-----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, RSfpyrGLut5a3+9k/XbFbNqio2YZbA4xH3sh22wGmEgb+HkM3hppBEUWkXhcnh4s QcAX07a5nkpJc9gS9BPvOA== 0000040730-97-000033.txt : 19971114 0000040730-97-000033.hdr.sgml : 19971114 ACCESSION NUMBER: 0000040730-97-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 001-00143 FILM NUMBER: 97714812 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 Unknown;Steven R. Mark; UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549-1004 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-143 GENERAL MOTORS CORPORATION (Exact name of registrant as specified in its charter) STATE OF DELAWARE 38-0572515 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Renaissance Center, Detroit, Michigan 48243-7301 3044 West Grand Boulevard, Detroit, Michigan 48202-3091 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (313) 556-5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . As of September 30, 1997, 707,269,900 shares of the issuer's $1-2/3 par value common stock and 102,459,164 shares of Class H $0.10 par value common stock were outstanding. - 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 Nine Months Ended September 30, 1997 and 1996 3 Consolidated Balance Sheets as of September 30, 1997, December 31, 1996 and September 30, 1996 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II - Other Information (Unaudited) Item 1. Legal Proceedings 26 Item 6. Exhibits and Reports on Form 8-K 27 Signature 28 Exhibit 11 Computation of Earnings Per Share Attributable to Common Stocks for the Three and Nine Months Ended September 30, 1997 and 1996 29 Exhibit 99 Hughes Electronics Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 33 Exhibit 27 Financial Data Schedule (for SEC information only) - 2 - PART I GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------ ------ ------ ------- (Dollars in Millions Except PerShare Amounts) Net sales and revenues Manufactured products $37,103 $34,590 $114,267 $109,416 Financial services 3,162 3,179 9,563 9,483 Other income (Note 4) 1,625 1,309 5,447 4,201 ------ ------ ------- ------- Total net sales and revenues 41,890 39,078 129,277 123,100 ------ ------ ------- ------- Costs and expenses Cost of sales and other operating charges, exclusive of items listed below 31,484 29,624 95,522 92,871 Selling, general, and administrative expenses 3,884 3,632 11,459 10,280 Depreciation and amortization expenses 3,030 2,927 9,196 8,917 Interest expense 1,508 1,423 4,469 4,258 Plant closing expense (adjustment) - (409) 80 (409) Other deductions (Note 4) 388 383 956 1,249 ------ ------ ------- ------- Total costs and expenses 40,294 37,580 121,682 117,166 ------ ------ ------- ------- Income from continuing operations before income taxes and minority interests 1,596 1,498 7,595 5,934 Income taxes 533 258 2,675 1,788 Minority interests 4 31 41 21 ------ ------ ------- ------ Income from continuing operations 1,067 1,271 4,961 4,167 Income from discontinued operations (Note 3) - - - 10 ------ ------ ------- ------ Net income 1,067 1,271 4,961 4,177 Premium on exchange of preference stocks (Note 11) 26 - 26 - Dividends on preference stocks 16 21 56 61 ------ ------ ------- ------ Earnings on common stocks $1,025 $1,250 $4,879 $4,116 ===== ===== ===== ===== Earnings attributable to common stocks (Note 10) $1-2/3 par value from continuing operations $964 $1,188 $4,622 $3,892 Loss from discontinued operations - - - (5) ---- ----- ----- ----- Net earnings attributable to $1-2/3 par value $964 $1,188 $4,622 $3,887 === ===== ===== ===== Income from discontinued operations attributable to Class E $ - $ - $ - $15 ==== ==== ===== == Net earnings attributable to Class H $61 $62 $257 $214 == == === === Average number of shares of common stocks outstanding (in millions) $1-2/3 par value 713 756 728 756 Class E - - - 470 Class H 102 99 101 98 Earnings per share attributable to common stocks (Note 10) $1-2/3 par value from continuing operations $1.35 $1.57 $6.35 $5.15 Loss from discontinued operations - - - (0.01) ---- ---- ---- ---- Net earnings attributable to $1-2/3 par value $1.35 $1.57 $6.35 $5.14 ==== ==== ==== ==== Income from discontinued operations attributable to Class E $ - $ - $ - $0.04 ==== ==== ==== ==== Net earnings attributable to Class H $0.60 $0.63 $2.54 $2.18 ==== ==== ==== ==== Cash dividends per share of common stocks $1-2/3 par value $0.50 $0.40 $1.50 $1.20 Class E $ - $ - $ - $0.30 Class H $0.25 $0.24 $0.75 $0.72 Reference should be made to the notes to consolidated financial statements. - 3 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Sept. 30, Sept. 30, 1997 Dec. 31, 1996 (Unaudited) 1996 (Unaudited) (Dollars in Millions) ASSETS Cash and cash equivalents $10,406 $14,063 $13,399 Other marketable securities 10,490 8,199 6,421 ------ ------- ------- Total cash and marketable securities 20,896 22,262 19,820 Finance receivables - net 58,966 57,550 56,495 Accounts and notes receivable (less allowances) 7,223 6,557 7,379 Inventories (less allowances) (Note 5) 12,820 11,898 12,129 Contracts in process (less advances and progress payments) 2,169 2,187 2,159 Deferred income taxes 19,588 19,510 20,848 Equipment on operating leases (less accumulated depreciation) 32,964 30,112 30,308 Property Real estate, plants, and equipment 70,679 69,770 69,127 Less accumulated depreciation (41,287) (41,298) (41,508) ------ ------ ------ Net real estate, plants, and equipment 29,392 28,472 27,619 Special tools - net 9,128 9,032 8,556 ------- ------- ------- Total property 38,520 37,504 36,175 Intangible assets - net 14,979 12,691 10,253 Other assets - net 25,010 21,871 20,323 -------- -------- -------- Total assets $233,135 $222,142 $215,889 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable (principally trade) $15,021 $14,221 $13,206 Notes and loans payable 90,914 85,300 81,328 Deferred income taxes 4,712 3,207 3,521 Postretirement benefits other than pensions (Note 6) 44,427 43,190 42,775 Pensions 7,100 7,599 6,691 Other liabilities and deferred credits 46,426 45,115 46,424 -------- -------- ------- Total liabilities 208,600 198,632 193,945 ------- ------- ------- Minority interests 735 92 144 General Motors - obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures of General Motors (Note 11) Series D 79 - - Series G 143 - - Stockholders' equity Preference stocks 1 1 1 Common stocks $1-2/3 par value (Note 9; issued, 707,772,699; 756,619,625; and 756,622,676 shares) 1,180 1,261 1,261 Class H (Note 2; issued, 102,648,686; 100,075,000 and 99,197,196 shares) 10 10 10 Capital surplus (principally additional paid-in capital) 16,211 19,189 19,134 Retained earnings 9,846 6,137 5,697 ------- ------- ------ Subtotal 27,248 26,598 26,103 Minimum pension liability adjustment (3,490) (3,490) (4,742) Accumulated foreign currency translation adjustments (727) (113) 50 Net unrealized gains on investments in certain debt and equity securities 547 423 389 -------- -------- -------- Total stockholders' equity 23,578 23,418 21,800 -------- ------ ------ Total liabilities and stockholders' equity $233,135 $222,142 $215,889 ======= ======= ======= Reference should be made to the notes to consolidated financial statements. - 4 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended Sept. 30, 1997 1996 (Dollars in Millions) Net cash provided by operating activities $13,123 $14,195 ------ ------ Cash flows from investing activities Expenditures for property (6,958) (6,764) Investments in companies, net of cash acquired (1,788) (126) Investments in other marketable securities - acquisitions (24,790) (16,933) Investments in other marketable securities - liquidations 23,547 16,081 Finance receivables - acquisitions (128,300) (118,787) Finance receivables - liquidations 105,401 92,875 Proceeds from sales of finance receivables 20,512 28,675 Operating leases - acquisitions (16,206) (14,502) Operating leases - liquidations 10,138 7,745 Special inter-company payment from EDS - 500 Other 721 577 ------ ------- Net cash used in investing activities (17,723) (10,659) ------ ------- Cash flows from financing activities Net increase (decrease) in loans payable 3,162 (3,760) Increase in long-term debt 11,658 13,497 Decrease in long-term debt (9,340) (9,469) Proceeds from issuing common stocks 471 211 Repurchases of common stocks (3,353) - Cash dividends paid to stockholders (1,252) (1,183) Proceeds from sale of minority interest in DIRECTV(R) - 138 ------ ------ Net cash provided by (used in) financing activities 1,346 (566) ----- ------ Effect of exchange rate changes on cash and cash equivalents (403) (170) Net cash (used in) provided by continuing operations (3,657) 2,800 Net cash provided by discontinued operations - 103 ------- ------ Net (decrease) increase in cash and cash equivalents (3,657) 2,903 Cash and cash equivalents at beginning of the period 14,063 10,496 ------ ------ Cash and cash