represent the aggregate voting power of all votes cast with holders of $1-2/3 par value common stock casting one vote per share and holders of Class H common stock casting one-half of a vote per share. ** Percentages represent the aggregate voting power of both classes of GM common stock cast for each item. * * * * * * - 30 - 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) Form of Agreement and Plan of Merger by and between General Motors Corporation and _____________ Corporation (included as Exhibit A to the Implementation Agreement attached as Exhibit 2(b) to the Current Report on Form 8-K dated January 16, 1997), filed as Exhibit 2(c) to the Current Report on Form 8-K of General Motors Corporation dated January 16, 1997 N/A 2(d)* List of Omitted Schedules and Other Attachments, filed as Exhibit 2(d) to the Current Report on Form 8-K of General Motors Corporation dated January 16, 1997 N/A 3(ii)** By-Laws of General Motors Corporation as amended to August 4, 1997 33 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 11 Computation of Earnings Per Share Attributable to Common Stocks for the Three and Six Month Periods Ended June 30, 1997 and 1996 62 - 31 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (concluded) 12 Computation of Ratios of Earnings to Fixed Charges for the Six Month Periods Ended June 30, 1997 and 1996 66 99 Hughes Electronics Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 67 27 Financial Data Schedule (for SEC information only) * The registrant hereby undertakes to furnish supplementally a copy of any omitted schedule or other attachment to the Securities and Exchange Commission upon request. ** Amendment to Section 1.1 of Article I to revise the date of the annual meeting of stockholders. (b) REPORTS ON FORM 8-K. Three reports on Form 8-K, dated April 14, 1997, May 23, 1997, and May 27, 1997, were filed during the quarter ended June 30, 1997 reporting matters under Item 5, Other Events, and Item 7, Financial Statements, Pro Forma Financial Information, and Exhibits. * * * * * * SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GENERAL MOTORS CORPORATION (Registrant) Date August 14, 1997 /s/Peter R. Bible - -------------------- -------------------------------------- (Peter R. Bible, Chief Accounting Officer) - 32- EX-3 2 l:\secfiles\10q\1997\2ndqtr\by-law.doc 29 EXHIBIT 3(ii) G E N E R A L M O T O R S C O R P O R A T I O N -------------------------------------------------------- BY-LAWS As Amended to August 4, 1997 - 33 - GENERAL MOTORS CORPORATION BY-LAWS INDEX Page ARTICLE I -- MEETINGS OF STOCKHOLDERS 1.1. Annual.........................................................1 1.2. Special........................................................1 1.3. Notice of Meetings.............................................1 1.4. List of Stockholders Entitled to Vote..........................1 1.5. Quorum.........................................................2 1.6. Organization...................................................2 1.7. Voting; Proxies................................................2 1.8. Fixing Date for Determination of Stockholders of Record........2 1.9. Adjournments...................................................3 1.10. Judges.........................................................3 ARTICLE II -- BOARD OF DIRECTORS 2.1. Responsibility and Number......................................3 2.2. Election; Resignation; Vacancies...............................3 2.3. Regular Meetings...............................................4 2.4. Special Meetings...............................................4 2.5. Quorum; Vote Required for Action ..............................4 2.6. Organization...................................................4 2.7. Transactions with Corporation..................................5 2.8. Ratification...................................................5 2.9. Informal Action by Directors...................................5 2.10. Telephonic Meetings Permitted..................................6 2.11. Notice of Stockholder Nomination and Stockholder Business......6 2.12. Independent Directors..........................................7 ARTICLE III -- COMMITTEES 3.1. Committees of the Board of Directors...........................8 3.2. Election and Vacancies.........................................8 3.3. Procedure; Quorum..............................................8 3.4. Executive Committee............................................9 3.5. Investment Funds Committee.....................................9 3.6. Audit Committee................................................9 3.7. Executive Compensation Committee...............................9 3.8. Public Policy Committee........................................10 3.9. Committee on Director Affairs..................................10 3.10. Capital Stock Committee.......................................11 i - 34 - Page ARTICLE IV -- OFFICERS 4.1. Elected Officers ..............................................11 4.2. Chief Executive Officer........................................11 4.3. President......................................................12 4.4. Treasurer......................................................12 4.5. Secretary......................................................12 4.6. Comptroller....................................................12 4.7. General Counsel................................................12 4.8. General Auditor................................................12 4.9. Chief Tax Officer..............................................13 4.10. Subordinate Officers...........................................13 4.11. Resignation, Removal, Suspension and Vacancies.................13 ARTICLE V -- INDEMNIFICATION 5.1. Right to Indemnification of Directors and Officers ............14 5.2. Advancement of Expenses of Directors and Officers..............14 5.3. Claims by Officers or Directors................................14 5.4. Indemnification of Employees...................................15 5.5. Advancement of Expenses of Employees...........................15 5.6. Non-Exclusivity of Rights......................................15 5.7. Other Indemnification..........................................15 5.8. Insurance......................................................15 5.9. Amendment or Repeal............................................16 ARTICLE VI -- MISCELLANEOUS 6.1. Offices........................................................16 6.2. Stock Certificates.............................................16 6.3. Seal...........................................................16 6.4. Dividends on Preferred Stock...................................17 6.5. Fiscal Year....................................................17 6.6. Annual Report..................................................17 6.7. Notice.........................................................17 6.8. Waiver of Notice...............................................17 6.9. Voting of Stocks Owned by the Corporation......................17 6.10. Form of Records................................................18 6.11. Amendment of By-Laws...........................................18 6.12. Anti-Greenmail.................................................18 6.13. Gender Pronouns................................................19 ii - 35 - Page DEFINITION OF CERTAIN TERMS USED IN AND GUIDELINES FOR THE APPLICATION OF BY-LAW 2.12 OF GENERAL MOTORS CORPORATION..........................................................i SECURITIES ACT AND EXCHANGE ACT PARAGRAPH 2 OF INSTRUCTIONS TO PARAGRAPH (b) OF ITEM 404 OF REGULATION S-K AS IN EFFECT ON JANUARY 7, 1991 (REFERRED TO IN PARAGRAPH (i) OF GUIDELINES FOR APPLICATION OF BY-LAW 2.12 OF GENERAL MOTORS CORPORATION).........................................................iv DEFINITION OF CERTAIN TERMS USED IN BY-LAW 6.12......................v iii - 36 - GENERAL MOTORS CORPORATION BY-LAWS ARTICLE I MEETINGS OF STOCKHOLDERS 1.1. Annual. The annual meeting of stockholders for the election of directors, ratification or rejection of the selection of auditors and the transaction of such other business as may properly be brought before the meeting shall be held on the first Monday in June in each year, or on such other date and such place and time as the chairman of the board or the board of directors shall designate. 1.2. Special. Special meetings of stockholders may be called by the board of directors or the chairman of the board of directors at such place, date and time and for such purpose or purposes as shall be set forth in the notice of such meeting. 1.3. Notice of Meetings. Written notice of each meeting of stockholders shall be given by the chairman of the board and/or the secretary in compliance with the provisions of Delaware law. 1.4. List of Stockholders Entitled to Vote. The secretary shall prepare, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. 1 - 37 - 1.5. Quorum. At each meeting of stockholders, except where otherwise provided by law or the certificate of incorporation or these by-laws, the holders of one-third of the voting power of the outstanding shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 1.9 of these by-laws until a quorum shall attend. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 1.6. Organization. The chairman or, if he so designates or is absent, the chief executive officer or, in their absence, an executive vice president or vice president designated by the board of directors, shall preside at meetings of the stockholders. The secretary of the corporation shall act as secretary, but in his absence the presiding officer may appoint a secretary. 1.7. Voting; Proxies. Each stockholder shall be entitled to vote in accordance with the number of shares and voting powers of the voting shares held of record by him. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but such proxy, whether revocable or irrevocable, shall comply with the requirements of Delaware law. Voting at meetings of stockholders, on other than the election of directors, need not be by written ballot unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of stockholders for the election of directors a plurality of the voting power of the shares of stock present in person or represented by proxy and entitled to vote shall be sufficient. All other elections and questions shall, unless otherwise provided by law or by the certificate of incorporation or these by-laws, be decided by the vote of the holders of a majority of the voting power of the shares of stock entitled to vote thereon present in person or by proxy at the meeting. 1.8. Fixing Date for Determination of Stockholders of Record. In order that the corporation may determine the stockholders entitled: (a) to notice of or to vote at any meeting of stockholders or any adjournment thereof; (b) to express consent to corporate action in writing without a meeting; (c) to receive payment of any dividend or other distribution or allotment of any rights; or (d) to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix a record date. The record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall not be more than sixty nor less than ten days before the date of such meeting; (b) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the board of directors; and (c) in the case of any other action, shall not be more than sixty days prior to such other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2 - 38 - 1.9. Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 1.10. Judges. All votes by ballot at any meeting of stockholders shall be conducted by two judges appointed for the purpose, either by the directors or by the chairman of the meeting. The judges shall decide upon the qualifications of voters, count the votes and declare the result. ARTICLE II BOARD OF DIRECTORS 2.1. Responsibility and Number. The business and affairs of the corporation shall be managed by or under the direction of a board of directors. The number of directors shall be determined from time to time by resolution of the board of directors, but the total number of directors shall not be less than twelve or more than twenty. 2.2. Election; Resignation; Vacancies. At each annual meeting of stockholders, the stockholders shall elect directors each of whom shall hold office for a term commencing on the date of the annual meeting of stockholders, or such later date as shall be determined by the board of directors, and ending on the next annual meeting of stockholders, or until his successor is elected and qualified. Any director may resign at any time upon written notice to the chairman of the board or to the secretary. Any vacancy occurring in the board of directors for any cause may be filled by a majority of the remaining members of the board of directors, although such majority is less than a quorum. Each director so elected shall hold office concurrent with the term of other directors or until his successor is elected and qualified. 3 - 39 - 2.3. Regular Meetings. Unless otherwise determined by resolution of the board of directors, a meeting of the board of directors for the election of officers and the transaction of such other business as may come before it shall be held as soon as practicable following the annual meeting of stockholders, and other regular meetings of the board of directors shall be held either on the first Monday of each month, and if that be a legal holiday, then on the next Monday not a legal holiday, or such other days as may from time to time be designated by the chairman of the board of directors. 2.4. Special Meetings. Special meetings of the board of directors may be called by the chairman of the board of directors, the chief executive officer, the president or a vice chairman, and shall be called by the secretary at the request in writing of one-third of the directors then in office. Notice of a special meeting of the board of directors shall be given at least twenty-four hours before the special meeting. 2.5. Quorum; Vote Required for Action. At all meetings of the board of directors, one-third of the whole board shall constitute a quorum for the transaction of business. Except in cases in which applicable law, the certificate of incorporation or these by-laws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. 2.6. Organization. The board of directors shall annually elect one of its members to be chairman of the board and shall fill any vacancy in the position of chairman of the board at such time and in such manner as the board of directors shall determine. The chairman of the board may but need not be an officer of or employed in an executive or any other capacity by the corporation. The chairman of the board of directors shall preside at meetings of the board of directors and lead the board in fulfilling its responsibilities as defined in section 2.1 and, in particular, its responsibilities to oversee the performance of the corporation and of the executive management of the corporation. The board of directors may also elect one of its members as vice chairman of the board of directors who shall have such duties and responsibilities as are provided by these by-laws or may be directed by the board of directors, the chairman of the board, or the chairman of the executive committee of the board of directors. In the absence of the chairman of the board of directors, the vice chairman, or in his absence, the chairman of the executive committee of the board of directors, or in his absence, a member of the board selected by the members present, shall preside at meetings of the board. The secretary of the corporation shall act as secretary of the meetings of the board of directors, but in his absence, the presiding officer may appoint a secretary for the meeting. 4 - 40 - 2.7. Transactions with Corporation. No contract or transaction between the corporation and one or more of its directors, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose: (1) if the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) if the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) if the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. 2.8. Ratification. Any transaction questioned in any stockholders' derivative suit on the ground of lack of authority, defective or irregular execution, adverse interest of director, officer or stockholder, non-disclosure, miscomputation, or the application of improper principles or practices of accounting may be ratified before or after judgment, by the board of directors or by the stockholders in case less than a quorum of directors are qualified; and, if so ratified, shall have the same force and effect as if the questioned transaction had been originally duly authorized, and said ratification shall be binding upon the corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction. 2.9. Informal Action by Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. 5 - 41 - 2.10. Telephonic Meetings Permitted. Members of the board of directors, or any committee designated by the board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. 2.11. Notice of Stockholder Nomination and Stockholder Business. At a meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. Nominations for the election of directors may be made by the board of directors or by any stockholder entitled to vote for the election of directors. Other matters to be properly brought before the meeting must be: (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, including matters covered by rule 14a-8 of the Securities and Exchange Commission; (b) otherwise properly brought before the meeting by or at the direction of the board of directors; or (c) otherwise properly brought before the meeting by a stockholder. A notice of the intent of a stockholder to make a nomination or to bring any other matter before the meeting shall be made in writing and received by the secretary of the corporation not more than 180 days and not less than 120 days in advance of the annual meeting or, in the event of a special meeting of stockholders, such notice shall be received by the secretary of the corporation not later than the close of the fifteenth day following the day on which notice of the meeting is first mailed to stockholders. Every such notice by a stockholder shall set forth: (a) the name and residence address of the stockholder of the corporation who intends to make a nomination or bring up any other matter; (b) a representation that the stockholder is a holder of the corporation's voting stock and intends to appear in person or by proxy at the meeting to make the nomination or bring up the matter specified in the notice; (c) with respect to notice of an intent to make a nomination, a description of all arrangements or understandings among the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) with respect to notice of an intent to make a nomination, such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated by the board of directors of the corporation; and 6 - 42 - (e) with respect to notice of an intent to bring up any other matter, a description of the matter, and any material interest of the stockholder in the matter. Notice of intent to make a nomination shall be accompanied by the written consent of each nominee to serve as director of the corporation if so elected. At the meeting of stockholders, the chairman shall declare out of order and disregard any nomination or other matter not presented in accordance with this section. 2.12. Independent Directors. (a) Majority of Board's Nominees in Annual Proxy Statement for Election to Board of Directors to be Independent. A majority of the individuals to constitute the nominees of the board of directors for the election of whom the board will solicit proxies from the stockholders for use at the corporation's annual meeting shall consist of individuals who, on the date of their selection as the nominees of the board of directors, would be Independent Directors. (b) Directors Elected by Board of Directors. In the event the board of directors elects directors between annual meetings of stockholders, the number of such directors who qualify as Independent Directors on the date of their nomination shall be such that the majority of all directors holding office immediately thereafter shall have been Independent Directors on the date of the first of their nomination or selection as nominees of the board of directors. (c) Definition of Independent Director. For purposes of this by-law, the term "Independent Director" shall mean a director who: (i) is not and has not been employed by the corporation or its subsidiaries in an executive capacity within the five years immediately prior to the annual meeting at which the nominees of the board of directors will be voted upon; (ii) is not (and is not affiliated with a company or a firm that is) a significant advisor or consultant to the corporation or its subsidiaries; (iii) is not affiliated with a significant customer or supplier of the corporation or its subsidiaries; (iv) does not have significant personal services contract(s) with the corporation or its subsidiaries; (v) is not affiliated with a tax-exempt entity that receives significant contributions from the corporation or its subsidiaries; and (vi) is not a spouse, parent, sibling or child of any person described by (i) through (v). (d) Interpretation and Application of This By-Law. The board of directors shall have the exclusive right and power to interpret and apply the provisions of this by-law, including, without limitation, the adoption of written definitions of terms used in and guidelines for the application of this by-law (any such definitions and guidelines shall be filed with the Secretary, and such definitions and guidelines as may prevail shall be made available to any stockholder upon written request); any such definitions or guidelines and any other interpretation or application of the provisions of this by-law made in good faith shall be binding and conclusive upon all holders of GM Equity Securities, provided that, in the case of any interpretation or application of this by-law by the board of directors to a specific person which results in such person being classified as an Independent Director, the board of directors shall have determined that such person is independent of management and free from any relationship that, in the opinion of the board of directors, would interfere with such person's exercise of independent judgment as a board member. 7 - 43 - ARTICLE III COMMITTEES 3.1. Committees of the Board of Directors. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, consisting of one or more of the directors of the corporation, to be committees of the board of directors ("committees of the board"). All committees of the board may authorize the seal of the corporation to be affixed to any papers which may require it. To the extent provided in any resolution of the board of directors or these by-laws, and to the extent permissible under the laws of the State of Delaware and the certificate of incorporation, any such committee shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation. The following committees shall be standing committees of the board: the executive committee, the investment funds committee, the audit committee, the executive compensation committee, the public policy committee, the committee on director affairs and the capital stock committee. The board of directors may designate, by resolution adopted by a majority of the whole board, additional committees of the board and may prescribe for each such committee such powers and authority as may properly be granted to such committees in the management of the business and affairs of the corporation. 3.2. Election and Vacancies. The members and chairmen of each standing committee of the board shall be elected annually by the board of directors at its first meeting after each annual meeting of stockholders or at any other time the board of directors shall determine. The members of other committees of the board may be elected at such time as the board may determine. Vacancies in any committee of the board may be filled at such time and in such manner as the board of directors shall determine. No officer or other employee of the corporation shall be a member of any standing committee of the board, with the exception of the investment funds committee. 3.3. Procedure; Quorum. Except to the extent otherwise provided in these by-laws or any resolution of the board of directors, each committee of the board and each committee of the corporation may fix its own rules of procedure. The members necessary to constitute a quorum of any committee of the board or committee of the corporation shall be one-third of the members thereof, or such larger number as shall be set forth in the by-laws, or as shall be determined from time to time by resolution of the board of directors. The vote of a majority of the members present at a meeting of a committee of the board or committee of the corporation at which meeting a quorum is present shall be the act of the committee unless the certificate of incorporation, the by-laws or a resolution of the board of directors shall require the vote of a greater number. 8 - 44 - 3.4. Executive Committee. The members of the executive committee shall be the chairman of the other standing committees of the board of directors and the chairman of the executive committee, who shall be a director designated by the board of directors. The chairman of the executive committee shall not concurrently be the chairman of any of the standing committees of the board of directors and shall not be an officer or employee of the corporation. The chairman of the executive committee shall be an ex officio member of each standing committee of the board of directors. The executive committee of the board of directors shall have and may exercise, between meetings of the board of directors, all of the powers and authority which the board of directors may exercise in the direction and management of the business and affairs of the corporation, except as prohibited by the law of the State of Delaware or the certificate of incorporation. 3.5. Investment Funds Committee. The board of directors shall select the members of the investment funds committee and shall designate the chairman of the committee. Except for powers hereinafter assigned to the audit committee and the executive compensation committee, or as otherwise provided by the board of directors, the investment funds committee shall have and may exercise the powers, authority and responsibilities of the board of directors for the determination of the financial policies of the corporation and the management of the financial affairs of the corporation. 3.6. Audit Committee. The board of directors shall select the members of the audit committee and shall designate the chairman of the committee. The members of the audit committee shall not be eligible to participate in any incentive compensation plan for employees of the corporation or any of its subsidiaries. The selection by the committee of accountants for the ensuing calendar year shall be made annually in advance of the annual meeting of stockholders and shall be submitted to the stockholders for ratification or rejection at such meeting. The audit committee shall have and may exercise such powers, authority and responsibilities as are normally incident to the functions of an audit committee or as may be determined by the board of directors. 3.7. Executive Compensation Committee. The board of directors shall select the members of the executive compensation committee and shall designate the chairman of the committee. No member of the committee shall be eligible to participate in any plan falling within the jurisdiction of the committee. The committee shall have and may exercise the powers and authority granted to it by any incentive compensation plan for employees of the corporation or any of its subsidiaries, and such other powers, authority and responsibilities as may be determined by the board of directors. The committee shall determine the compensation of: (a) employees of the corporation who are directors of the corporation; and (b) after receiving and considering the recommendation of the chief executive officer and the president of the corporation, all other employees of the corporation who are officers of the corporation or who occupy such other positions as may be designated by the committee. 9 - 45 - Where compensation is payable to an employee of any subsidiary and such employee is also a director or officer of the corporation or one of its subsidiaries, or where such employee occupies such other position as may be designated by the committee and such compensation is determined by or on behalf of such subsidiary, the amount so determined shall first be submitted to the committee for its review. No such determination shall be effective if it would result in compensation which, in the aggregate or with respect to any one or more of such employees, would exceed amounts or rates established or approved by the committee. Where any employee benefit or incentive compensation plan affects employees of the corporation or its subsidiaries and the compensation of such employees is determined or subject to review by the committee, such plan shall first be submitted to the committee for its review. Any such plan or amendment or modification shall be made effective with respect to such employees only if and to the extent approved by the committee. 3.8. Public Policy Committee. The board of directors shall select the members of the public policy committee, and shall designate the chairman of the committee. The committee shall, upon its own initiative or otherwise, inquire into all phases of the corporation's business activities that relate to matters of public policy. The committee may make recommendations to the board of directors to assist it in the formulation and adoption of basic policies calculated to promote the best interests of the corporation and the community. The public policy committee shall have and may exercise such other powers, authority and responsibilities as may be determined by the board of directors. 3.9. Committee on Director Affairs. The board of directors shall select the members of the committee on director affairs, and shall designate the chairman of the committee. The committee shall be responsible for matters related to service on the board of directors of the corporation, and associated issues of corporate governance. The committee from time to time shall conduct studies of the size and composition of the board of directors. Prior to each annual meeting of stockholders, the committee shall recommend to the board the individuals to constitute the nominees of the board of directors, the election of whom the board will solicit proxies. The committee shall review the qualifications of individuals for consideration as director candidates and shall recommend to the board, for its consideration, the names of individuals for election by the board. In addition, the committee shall from time to time conduct studies and make recommendations to the board regarding compensation of directors. The committee shall have and may exercise such other powers, authority and responsibilities as may be determined by the board of directors. 10 - 46 - 3.10. Capital Stock Committee. The board of directors shall select the members of the capital stock committee and shall designate the chairman of the committee. The committee shall be responsible for reviewing the policies, programs and practices of the corporation relating to: (a) the business and financial relationships between the corporation or any of its units with Hughes Electronics Corporation; (b) dividends in respect of, disclosures to stockholders and the public concerning, and transactions by the corporation or any of its subsidiaries in, shares of Class H Common Stock; and (c) any matters arising in connection therewith, all to the extent the committee may deem appropriate, and to recommend such changes in such policies, programs and practices as the committee may deem appropriate. In performing this function, the committee's role is not to make decisions concerning matters referred to its attention, but rather to oversee the process by which decisions concerning such matters are made. The committee shall have and may exercise such other powers, authority and responsibilities as may be determined by the board of directors. ARTICLE IV OFFICERS 4.1. Elected Officers. The officers of the corporation shall be elected by the board of directors. There shall be a chief executive officer, a president, one or more executive vice presidents, one or more vice presidents, a secretary, a treasurer, a comptroller, a general counsel, a general auditor and a chief tax officer. The chief executive officer and the president shall be members of the board of directors and shall have the other powers, authority and responsibilities provided by these by-laws. The officers, other than the chief executive officer and the president, shall each have, in addition to the powers, authority and responsibilities of those officers otherwise provided by the by-laws, such powers, authority and responsibilities as the board of directors or the chief executive officer may determine. The board of directors may also elect persons to hold such other offices as the board of directors shall determine, including one or more vice chairmen of the board. A person may hold any number of offices. Elected officers shall hold their offices at the pleasure of the board of directors, or until their earlier resignation. 4.2. Chief Executive Officer. The chief executive officer shall have the general executive responsibility for the conduct of the business and affairs of the corporation. If the chairman so designates or is absent, the chief executive officer shall preside at meetings of the stockholders. He shall exercise such other powers, authority and responsibilities as the board of directors may determine. In the absence of or during the physical disability of the chief executive officer, the board of directors shall designate an officer who shall have and exercise the powers, authority and responsibilities of the chief executive officer. 11 - 47 - 4.3. President. The president shall have and exercise such powers, authority and responsibilities as the board of directors may determine. 4.4. Treasurer. The treasurer shall have custody of all funds and securities of the corporation and shall perform all acts incident to the position of treasurer. He shall render such accounts and reports as may be required by the board of directors. The records, books and accounts of the office of the treasurer shall, during the usual hours for business at the office of the treasurer, be open to the examination of any director. 4.5. Secretary. The secretary shall keep the minutes of all meetings of stockholders and directors and of such committees of the board of directors as to which he may be so directed. He shall give all required notices and shall have charge of such books and papers as the board of directors may require. He shall submit such reports to the board of directors or to any of the committees of the board or committees of the corporation as the board of directors or any such committee may require. Any action or duty required to be performed by the secretary may be performed by an assistant secretary. 4.6. Comptroller. The comptroller shall be in charge of the accounts of the corporation and shall perform all acts incident to the position of comptroller. He shall submit such reports and records to the board of directors or to any of the committees of the board or committees of the corporation as the board of directors or any such committee may require. 4.7. General Counsel. The board of directors shall elect a general counsel who shall be the chief legal officer of the corporation. He shall have general control of all matters of legal import concerning the corporation and shall have such other powers, authority and responsibilities as may be determined by the board of directors or the chief executive officer. 4.8. General Auditor. The general auditor shall have such powers, authority and responsibilities as are incident to the position of general auditor in the performance of an independent audit activity of the corporation and shall have direct access to the audit committee. 12 - 48 - 4.9. Chief Tax Officer. The chief tax officer shall have responsibility for all tax matters involving the corporation, with authority to sign and to delegate to others authority to sign all returns, reports, agreements and documents involving the administration of the corporation's tax affairs. 4.10. Subordinate Officers. The board of directors may from time to time appoint one or more assistant secretaries, assistant treasurers, assistant comptrollers, and such other subordinate officers as the board of directors may deem advisable. Such subordinate officers shall have such powers, authority and responsibilities as the board of directors may from time to time determine. The board of directors may grant to any committee of the board or the chief executive officer the power and authority to appoint subordinate officers and to prescribe their respective terms of office, powers, authority and responsibilities. Each subordinate officer shall hold his position at the pleasure of the board of directors, the committee of the board appointing him, the chief executive officer and any other officer to whom such subordinate officer reports. In the interval between annual organizational meetings of the board of directors, the chief executive officer shall have the power and authority to appoint such subordinate officers. Such subordinate officers shall serve until the first meeting of the board of directors immediately following the annual meeting of stockholders. 4.11. Resignation, Removal, Suspension and Vacancies. Any officer may resign at any time by giving written notice to the chief executive officer, the president or the secretary. Unless stated in the notice of resignation, the acceptance thereof shall not be necessary to make it effective. It shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. Any officer elected by the board of directors may be suspended or removed at any time by the affirmative vote of a majority of the whole board. Any subordinate officer of the corporation appointed by the board of directors or a committee of the board, or the chief executive officer, may be suspended or removed at any time by a majority vote of a quorum of the board of directors or committee appointing such subordinate officer, or by the chief executive officer or any other officer to whom such subordinate officer reports. The chief executive officer may suspend the powers, authority, responsibilities and compensation of any elected officer or appointed subordinate officer for a period of time sufficient to permit the board or the appropriate committee of the board a reasonable opportunity to consider and act upon a resolution relating to the reinstatement, further suspension or removal of such person. As appropriate, the board of directors, a committee of the board, and/or the chief executive officer may fill any vacancy created by the resignation, death, retirement or removal of an officer in the same manner as provided for the election or appointment of such person. 13 - 49 - ARTICLE V INDEMNIFICATION 5.1. Right to Indemnification of Directors and Officers. Subject to the other provisions of this article, the corporation shall indemnify and advance expenses to every director and officer (and to such person's heirs, executors, administrators or other legal representatives) in the manner and to the full extent permitted by applicable law as it presently exists, or may hereafter be amended, against any and all amounts (including judgments, fines, payments in settlement, attorneys' fees and other expenses) reasonably incurred by or on behalf of such person in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative ("a proceeding"), in which such director or officer was or is made or is threatened to be made a party or is otherwise involved by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, fiduciary or member of any other corporation, partnership, joint venture, trust, organization or other enterprise. The corporation shall not be required to indemnify a person in connection with a proceeding initiated by such person if the proceeding was not authorized by the board of directors of the corporation. 5.2. Advancement of Expenses of Directors and Officers. The corporation shall pay the expenses of directors and officers incurred in defending any proceeding in advance of its final disposition ("advancement of expenses"); provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this article or otherwise. 5.3. Claims by Officers or Directors. If a claim for indemnification or advancement of expenses by an officer or director under this article is not paid in full within ninety days after a written claim therefor has been received by the corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or advancement of expenses under applicable law. 14 - 50 - 5.4. Indemnification of Employees. Subject to the other provisions of this article, the corporation may indemnify and advance expenses to every employee who is not a director or officer (and to such person's heirs, executors, administrators or other legal representatives) in the manner and to the full extent permitted by applicable law as it presently exists, or may hereafter be amended against any and all amounts (including judgments, fines, payments in settlement, attorneys' fees and other expenses) reasonably incurred by or on behalf of such person in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative ("a proceeding"), in which such employee was or is made or is threatened to be made a party or is otherwise involved by reason of the fact that such person is or was an employee of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, fiduciary or member of any other corporation, partnership, joint venture, trust, organization or other enterprise. The ultimate determination of entitlement to indemnification of employees who are not officers and directors shall be made in such manner as is provided by applicable law. The corporation shall not be required to indemnify a person in connection with a proceeding initiated by such person if the proceeding was not authorized by the board of directors of the corporation. 5.5. Advancement of Expenses of Employees. The advancement of expenses of an employee who is not an officer or director shall be made by or in the manner provided by resolution of the board of directors or by a committee of the board of directors or of the corporation. 5.6. Non-Exclusivity of Rights. The rights conferred on any person by this Article V shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these by-laws, agreement, vote of stockholders or disinterested directors or otherwise. 5.7. Other Indemnification. The corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer or employee of another corporation, partnership, joint venture, trust, organization or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, organization or other enterprise. 5.8. Insurance. The board of directors may, to the full extent permitted by applicable law as it presently exists, or may hereafter be amended from time to time, authorize an appropriate officer or officers to purchase and maintain at the corporation's expense insurance: (a) to indemnify the corporation for any obligation which it incurs as a result of the indemnification of directors, officers and employees under the provisions of this Article V; and (b) to indemnify or insure directors, officers and employees against liability in instances in which they may not otherwise be indemnified by the corporation under the provisions of this Article V. 15 - 51 - 5.9. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article V shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE VI MISCELLANEOUS 6.1. Offices. The registered office of the corporation shall be located at 1209 Orange Street, Wilmington, New Castle County, Delaware, and the name of the registered agent in charge thereof shall be The Corporation Trust Company. The corporation may also have other offices without as well as within the State of Delaware. The books of the corporation may be kept outside the State of Delaware. 6.2. Stock Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the corporation by the chairman or a vice chairman of the board of directors, or the president or a vice president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. The form of such certificates and the signatures thereon shall comply with the requirements of Delaware law. The corporation shall maintain a record of the holders of each certificate and transfer stock and issue new certificates to replace lost, stolen or destroyed certificates only pursuant to the applicable requirements of Delaware law as they presently exist, or may be amended from time to time. 6.3. Seal. The corporate seal shall have inscribed upon it the name of the corporation, the year of its organization and the words "Corporate Seal," and "Delaware." The seal shall be in the charge of the secretary. The board of directors or the finance committee may authorize a duplicate seal to be kept and used by any other officer. 16 - 52 - 6.4. Dividends on Preferred Stock. All dividends declared upon the preferred stock shall be payable quarterly upon the first day of February, May, August and November in each year, but if that is a legal holiday, then on the next day not a legal holiday. 