equivalents at end of the period $10,406 $13,399 ====== ====== Reference should be made to the notes to consolidated financial statements. - 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. SFAS No. 130 and No. 131 are effective for fiscal years beginning after December 15, 1997. Note 2. Hughes Business Matters Hughes Transactions On October 6, 1997, the GM Board of Directors approved the final terms for a series of related transactions (the "Hughes Transactions") designed to address strategic challenges facing the three principal businesses of Hughes and to unlock stockholder value in GM. The transactions approved by the GM Board of Directors include the tax-free spin-off of the defense electronics business of Hughes, known as Hughes Defense, to holders of $1-2/3 par value and Class H common stocks, to be followed immediately by the tax-free merger of that business with Raytheon Company. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. The GM Board of Directors also approved the formula to be used to determine the distribution ratio for the allocation of the Class A common stock of Hughes Defense between GM $1-2/3 and Class H common stockholders in connection with the Hughes Defense spin-off. GM would distribute approximately 103 million shares of Class A common stock of Hughes Defense, which would represent about 30 percent of the total equity of the combined Hughes Defense/Raytheon Company, to GM $1-2/3 and Class H common stockholders if the Hughes Transactions are approved. The distribution to GM Class H common stockholders will account for their tracking stock interest in Hughes Defense, plus an additional amount valued at approximately $1.733 billion to compensate for the elimination of their tracking stock interest in Delco Electronics and other factors. GM $1-2/3 common stockholders would receive the remaining shares of Class A common stock. In July 1997, GM received a private letter ruling from the U.S. Internal Revenue Service confirming that the spin-off of Hughes Defense would be tax free to GM and its stockholders for U.S. federal income tax purposes. In addition, GM and Raytheon have reached agreement with the U.S. Department of Justice regarding the basis upon which the merger of Hughes Defense and Raytheon can proceed consistent with the Government's enforcement of U.S. antitrust laws. The agreement was filed, in the form of a proposed final judgment, with the U.S. District Court for the District of Columbia on October 16, 1997. On October 24, 1997, the court entered a stipulation and order requiring the parties to abide by the provisions of the agreement pending expiration of the 60-day statutory notice and comment period and entry of final judgment, thereby permitting the parties to consummate the merger of Hughes Defense and Raytheon. GM would record the distribution of Hughes Defense to holders of $1-2/3 and Class H common stock at fair value and would recognize a gain of approximately $3.9 to $4.5 billion. In addition, it is estimated that there would be a reduction of GM's overall stockholders' equity of between $0.6 and $1.6 billion as a result of the Hughes Transactions. A solicitation statement/prospectus of General Motors and Hughes Defense (in the name of HE Holdings) has been filed with the Securities and Exchange Commission and will be distributed to holders of GM $1-2/3 and Class H common stock in order to secure their approval of the proposed Hughes Transactions. If such approval is obtained, the Hughes Transactions could occur before the end of the year. In addition, the merger of Hughes Defense and Raytheon is subject to approval by Raytheon shareholders. No assurance can be given that the above transactions will be completed. - 7 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Note 2. Hughes Business Matters (concluded) No offering of Hughes Defense common stock or the new GM Class H common stock nor any solicitation by means of a proxy or written consent would be made except through the use of the solicitation statement/prospectus. Merger of Satellite Service Operations In May 1997, Hughes and PanAmSat Corporation (PAS) completed the merger of their respective satellite service operations into a new publicly-held company. Hughes contributed its Galaxy(R) satellite services business in exchange for a 71.5% interest in the new company. Existing PAS stockholders received a 28.5% interest in the new company and $1.5 billion