6.5. Fiscal Year. The fiscal year of the corporation shall begin on January 1st and terminate on December 31st in each year. 6.6. Annual Report. At least fifteen days in advance of the annual meeting of stockholders, the board of directors shall publish and submit to the stockholders consolidated financial statements for the previous fiscal year. The board of directors shall also publish consolidated financial statements for each of the first three quarters of each fiscal year. 6.7. Notice. Any notice required to be given by these by-laws may be given personally or in writing by delivery to the United States postal system in a postpaid envelope directed to such address as appears in the records of the corporation, or, in default of other address, to the general post office in Wilmington, New Castle County, Delaware. Such notice shall be deemed to be given at the time of mailing, except as otherwise provided in these by-laws. In addition, except as otherwise required by law or these by-laws, notice need not be given of any adjourned meeting other than by announcement at the meeting which is being adjourned. 6.8. Waiver of Notice. Whenever any notice is required to be given, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. 6.9. Voting of Stocks Owned by the Corporation. The board of directors, the finance committee or the chairman of the board may authorize any person, and delegate to one or more other officers, the authority to authorize any person in behalf of the corporation to attend, vote and grant proxies to be used at any meeting of stockholders of any corporation in which General Motors Corporation may hold stock. 17 - 53 - 6.10. Form of Records. Any records maintained by the corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 6.11. Amendment of By-Laws. The board of directors shall have power to adopt, amend or repeal the by-laws at any regular or special meeting of the directors. The stockholders shall also have power to adopt, amend or repeal the by-laws at any annual or special meeting, subject to compliance with the notice provisions provided in section 2.11. 6.12. Anti-Greenmail. (a) Vote Required for Certain Acquisitions of Securities. Except as set forth in Subsection (b) hereof, in addition to any affirmative vote of stockholders required by any provision of law, the certificate of incorporation or by-laws of the corporation, or any policy adopted by the board of directors, neither the corporation nor any subsidiary shall knowingly effect any direct or indirect purchase or other acquisition of any GM Equity Security of any class or classes issued by the corporation at a price which is in excess of the highest Market Price of such GM Equity Security on the largest principal national securities exchange in the United States on which such security is listed for trading on the date that the understanding to effect such transaction is entered into by the corporation (whether or not such transaction is concluded or a written agreement relating to such transaction is executed on such date, such date to be conclusively established by determination of the board of directors), from any Interested Person (i.e., any person who is the direct or indirect beneficial owner of more than three percent (3%) of the aggregate voting power of the Voting Shares of the corporation) who has beneficially owned such GM Equity Securities for less than two years prior to such date, without the affirmative vote of the holders of the Voting Shares which represent at least a majority of the aggregate voting power of the corporation, excluding Voting Shares beneficially owned by such Interested Person, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or any agreement with any national securities exchange, or otherwise. (b) When A Vote Is Not Required. The provisions of Section (a) hereof shall not be applicable with respect to: 18 - 54 - (i) any purchase, acquisition, redemption or exchange of GM Equity Securities, the purchase, acquisition, redemption or exchange of which, at the time any such transaction is entered into, is provided for in the corporation's certificate of incorporation (including any resolution or resolutions of the board of directors providing for the issuance of Preferred Stock or Preference Stock by the corporation); (ii) any purchase or other acquisition of GM Equity Securities made as part of a tender or exchange offer by the corporation to purchase securities of the same class made on the same terms to all holders of such securities and complying with the applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder (or any successor provisions to such Act, rules or regulations); (iii) any purchase or acquisition of GM Equity Securities made pursuant to an open market purchase program which has been approved by the board of directors; or (iv) any purchase or acquisition of GM Equity Securities made from, or any purchase or acquisition of GM Equity Securities made pursuant to or on behalf of, an employee benefit plan maintained by the corporation, or any subsidiary or any trustee of, or fiduciary with respect to any such plan when acting in such capacity. (c) Interpretation of This By-Law. The board of directors shall have the exclusive right and power to interpret the provisions of this by-law, including, without limitation, the adoption of written definitions of terms used in this by-law (any such definitions shall be filed with the Secretary, and such definitions as may prevail shall be made available to any stockholder upon written request); any such interpretation made in good faith shall be binding and conclusive upon all holders of GM Equity Securities. 6.13. Gender Pronouns. Whenever the masculine pronoun is used herein it shall be deemed to refer to either the masculine or the feminine gender. 19 - 55 - DEFINITIONS OF CERTAIN TERMS USED IN AND GUIDELINES FOR THE APPLICATION OF BY-LAW 2.12 OF GENERAL MOTORS CORPORATION Certain Definitions. For the purposes of Section 2.12 of the By-Laws of General Motors Corporation, (the "Corporation") the board of directors has adopted the following definitions, effective January 7, 1991. (i) "Affiliate" of a person, or a person "affiliated with," a specified person, shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the specified person. (ii) The term "control" (including the terms "controlling," "controlled by" and "under common control with") shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise; provided, however, that a person shall not be deemed to control another person solely because he or she is a director of such other person. (iii) "GM Equity Security" shall mean any security described in Section 3(a)(11) of the Exchange Act, as of the effective date hereof, which is issued by GM and traded on a national securities exchange or the NASDAQ National Market System. (iv) A "subsidiary" of the Corporation shall mean any corporation a majority of the voting stock of which is owned, directly or indirectly through one or more other subsidiaries, by the Corporation. (v) The employment of a person by the Corporation or its subsidiaries shall be deemed to be in an "executive capacity" during the period that such person (A) served as an elected officer of the Corporation or one of its subsidiaries, or (B) reported directly to a person who served as an elected officer of the Corporation or one of its subsidiaries. (vi) A person shall be deemed to be, or to be affiliated with, a company or firm that is a "significant advisor or consultant to the corporation or its subsidiaries" if he, she or it, as the case may be, received or would receive fees or similar compensation from the Corporation or a subsidiary of the Corporation in excess of the lesser of (A) three percent (3%) of the consolidated gross revenues which the Corporation and its subsidiaries received for the sale of their products and services during the last fiscal year of the Corporation; (B) five percent (5%) of the gross revenues of the person during the last calendar year, if such person is a self-employed individual, or (C) five percent (5%) of the consolidated gross revenues received by such company or firm for the sale of its products and services during its last fiscal year, if the person is a company or firm; provided, however, that directors' fees and expense reimbursements shall not be included in the gross revenues of an individual for purposes of this determination. i - 56 - (vii) A "significant customer of the corporation and its subsidiaries" shall mean a customer from which the Corporation and its subsidiaries collectively in the last fiscal year of the Corporation received payments in consideration for the products and services of the Corporation and its subsidiaries which are in excess of three percent (3%) of the consolidated gross revenues of the Corporation and its subsidiaries during such fiscal year. (viii) A "significant supplier of the corporation and its subsidiaries" shall mean a supplier to which the Corporation and its subsidiaries collectively in the last fiscal year of the Corporation made payments in consideration for the supplier's products and services in excess of three percent (3%) of the consolidated gross revenues of the Corporation and its subsidiaries during such fiscal year. (ix) The Corporation and its subsidiaries shall be deemed a "significant customer of a company" if the Corporation and its subsidiaries collectively were the direct source during such company's last fiscal year of in excess of five percent (5%) of the gross revenues which such company received for the sale of its products and services during that year. (x) The Corporation and its subsidiaries shall be deemed a "significant supplier of a company" if the Corporation and its subsidiaries collectively received in such company's last fiscal year payments from such company in excess of five percent (5%) of the gross revenues which such company received during that year for the sale of its products and services. (xi) A person shall be deemed to have "significant personal services contract(s) with the corporation or its subsidiaries" if the fees and other compensation received by the person pursuant to personal services contract(s) with the Corporation or its subsidiaries exceeded or would exceed five percent (5%) of his or her gross revenues during the last calendar year. (xii) A tax-exempt entity shall be deemed to receive "significant contributions" from the Corporation or its subsidiaries if such tax-exempt entity received during its last fiscal year, or expects to receive during its current fiscal year, contributions from the Corporation or its subsidiaries in excess of the lesser of either (A) three percent (3%) of the consolidated gross revenues of the Corporation and its subsidiaries during its last fiscal year, or (B) five percent (5%) of the contributions received by the tax-exempt entity during its last fiscal year. ii - 57 - Guidelines for Application. (i) For purposes of identifying payments for products and services contemplated by the definitions set forth above, and performing the related calculations, the board of directors may exclude payments such as those described in paragraph 2 of the Instructions to Paragraph (b) of Item 404 of Regulation S-K, as promulgated by the Securities and Exchange Commission as of the effective date hereof. (ii) The board of directors shall be entitled to rely upon the completeness and accuracy of directors' responses to written questionnaires circulated for the purpose of enabling the board of directors to make the determinations of independence required by the provisions of By-Law 2.12. iii - 58 - SECURITIES ACT AND EXCHANGE ACT PARAGRAPH 2 OF INSTRUCTIONS TO PARAGRAPH (b) OF ITEM 404 OF REGULATION S-K AS IN EFFECT ON JANUARY 7, 1991 (REFERRED TO IN PARAGRAPH (i) OF GUIDELINES FOR APPLICATION OF BY-LAW 2.12 OF GENERAL MOTORS CORPORATION) 2. In calculating payments for property and services the following may be excluded: A. Payments where the rates or charges involved in the transaction are determined by competitive bids, or the transaction involves the rendering of services as a common contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; B. Payments that arise solely from the ownership of securities of the registrant and no extra or special benefit not shared on a pro rata basis by all holders of the class of securities is received; or C. Payments made or received by subsidiaries other than significant subsidiaries as defined in Rule 1-02(v) of Regulation S-X, provided that all such subsidiaries making or receiving payments, when considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as defined in Rule 1-02(v).* - ------------------------------------------------------------ * The General Motors Legal Staff notes that Rule 1-02(v) of Regulation S-X provides, generally, that a significant subsidiary of General Motors Corporation would be one which, together with its subsidiaries, meets any of the following conditions: (1) General Motors' and its other subsidiaries' investments in and advances to the subsidiary exceed ten percent (10%) of the total assets of General Motors and its consolidated subsidiaries. (2) General Motors' and its other subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the subsidiary exceeds ten percent (10%) of the total assets of General Motors and its consolidated subsidiaries. (3) General Motors' and its other subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the subsidiary exceeds ten percent (10%) of such income of General Motors and its consolidated subsidiaries. iv - 59 - DEFINITION OF CERTAIN TERMS USED IN BY-LAW 6.12 OF GENERAL MOTORS CORPORATION Certain Definitions. For the purposes of Section 6.12 of the By-Laws of General Motors Corporation, the board of directors has adopted the following definitions, effective March 5, 1990: (i) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on January 1, 1990. (ii) "Beneficial Owner" and "Beneficial Ownership" shall have the meanings ascribed to such terms in Rule 13d-3 and Rule 13d-5 of the General Rules and Regulations under the Exchange Act, as in effect on January 1, 1990. (iii) "GM Equity Security" shall mean any security described in Section 3(a) (11) of the Exchange Act, as in effect on January 1, 1990, which is issued by GM and traded on a national securities exchange or the NASDAQ National Market System. (iv) "Interested Person" shall mean any person (other than the Corporation or any Subsidiary) that is the direct or indirect Beneficial Owner of more than three percent (3%) of the aggregate voting power of the Voting Shares, and any affiliate or associate of any such person. For the purpose of determining whether a Person is an Interested Person, the outstanding Voting Shares shall include unissued shares of voting stock of the corporation of which the Interested Person is the Beneficial Owner, but shall not include any other shares of voting stock of the corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise, to any Person who is not the Interested Person. (v) "Market Price" of shares of a class of GM Equity Security on any day shall mean the highest sale price (regular way) of shares of such class of GM Equity Security on such day, or, if that day is not a trading day, on the trading day immediately preceding such day, on the largest principal national securities exchange on which such class of stock is then listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, then the highest reported sale price for such shares in the over-the-counter market as reported on the NASDAQ National Market System, or if such sale prices shall not be reported thereon, the highest bid price so reported, or, if such price shall not be reported thereon, as the same shall be reported by the National Quotation Bureau Incorporated; in the case of any GM Equity Security which is the Preferred Stock or Preference Stock of the corporation (of any series), the Market Price thereof shall be the Market Price, as hereinabove defined, of the Voting Shares which the holder of such Preferred Stock or Preference Stock may then acquire by reason of the redemption, exchange, conversion or exercise of other rights as may be provided for in the terms of such securities. v - 60 - (vi) "Person" shall mean any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group deemed to be a person pursuant to Section 13(d)(3) of the Exchange Act, as in effect on January 1, 1990. (vii) "Subsidiary" shall mean any company of which the corporation owns, directly or indirectly, (A) a majority of the outstanding shares of equity securities, or (B) shares having a majority of the voting power represented by all of the outstanding voting stock of such company. For the purpose of determining whether a company is a Subsidiary, the outstanding voting stock and shares of equity securities thereof shall include unissued shares of which the corporation is the Beneficial Owner but, except for the purpose of determining whether a company is a Subsidiary for purposes of the definition of Interested Person as used in By-Law Section 6.12, shall not include any other shares which may be issuable pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, warrants or options, or otherwise, to any Person who is not the corporation. (viii) "Voting Shares" shall mean the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors. vi - 61 - EX-11 3 L:\secdraft\version4\exhib11.doc 4 EXHIBIT 11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS (Unaudited) Three Months Ended June 30, 1997 $1-2/3 Par Value Class H Common Common Stock Stock (Dollars in Millions Except Per Share Amounts) Net income $1,961 $137 Dividends on preference stocks 20 - ------ ----- Earnings on common stocks 1,941 137 Dividends on common stocks 362 25 ----- ---- Net earnings retained $1,579 $112 ===== === Weighted average shares outstanding (in millions) 724 101 Per Share Data Net earnings retained per share $2.18 $1.10 Cash dividends per share 0.50 0.25 ---- ---- Net earnings per share $2.68 $1.35 ==== ==== Note: The difference between fully diluted and primary earnings per share is immaterial. - 62 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS - Continued (Unaudited) Three Months Ended June 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 $2,021 $ - $75 Loss from discontinued operations (15) (194) - ------ ----- ---- Net income (loss) 2,006 (194) 75 Dividends on preference stocks 20 - - ------ ----- ---- Earnings (loss) on common stocks 1,986 (194) 75 Dividends on common stocks 300 73 23 ------ ---- -- Net earnings retained (loss accumulated) $1,686 $(267) $52 ===== === == Net earnings retained from continuing operations $1,701 $ - $52 ===== ==== == Loss accumulated from discontinued operations $(15) $(267) $ - == === === Weighted average shares outstanding (in millions) 756 479 98 === === == Per Share Data Net earnings retained per share from continuing operations $2.25 $ - $0.53 Loss accumulated per share from discontinued operations (0.02) (0.56) - Cash dividends per share 0.40 0.15 0.24 ---- ---- ---- Net earnings (loss) per share $2.63 $(0.41) $0.77 ==== ==== ==== Note: The difference between fully diluted and primary earnings per share is immaterial. - 63 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS - Continued (Unaudited) Six Months Ended June 30, 1997 $1-2/3 Par Value Class H Common Common Stock Stock (Dollars in Millions Except Per Share Amounts) Net income $3,698 $196 Dividends on preference stocks 40 - ------- ----- Earnings on common stocks 3,658 196 Dividends on common stocks 739 50 ------ ---- Net earnings retained $2,919 $146 ===== === Weighted average shares outstanding (in millions) 736 101 Per Share Data Net earnings retained per share $3.98 $1.44 Cash dividends per share 1.00 0.50 ---- ---- Net earnings per share $4.98 $1.94 ==== ==== Note: The difference between fully diluted and primary earnings per share is immaterial. - 64 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS - Concluded (Unaudited) Six Months Ended June 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 $2,745 $ - $151 Income (loss) from discontinued operations (5) 15 - ------- -- ----- Net income 2,740 15 151 Dividends on preference stocks 40 - - ------ ----- ----- Earnings on common stocks 2,700 15 151 Dividends on common stocks 606 145 46 ------ --- ---- Net earnings retained (loss accumulated) $2,094 $(130) $105 ===== === === Net earnings retained from continuing operations $2,099 $ - $105 ===== ==== === 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 $2.78 $ - $1.07 Loss accumulated per share from discontinued operations (0.01) (0.26) - Cash dividends per share 0.80 0.30 0.48 ---- ---- ---- Net earnings per share $3.57 $0.04 $1.55 ==== ==== ==== Note: The difference between fully diluted and primary earnings per share is immaterial. - 65 - EX-12 4 L:\secdraft\version4\exhib12.doc EXHIBIT 12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Unaudited) Six Months Ended June 30, 1997 1996 (Dollars in Millions) Income from continuing operations $3,894 $2,896 Income taxes 2,142 1,530 Equity in income of associates (23) (64) Cash dividends received from associates 12 25 Amortization of capitalized interest 29 14 ----- ----- Income from continuing operations before income taxes, undistributed income of associates, and amortization of capitalized interest 6,054 4,401 Fixed charges included in income from continuing operations Interest and related charges on debt 2,928 2,835 Portion of rentals deemed to be interest 148 132 Total fixed charges included in income from continuing operations 3,076 2,967 ----- ----- Earnings available for fixed charges $9,130 $7,368 ===== ===== Fixed charges Fixed charges included in income from continuing operations $3,076 $2,967 Interest capitalized in the period 35 27 Total fixed charges $3,111 $2,994 ===== ===== Ratios of earnings to fixed charges 2.93 2.46 ==== ==== - 66 - EX-99 5 L:\secdraft\version4\exhib99.doc 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) Six Months Ended Second Quarter June 30, 1997 1996 1997 1996 (Dollars in Millions Except Per Share Amounts) Revenues Net sales Outside customers $2,931.8 $2,531.2 $5,697.5 $4,970.1 General Motors and affiliates 1,333.8 1,501.4 2,696.3 2,676.1 Other income - net 490.1 18.0 500.0 136.4 ------- ------- -------- -------- Total revenues 4,755.7 4,050.6 8,893.8 7,782.6 ------- ------- ------- -------- Costs and expenses Cost of sales and other operating charges, exclusive of items listed below 3,325.0 3,094.6 6,541.8 5,891.1 Selling, general, and administrative expenses 436.0 358.0 876.5 658.3 Depreciation and amortization 165.5 129.6 311.6 261.2 Amortization of GM purchase accounting adjustments related to Hughes Aircraft Company 30.6 30.6 61.2 61.2 Interest expense - net 23.8 1.4 27.7 6.6 ------- ------- -------- -------- Total costs and expenses 3,980.9 3,614.2 7,818.8 6,878.4 ------- ------- ------- ------- Income before income taxes and minority interests 774.8 436.4 1,075.0 904.2 Income taxes 275.1 172.3 385.3 363.7 Minority interests in net losses of subsidiaries 11.1 11.9 25.7 16.6 ------ ----- ------- ------ Net income 510.8 276.0 715.4 557.1 Adjustments to exclude the effect of GM purchase accounting adjustments related to Hughes Aircraft Company 30.6 30.6 61.2 61.2 ---- ---- ---- ---- Earnings Used for Computation of Available Separate Consolidated Net Income $541.4 $306.6 $776.6 $618.3 ===== ===== ===== ===== Available Separate Consolidated Net Income Average number of shares of General Motors Class H Common Stock outstanding (in millions) (numerator) 101.0 98.2 100.7 97.8 Class H dividend base (in millions) (denominator) 399.9 399.9 399.9 399.9 Available Separate Consolidated Net Income $136.7 $75.2 $195.8 $151.2 ===== ==== ===== ===== Earnings Per Share Attributable to General Motors Class H Common Stock $1.35 $0.77 $1.94 $1.55 ==== ==== ==== ==== Certain 1996 amounts have been reclassified to conform with the 1997 presentation. Reference should be made to the Notes to Consolidated Financial Statements. - 67 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET June 30, 1997 December 31, (Unaudited) 1996 (Dollars in Millions Except Per Share Amount) ASSETS Current assets Cash and cash equivalents $1,308.5 $1,161.3 Accounts and notes receivable Trade receivables (less allowances) 1,366.8 1,200.6 General Motors and affiliates 106.2 113.4 Contracts in process, (less advances and progress payments) 2,264.0 2,186.5 Inventories (less allowances) Productive material, work in process, and supplies 1,600.3 1,383.1 Finished product 179.5 145.4 Prepaid expenses, including deferred income taxes 704.9 568.1 Total current assets 7,530.2 6,758.4 Property-net 2,940.9 2,886.6 Telecommunications and other equipment - net 2,289.9 1,133.5 Intangible assets - net 5,820.1 3,466.0 Investments and other assets - principally at cost (less allowances) 2,564.1 2,235.6 Total assets $21,145.2 $16,480.1 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable Outside $983.9 $896.4 General Motors and affiliates 13.4 27.5 Advances on contracts 711.0 868.9 Notes and loans payable 801.4 248.1 Income taxes payable 216.1 132.9 Accrued liabilities 1,799.6 2,025.8 ------- ------- Total current liabilities 4,525.4 4,199.6 ------- ------- Long-term debt and capitalized leases 2,405.8 34.5 Postretirement benefits other than pensions 1,680.8 1,658.9 Other liabilities and deferred credits 1,788.1 1,386.4 Minority interests 644.0 20.8 Redeemable preferred stock of subsidiary 401.5 - Stockholder's equity Capital stock (outstanding, 1,000 shares, $0.10 par value) and additional paid-in capital 6,357.1 6,347.2 Net income retained for use in the business 3,484.2 2,968.8 ------- ------- Subtotal 9,841.3 9,316.0 Minimum pension liability adjustment (113.5) (113.5) Accumulated foreign currency translation adjustments (28.2) (22.6) Total stockholder's equity 9,699.6 9,179.9 ------- ------- Total liabilities and stockholder's equity $21,145.2 $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. - 68 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1997 1996 (Dollars in Millions) Net cash (used in) provided by operating activities $(33.3) $357.6 ----- ----- Cash flows from investing activities Investment in companies, net of cash acquired (1,609.5) (28.7) Expenditures for property and special tools (231.9) (293.9) Increase in telecommunications and other equipment (123.5) (91.2) Proceeds from sale and leaseback of satellite transponders with GMAC - 252.0 Proceeds from disposal of property 26.1 31.4 Decrease in notes receivable 12.4 0.7 Net cash used in investing activities (1,926.4) (129.7) ------- ----- Cash flows from financing activities Net increase (decrease) in notes and loans payable 549.0 (311.6) Increase in long-term debt 1,761.2 15.3 Decrease in long-term debt (3.3) (16.5) Proceeds from sale of minority interest in subsidiary - 137.5 Cash dividends paid to General Motors (200.0) (192.0) Net cash provided by (used in) financing activities 2,106.9 (367.3) ------- ----- Net increase (decrease) in cash and cash equivalents 147.2 (139.4) Cash and cash equivalents at beginning of the period 1,161.3 1,139.5 ------- ------- Cash and cash equivalents at end of the period $1,308.5 $1,000.1 ======= ======= Reference should be made to the Notes to Consolidated Financial Statements. - 69 - 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 information. In the opinion of management, all adjustments (consisting of only normal recurring items) which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year. For further information, refer to the 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 Report on Form 10-Q dated March 31, 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 income - net for the three and six months ended June 30, 1997 includes a $489.7 million pre-tax gain recognized in connection with the PanAmSat merger (See Note 5). The six month period ended June 30, 1996 amount 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. The amortization period is now 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 January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. The transactions would include the tax-free spin-off of the Hughes defense business to holders of GM's $1-2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company. The spin-off will not be proposed in a manner that would result in the recapitalization of Class H common stock into $1-2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the GM Restated Certificate of Incorporation, as amended. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, GM's Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. On July 14, 1997, GM received a ruling from the Internal Revenue Service that it's contemplated spin-off of the Hughes defense business would be tax-free to GM and its stockholders. The planned transactions must be approved by holders of GM $1-2/3 par value and Class H common stocks, among a number of other conditions. In addition, the merger of the Hughes defense business and Raytheon is subject to antitrust clearance and approval by Raytheon stockholders. No assurance can be given that the above transactions will be completed. GM expects to solicit stockholders' approval of the planned transactions during the fourth quarter of 1997, after certain conditions are satisfied. 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 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 $489.7 million ($318.3 million after-tax or $0.80 per share of GM Class H common stock). - 70 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded (Unaudited) NOTE 5. (concluded) The preferred stock of PAS outstanding at the time of the merger is included in the accompanying balance sheet as redeemable preferred stock of subsidiary. Dividends on such redeemable preferred stock are payable quarterly in arrears. On or after April 15, 2000, the preferred stock is redeemable at the option of PAS, in whole or in part from time to time at a redemption price of 106.375% declining to 100% of liquidation value plus accrued and unpaid dividends. The redeemable preferred stock is subject to mandatory redemption in whole on April 15, 2005, at a price equal to the liquidation preference thereof plus accrued and unpaid dividends. Subject to certain conditions, PAS will be required to exchange all of the outstanding shares of redeemable preferred stock into 12 3/4% Senior Subordinated Notes due 2005. PAS currently expects the redeemable preferred stock to be exchanged for senior subordinated notes in the second half of 1997. 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 (101 million and 98.2 million during the second quarters of 1997 and 1996, respectively) and the denominator of which was 399.9 million during the second 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. * * * * * * - 71 - 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 Report on Form 10-Q dated March 31, 1997, and Current Reports on Form 8-K filed subsequent to the filing date for the 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 75). Statements made concerning expected financial performance, ongoing financial performance strategies, and possible future action which Hughes intends to pursue to achieve strategic objectives for each of its three principal business segments constitute forward-looking information. The implementation of these strategies and of such future actions and the achievement of such financial performance are each subject to numerous conditions, uncertainties and risk factors, and, accordingly, no assurance can be given that Hughes will be able to successfully accomplish its strategic objectives or achieve such financial performance. The principal important risk factors which could cause actual performance and future actions to differ materially from the forward-looking statements made herein include economic conditions, product demand and market acceptance, government action, competition, ability to achieve cost reductions, GM's global sourcing strategy with respect to automotive electronics, GM's North American Operations (GM-NAO) volumes, technological risk, and interruptions to production attributable to causes outside Hughes' control. Transactions Update On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. The transactions would include the tax-free spin-off of the Hughes defense business to holders of GM's $1-2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company. The spin-off will not be proposed in a manner that would result in the recapitalization of Class H common stock into $1-2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the GM Restated Certificate of Incorporation, as amended. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, GM's Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. On July 14, 1997, GM received a ruling from the Internal Revenue Service that it's contemplated spin-off of the Hughes defense business would be tax-free to GM and its stockholders. The planned transactions must be approved by holders of GM $1-2/3 par value and Class H common stocks, among a number of other conditions. In addition, the merger of the Hughes defense business and Raytheon is subject to antitrust clearance and approval by Raytheon stockholders. No assurance can be given that the above transactions will be completed. GM expects to solicit stockholders' approval of the planned transactions during the fourth quarter of 1997, after certain conditions are satisfied. 