in cash. For accounting purposes, the merger was treated by Hughes as an acquisition of 71.5% of PAS and was accounted for using the purchase method. Accordingly, the purchase price was allocated to the net assets acquired, including intangible assets, based on estimated fair values at date of acquisition. In addition, the merger was treated as a partial sale of the Galaxy business by Hughes and resulted in a one-time pre-tax gain of $490 million ($318 million after-tax or $0.33 per share of $1-2/3 par value common stock and $0.80 per share of Class H common stock). Note 3. EDS Split-Off On June 7, 1996, GM split-off Electronic Data Systems Corporation (EDS) to former Class E stockholders on a tax-free basis for U.S. federal income tax purposes. The financial data related to EDS for the nine month period ended September 30, 1996 is classified as discontinued operations. The GM unaudited consolidated financial statements for 1997 exclude the assets, liabilities and operating results of EDS. EDS systems and other contracts revenues from outside customers included in income from discontinued operations totaled $4.3 billion for the nine month period ended September 30, 1996. Income from discontinued operations of $10 million for the nine month period ended September 30, 1996 is reported net of income tax expense of $14 million. - 8 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Note 4. Other Income and Other Deductions Other income and other deductions consisted of the following (in millions): Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------ ------ ------ ----- Other income Nonfinancing interest $561 $436 $1,510 $1,215 Gain on PAS merger (Note 2) - - 490 - Insurance premiums 252 223 767 698 Mortgage servicing and processing fees 161 148 528 384 Claims and commissions 126 215 382 428 Gain on sale of interest in Avis Europe (1) - - 128 Income from sales of receivables programs 98 124 311 380 Insurance capital and investment gains 43 71 166 184 VW Settlement (2) - - 88 - Gain on sale of interest in DIRECTV (3) - - - 120 Other 384 92 1,077 792 --- ----- ----- ---- Total other income $1,625 $1,309 $5,447 $4,201 ===== ===== ===== ===== Other deductions Insurance losses and loss adjustment expenses $156 $140 $448 $474 Provision for financing losses 139 144 396 433 Other 93 99 112 342 -- ---- --- ---- Total other deductions $388 $383 $956 $1,249 === === === ===== (1) During the 1997 second quarter, the sale of GM Europe's equity interest in Avis Europe resulted in a pre-tax gain of $128 million ($103 million after-tax or $0.14 per share of $1-2/3 par value common stock). (2) During the 1997 first quarter, an agreement with Volkswagen A.G. (VW) that settled a civil lawsuit GM brought against VW resulted in a pre-tax gain of $88 million ($55 million after-tax or $0.07 per share of $1-2/3 par value common stock), after deducting certain legal expenses. (3) During the 1996 first quarter, the sale of a 2.5% interest in DIRECTV to AT&T resulted in a pre-tax gain of $120 million ($72 million after-tax or $0.07 per share of $1-2/3 par value common stock and $0.18 per share of Class H common stock). Note 5. Inventories Major classes of inventories were as follows (in millions): Sept. 30, Dec. 31, Sept.30, 1997 1996 1996 Productive material, work in process, and supplies $7,003 $6,590 $7,075 Finished product, service parts, etc. 5,817 5,308 5,054 ------- ------- ------- Total inventories (less allowances) $12,820 $11,898 $12,129 ====== ====== ====== Note 6. Postretirement Benefits Other Than Pensions GM has disclosed in the consolidated financial statements certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as "accumulated postretirement benefit obligations," "liabilities," or "obligations." Notwithstanding the recording of such amounts and the use of these terms, GM does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of GM (other than pensions) represent legally enforceable liabilities of GM. - 9 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Note 7. Plant Closings and Restructuring GM previously recorded charges to realign its North American plant capacity and to provide for a reduction of Hughes' worldwide employment, a major facilities consolidation, and a reevaluation of certain non-strategic businesses. The following table summarizes the activity in the GM plant closings (excluding environmental) and Hughes restructuring reserves for the period from January 