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 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 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 $489.7 million ($318.3 million after-tax or $0.80 per share of GM Class H common stock). - 72 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES Results of Operations Hughes reported second quarter 1997 earnings of $541.4 million, compared with $306.6 million reported in the second quarter of 1996. Excluding the $318.3 million after-tax gain ($0.80 per share of GM Class H common stock) recognized in connection with the PAS merger, earnings decreased 27.2% and earnings per share decreased $0.22 per share from $0.77 per share in the prior year period. The declines were principally due to lower operating margins at Delco Electronics as a result of reduced GM production volumes related to work stoppages at two key GM assembly plants, and continued price reductions. Revenues for the second quarter of 1997 were $4,755.7 million, a 17.4% increase from the $4,050.6 million reported in the second quarter of 1996. Costs and expenses as a percentage of revenues declined to 83.1% from 88.5% in the second quarter of 1996. Income taxes were $275.1 million, or 34.2% of income before income taxes and minority interests, for the second quarter of 1997 compared with $172.3 million, or 36.9% of income before income taxes and minority interests, in the 1996 second quarter. Operating profit was $339.1 million for the quarter ended June 30, 1997, a 24.7% decrease from the operating profit of $450.4 million reported during the comparable period in 1996. The operating profit margin was 8.0% for the second quarter of 1997 compared with 11.2% in the second quarter of 1996. Telecommunications and Space segment revenues for the quarter ended June 30, 1997 were $1,618.8 million, an increase of 72.1% over revenues of $940.8 million reported in the prior year's second quarter. Excluding the $489.7 million pre-tax gain recognized in connection with the PAS merger, revenues increased 20.0%. The growth was primarily due to continued expansion of the DIRECTV subscriber base in the United States and Latin America, partially offset by lower sales of wireless telecommunications equipment particularly related to the BellSouth Cellular Corp. contract. Operating profit in the second quarter of 1997 was $40.2 million compared with $57.0 million reported in the same period in 1996. This decrease was largely the result of lower wireless telecommunications equipment sales and margins, and start-up operating losses from the Company's Latin American DIRECTV subsidiary, Galaxy Latin America. As a result, second quarter operating profit margin declined to 3.5% in 1997 from 6.0% in 1996. The Automotive Electronics segment reported second quarter 1997 revenues of $1,460.6 million, a decrease of 6.0% from revenues of $1,553.8 million for the same period in 1996. The decline reflects a 6.9% decrease in GM vehicles produced in the United States and Canada (excluding joint ventures) primarily related to work stoppages at two key GM assembly plants which resulted in an estimated loss of 96,000 units of production. Also contributing to reduced revenues was a 2.2% decline in Delco-supplied electronic content in these vehicles from $896 to $876 per vehicle. Partially offsetting these reductions was a 10.8% increase in international and non GM-NAO sales to $287 million. Operating profit declined to $134.4 million in the second quarter from $236.4 million in the comparable period in 1996. The decline was primarily due to lower production volumes, price reductions resulting from competitive pricing in connection with GM's global sourcing initiative and the impact from continued international expansion. Second quarter operating profit margin declined to 9.2% from 15.3% 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 sourcing initiatives more than offset Hughes' ability to achieve cost reductions. In response to the increased pressure on margins and to enhance future competitiveness, management 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. - 73 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES The Aerospace and Defense Systems segment reported 1997 second quarter revenues of $1,637.6 million, an 8.5% increase over revenues of $1,509.8 million reported in the same period in 1996. The growth was principally due to additional revenues resulting from the build-up of newer programs, particularly information systems and services programs such as Desktop V, Wide Area Augmentation System, and Hughes Air Warfare Center and the acquisition in March 1997 of the Marine Systems Group of Alliant Techsystems. Operating profit for the second quarter of 1997 increased slightly to $162.8 million compared with $161.4 million for the second quarter of 1996. The operating profit margin in the period decreased to 10.0% as compared to 10.7% in 1996 primarily due to provisions taken on certain air traffic control and training contracts offset in part by strong performance on several radar 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 June 30, 1997 were $1,308.5 million, an increase of $147.2 million from the $1,161.3 million reported at December 31, 1996. The increase was primarily due to the positive net impact on cash of $258.8 million as a result of the PAS merger and the proceeds of $697.2 million from short-term commercial paper borrowings under an existing credit facility, 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 $150.0 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 $330.0 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 $395.8 million was also assumed in connection with merger; however, such redeemable preferred stock is expected to be exchanged for senior subordinated notes in the second half of 1997. Capital expenditures, including expenditures for telecommunications and other equipment, were $361.5 million through June 30, 1997, compared with $397.8 million for the same period in 1996 reflecting decreased expenditures in the Automotive Electronics and Telecommunications and Space segments. Long-term debt and capitalized leases were $2,405.8 million at June 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 25.5% at June 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 1.66 at June 30, 1997 remained relatively unchanged from 1.69 at December 31, 1996. Working capital increased to $3,004.8 million at June 30, 1997 from $2,558.8 million at December 31, 1996. Hughes expects 1997 cash requirements prior to the consummation of the planned transactions to result in additional short-term borrowings of up to $500 million under existing credit facilities. Cash flows for the third 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. In the past, GM-NAO has generally paid Delco for product shipments immediately upon billing. The policy governing Delco/GM-NAO credit terms is being changed such that Delco and GM-NAO will implement credit terms substantially equivalent to those given to GM-NAO's non-affiliated suppliers, beginning in the third quarter of 1997. This change in credit terms will be subject to a four year phase-in period. However, if the spin-off of the Hughes defense business is completed with Delco being transferred to Delphi, the credit terms for Delco will change, effective immediately after such transaction is completed, without any phase-in period. 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 - 74- HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES New Accounting Standards (concluded) 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. Hughes will adopt SFAS No. 130 and No. 131 on January 1, 1998, as required. 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 $30.6 million for the second 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 $2,662.3 million at June 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 GM's 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. - 75- HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME Six Months Ended Second Quarter June 30, 1997 1996 1997 1996 ------ ------- ------ ------ (Dollars in Millions Except Per Share Amounts) Total Revenues $4,755.7 $4,050.6 $8,893.8 $7,782.6 Total Costs and Expenses 3,950.3 3,583.6 7,757.6 6,817.2 ------- ------- ------- ------- Income before Income Taxes and Minority Interests 805.4 467.0 1,136.2 965.4 Income Taxes 275.1 172.3 385.3 363.7 Minority Interests in Net Losses of Subsidiaries 11.1 11.9 25.7 16.6 ---- ---- ---- ----- Earnings Used for Computation of Available Separate Consolidated Net Income $541.4 $306.6 $776.6 $618.3 ===== ===== ===== ===== Earnings Per Share Attributable to General Motors Class H Common Stock $1.35 $0.77 $1.94 $1.55 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET June 30, December 31, ASSETS 1997 1996 (Dollars in Millions) Total Current Assets $7,530.2 $6,758.4 Property - Net 2,940.9 2,886.6 Telecommunications and Other Equipment - Net 2,289.9 1,133.5 Intangible Assets, Investments, and Other Assets - Net 5,721.9 2,978.1 --------- --------- Total Assets $18,482.9 $13,756.6 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Total Current Liabilities $4,525.4 $4,199.6 Long-Term Debt and Capitalized Leases 2,405.8 34.5 Postretirement Benefits Other Than Pensions, Other Liabilities, Deferred Credits, Minority Interests and Redeemable Preferred Stock of Subsidiary 4,514.4 3,066.1 Total Stockholder's Equity ** 7,037.3 6,456.4 Total Liabilities and Stockholder's Equity ** $18,482.9 $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). - 76 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* - Continued PRO FORMA SELECTED SEGMENT DATA Six Months Ended Second Quarter June 30, 1997 1996 1997 1996 ------ ------- ------ ------ (Dollars in Millions) Telecommunications and Space Revenues Amount $1,618.8 $940.8 $2,628.1 $1,873.6 As a percentage of Hughes Revenues 34.1% 23.2% 29.6% 24.1% Net Sales $1,138.3 $950.3 $2,157.1 $1,771.3 Operating Profit(1) $40.2 $57.0 $47.3 $131.5 Operating Profit Margin(2) 3.5% 6.0% 2.2% 7.4% Depreciation and Amortization(3) $66.9 $41.7 $117.2 $87.9 Capital Expenditures(4) $125.0 $165.3 $219.0 $235.6 Automotive Electronics Revenues Amount $1,460.6 $1,553.8 $2,907.1 $2,824.5 As a percentage of Hughes Revenues 30.7% 38.4% 32.7% 36.3% Net Sales $1,456.9 $1,540.2 $2,890.8 $2,800.4 Operating Profit(1) $134.4 $236.4 $280.0 $395.7 Operating Profit Margin(2) 9.2% 15.3% 9.7% 14.1% Depreciation and Amortization $55.6 $50.5 $111.8 $99.3 Capital Expenditures $36.5 $52.1 $72.3 $102.4 Aerospace And Defense Systems Revenues Amount $1,637.6 $1,509.8 $3,284.2 $3,022.2 As a percentage of Hughes Revenues 34.4% 37.3% 36.9% 38.8% Net Sales $1,635.1 $1,512.0 $3,279.9 $3,014.2 Operating Profit(1) $162.8 $161.4 $336.3 $319.3 Operating Profit Margin(2) 10.0% 10.7% 10.3% 10.6% Depreciation and Amortization(3) $39.5 $33.3 $76.5 $66.0 Capital Expenditures $37.7 $26.6 $68.1 $55.1 Corporate And Other Operating Profit (Loss)(1) $1.7 ($4.4) $0.3 ($10.9) 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 arising from purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company amounting to $5.3 million in each of the second quarters and $10.6 million in each of the six-month periods for the Telecommunications and Space segment and $25.2 million in each of the second quarters and $50.4 million in each of the six-month periods for the Aerospace and Defense Systems segment in 1997 and 1996. (4) Includes expenditures related to telecommunications and other equipment amounting to $72.0 million, $87.9 million, 129.6 million, and $103.9 million, respectively. - 77 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* - Concluded PRO FORMA SELECTED FINANCIAL DATA Six Months Ended Second Quarter June 30, 1997 1996 1997 1996 ------ ------ ------- ------ (Dollars in Millions Except Per Share Amounts) Operating profit $339.1 $450.4 $663.9 $835.6 Income before income taxes and minority interests $805.4 $467.0 $1,136.2 $965.4 Earnings used for computation of available separate consolidated net income $541.4 $306.6 $776.6 $618.3 GM Class H dividend base shares (1) 399.9 399.9 399.9 399.9 Stockholder's Equity $7,037.3 $6,110.1 $7,037.3 $6,110.1 Dividends per share of GM Class H common stock $0.25 $0.24 $0.50 $0.48 Working capital $3,004.8 $2,995.7 $3,004.8 $2,995.7 Operating profit as a percent of net sales 8.0% 11.2% 7.9% 10.9% Income before income taxes and minority interests as a percent of net sales 18.9% 11.6% 13.5% 12.6% Net income as percent of net sales 12.7% 7.6% 9.3% 8.1% 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 101.0 million for the second quarter of 1997 and 98.2 million for the second quarter of 1996. * * * * * * - 78 - EX-27 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GENERAL MOTORS CORPORATION JUNE 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECOND QUARTER 1997 FORM 10-Q. 0000040730 GENERAL MOTORS CORPORATION 1,000,000 U.S. DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 11,674 9,343 67,818 0 13,528 0 78,564 40,911 231,905 0 89,918 402 1 1,212 22,818 231,905 77,164 87,387 64,038 70,107 97 257 2,961 5,999 2,142 3,894 0 0 0 3,894 4.98 0
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