1, 1997 to September 30, 1997 (in millions): Balance at January 1, 1997 $1,397 1997 first quarter charges against reserves (44) Interest expense 16 ------ Balance at March 31, 1997 $1,369 ----- 1997 second quarter charges against reserves (52) Interest expense 16 ------ Balance at June 30, 1997 $1,333 ----- 1997 third quarter charges against reserves (46) Interest expense 16 ------ Balance at September 30, 1997 $1,303 ===== GM and Hughes periodically evaluate the adequacy of reserve balances and estimated future expenditures, including assumptions used and the period over which costs are expected to be incurred. Note 8. Contingent Matters Hughes has maintained a suit against the U.S. Government since September 1973 regarding the Government's infringement and use of a Hughes patent (the "Williams Patent") covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites. On June 17, 1994, the U.S. Court of Claims awarded Hughes damages of $114 million. Because Hughes believed that the record supported a higher royalty rate, it appealed that decision. The U.S. Government, contending that the award was too high, also appealed. On June 19, 1996, the Court of Appeals for the Federal Circuit (CAFC) affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the CAFC for a rehearing. That petition was denied in October 1996. The U.S. Government then filed a petition with the U.S. Supreme Court seeking certiorari. On April 21, 1997 the U.S. Supreme Court, citing a recent decision it had rendered in Warner-Jenkinson v. Hilton Davis, remanded Hughes' suit over the Williams Patent back to the CAFC in order to have the CAFC determine whether the ruling in the Williams Patent matter was consistent with the U.S. Supreme Court's decision in the Warner-Jenkinson case. The previous liability decision of the Court of Claims in the Williams Patent matter, and its $114 million damage award to Hughes, currently remain in effect pending reconsideration of the case by the CAFC. Hughes is unable to estimate the duration of this reconsideration process. While no amount has been recorded in the financial statements of Hughes to reflect the $114 million award or the interest accumulating thereon, a resolution of this matter could result in a gain that would be material to the earnings of GM attributable to Class H common stock. The Corporation and its subsidiaries are subject to potential liability under government regulations and various claims and legal actions which are pending or may be asserted against them. Some of the pending actions purport to be class actions. The aggregate ultimate liability of the Corporation and its subsidiaries under these government regulations, and under these claims and actions, was not determinable at September 30, 1997. After discussion with counsel, it is the opinion of management that such liability is not expected to have a material adverse effect on the Corporation's consolidated operations or financial position. Note 9. Common Stock Repurchases During the three months ended September 30, 1997, GM used approximately $850 million to acquire 13.7 million shares of $1-2/3 par value common stock, which completed the $2.5 billion stock repurchase program announced in January 1997 and represented 14 percent of the Corporation's second $2.5 billion stock repurchase program announced in August 1997. During the nine months ended September 30, 1997, $2.85 billion in cash was used to repurchase 49.2 million shares under the two stock repurchase programs. GM also used approximately $503 million to repurchase shares of $1-2/3 par value common stock for certain employee benefit plans during the nine months ended September 30, 1997. - 10 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded (Unaudited) Note 10. Earnings Per Share Attributable to Common Stocks Earnings per share attributable to each class of GM common stock was determined based on the attribution of earnings to each such class of common stock for the period divided by the weighted average number of common shares for each such class outstanding during the period, respectively. Common stock equivalents were not included in the calculation of earnings per share attributable to common stocks, as they were not material. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share, and SFAS No. 129, Disclosure of Information about Capital Structure. SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly-held common stock or potential common stock. SFAS No. 129 requires an entity to explain the permanent rights and privileges of outstanding securities. GM has determined that the impact of adopting these new accounting standards will require it to provide additional information in its consolidated financial statements concerning basic and diluted earnings per share. The effects of adopting these new accounting standards will not be material to GM's consolidated financial statements, when adopted in the fourth quarter of 1997, as required. Net earnings attributable to $1-2/3 par value common stock for the period represent the earnings attributable to all GM common stocks for the period, reduced by the Available Separate Consolidated Net Income (ASCNI) of Hughes and EDS (Note 3) for the period. Net earnings attributable to Class H common stock for the period represent the ASCNI of Hughes for the period. The ASCNI of Hughes for any quarterly period represents the separate consolidated net income of Hughes for such period, excluding the effects of purchase accounting adjustments arising at the time of the Corporation's acquisition of Hughes, calculated for such period and multiplied by a fraction, the numerator of which is a number equal to the weighted average number of shares of Class H common stock outstanding during the quarter (102 million and 99 million during the third quarters of 1997 and 1996, respectively) and the denominator of which was 400 million during the third quarters of 1997 and 1996. Note 11. Preferred Stock General Motors Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts During July 1997, the General Motors Capital D Trust ("Series D Trust") issued approximately $79 million of its 8.67% Trust Originated Preferred Securities ("TOPrS") Series D ("Series D Preferred Securities") in a one-for-one exchange for 3,055,255 of the outstanding GM Series D 7.92% Depositary Shares, each representing one-fourth of a share of GM Series D Preference Stock, $0.10 par value per share. In addition, the General Motors Capital G Trust ("Series G Trust") issued approximately $143 million of its 9.87% TOPrS Series G ("Series G Preferred Securities") in a one-for-one exchange for 5,064,489 of the outstanding GM Series G 9.12% Depositary Shares, each representing one-fourth of a share of GM Series G Preference Stock, $0.10 par value per share. Concurrently with the exchanges and the related purchases by GM from the Series D and Series G Trusts (the "Trusts") of the common securities of such Trusts, representing approximately 3 percent of the total assets of such Trusts, GM issued to the wholly-owned Trusts, as the Trusts' sole assets, its 8.67% and 9.87% Junior Subordinated Deferrable Interest Debentures, Series D and Series G, due July 1, 2012 (the "Series D Debentures" and "Series G Debentures" or collectively the "Debentures"), having aggregate principal amounts equal to the aggregate stated liquidation amounts of the Series D and Series G Preferred Securities and the related common securities, respectively ($78.7 million with respect to the Series D Debentures and $130.5 million with respect to the Series G Debentures). The Series D Debentures are redeemable, in whole or in part, at GM's option on or after August 1, 1999, at a redemption price equal to 100% of the outstanding principal of the Series D Debentures plus accrued and unpaid interest, or, under certain circumstances, prior to August 1, 1999, at a redemption price equal to 105% of the outstanding principal of the Series D Debentures from the Series D expiration date through July 31, 1998, declining ratably on each August 1 thereafter to 100% on August 1, 1999, plus accrued and unpaid interest. The Series G Debentures are redeemable, in whole or in part, at GM's option on or after January 1, 2001, at a redemption price equal to 100% of the outstanding principal of the Series G Debentures plus accrued and unpaid interest, or, under certain circumstances, prior to January 1, 2001, at a redemption price equal to 114% of the outstanding principal of the Series G Debentures from the Series G expiration date through December 31, 1997, declining ratably on each January 1 thereafter to 100% on January 1, 2001, plus accrued and unpaid interest. GM has guaranteed the payment in full to the holders of the Series D and Series G Preferred Securities (collectively the "Preferred Securities") of all distributions and other payments on the Preferred Securities to the extent not paid by the Trusts only if and to the extent that the Trusts have assets therefor i.e., GM has made payments of interest or principal on the related Debentures. These guarantees, when taken together with GM's obligations under the Debentures and the Indentures relating thereto and the obligations under the Declaration of Trusts of the Trusts, including the obligations to pay certain costs and expenses of the Trusts, constitute full and unconditional guarantees by GM of each Trust's obligations under its Preferred Securities. * * * * * * - 11 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the MD&A included in the General Motors (GM) 1996 Annual Report on Form 10-K (the 1996 Form 10-K), the Hughes Electronics Corporation (Hughes) consolidated financial statements and MD&A for the period ended December 31, 1996, included as Exhibit 99 to the 1996 Form 10-K, the GMAC Annual Report on Form 10-K for the period ended December 31, 1996, the Hughes consolidated financial statements and MD&A for the period ended September 30, 1997, included as Exhibit 99 to this GM 1997 Quarterly Report on Form 10-Q, and the GMAC Quarterly Report on Form 10-Q for the period ended September 30, 1997, filed with the Securities and Exchange Commission. The disaggregated financial results for GM's automotive sectors (GM's North American Operations (GM-NAO), Delphi Automotive Systems (Delphi) and GM's International Operations (GMIO)) have been prepared using a management approach, which is consistent with the basis and manner in which GM management internally disaggregates financial information for the purposes of assisting in making internal operating decisions. In this regard, certain common expenses were allocated among sectors less precisely than would be required for standalone financial information prepared in accordance with generally accepted accounting principles (GAAP) and certain expenses (primarily certain U.S. taxes related to non-U.S. operations) were included in GM's "Other" sector. The financial results represent the historical information used by management for internal decision making purposes; therefore, other data prepared to represent the way in which the business will operate in the future, or data prepared on a GAAP basis, may be materially different. GM-NAO Financial Highlights Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 -------- -------- ------- ------- (Dollars in Millions) Net sales and revenues $24,047 $22,267 $74,729 $70,879 ------ ------ ------ ------ Pre-tax income 608 238 2,418 795 Income taxes (credit) 172 (35) 775 130 Earnings (loss) of nonconsolidated affiliates (13) 4 18 38 ---- ---- ------ ---- Net income $423 $277 $1,661 $703 === === ===== === Net profit margin (1) 1.8% 1.2% 2.2% 1.0% - -------------------- (1) Net profit margin represents net income as a percentage of net sales and revenues. Vehicle Unit Deliveries of Cars and Trucks - GM-NAO Three Months Ended September 30, 1997 1996 ---------------------------------------------------- GM as GM as a % of a % of Industry GM Industry Industry GM Industry -------- ---- -------- -------- ---- -------- (Units in Thousands) United States Cars 2,157 727 33.7% 2,179 698 32.1% Trucks 1,802 526 29.2% 1,704 484 28.4% ----- ------ ----- ----- Total United States 3,959 1,253 31.7% 3,883 1,182 30.4% Canada and Mexico 470 149 31.8% 362 111 30.7% ------ ------ ----- ----- Total North America 4,429 1,402 31.7% 4,245 1,293 30.5% ===== ===== ===== ===== Wholesale Sales - GM-NAO Cars 729 721 Trucks 552 532 ----- ----- Total 1,281 1,253 ===== ===== - 12 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Vehicle Unit Deliveries of Cars and Trucks - GM-NAO (concluded) Nine Months Ended September 30, 1997 1996 ---------------------------------------------------- GM as GM as a % of a % of Industry GM Industry Industry GM Industry -------- ---- -------- -------- ---- -------- (Units in Thousands) United States Cars 6,393 2,078 32.5% 6,655 2,201 33.1% Trucks 5,388 1,550 28.8% 5,209 1,507 28.9% ------ ----- ----- ----- Total United States 11,781 3,628 30.8% 11,864 3,708 31.3% Canada and Mexico 1,378 432 31.4% 1,113 345 31.1% ------ ----- ------ ----- Total North America 13,159 4,060 30.9% 12,977 4,053 31.2% ====== ===== ====== ===== Wholesale Sales - GM-NAO Cars 2,317 2,266 Trucks 1,781 1,679 ----- ----- Total 4,098 3,945 ===== ===== GM-NAO Financial Review GM-NAO reported net income of $423 million for the 1997 third quarter compared with net income of $277 million in the prior year quarter. Excluding the favorable effect of a nonrecurring adjustment to the plant closing reserve of $253 million after tax, or $0.34 per share, in the 1996 third quarter, net income was $24 million. The increase in net income in the 1997 third quarter was primarily due to continued improvement in the profitability of new vehicles and lower material and manufacturing costs. These factors were partially offset by higher retail incentives ($992 per unit in the third quarter of 1997 compared with $764 per unit in the third quarter of 1996) and increased commercial spending to support the numerous vehicle launches in progress. Net income for the nine months ended September 30, 1997 totaled approximately $1.7 billion compared with $703 million for the prior year nine month period. The increase in 1997 net income primarily reflected higher wholesale sales volumes and lower material and manufacturing costs, offset by higher retail incentives ($971 per unit in the 1997 period compared with $688 in the 1996 period). Net sales and revenues for the 1997 third quarter were $24 billion, which represented an increase of approximately $1.8 billion or 8% compared with the prior year quarter. The increase in net sales and revenues resulted from higher wholesale sales volumes, primarily in Canada and Mexico, and a favorable product mix that included increased truck sales. Net sales and revenues for the nine months ended September 30, 1997 totaled $74.7 billion, which represented an increase of approximately $3.9 billion or 5.4% compared with the prior year period, and improved primarily due to a 153,000 increase in wholesale sales volumes. Pre-tax income in the third quarter of 1997 increased by $370 million compared with the prior year quarter. Excluding the favorable effect of the nonrecurring adjustment to the plant closing reserve of $409 million pre-tax, GM-NAO had a pre-tax loss of $171 million in the third quarter of 1996. The increase in 1997 pre-tax income compared with the prior year was primarily due to higher wholesale sales volumes, lower material and manufacturing costs, and sales of more profitable vehicle models, partially offset by higher retail incentives. Pre-tax income for the nine months ended September 30, 1997 increased by approximately $1.6 billion over the prior year period primarily due to increased wholesale sales volumes and lower material and manufacturing costs. GM-NAO realized a tax benefit in the 1996 third quarter, reflecting the favorable resolution of items related to GM's consolidated tax returns for prior years, a favorable tax position in Mexico, and the reinstatement of research and experimentation credits for the last half of 1996. GM vehicle deliveries in North America were 1,402,000 units in the 1997 third quarter, which represented a market share of 31.7% compared with 30.5% in the prior year quarter. The increase of 1.2 percentage points was primarily due to increased availability of certain new models during the 1997 third quarter. GM's North American market share for the nine months ended September 30, 1997 was 30.9% compared with 31.2% in the prior year period. Increased market penetration is anticipated in the remainder of 1997 with growing availability of all-new and redesigned 1998 model vehicles. In response to the increasingly competitive North American market environment, GM-NAO is currently studying the competitiveness of each of its lines of business in order to maintain and accelerate the positive product, operating, and earnings momentum it has experienced in recent years. See the Competitiveness Studies section on page 21 for additional information. - 13 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Delphi Financial Highlights Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 -------- ------- ------- ------- (Dollars in Millions) Net sales and revenues $6,044 $6,370 $19,486 $19,865 ----- ----- ------ ------ Pre-tax income 30 187 735 838 Income taxes (credit) (6) (35) 236 197 Minority interests 2 4 8 - Earnings of nonconsolidated affiliates 17 12 38 31 -- ---- ---- ---- Net income $55 $238 $545 $672 == === === === Net profit margin (1) 0.9% 3.7% 2.8% 3.4% - -------------------- (1) Net profit margin represents net income as a percentage of net sales and revenues. Delphi Financial Review Delphi reported net income of $55 million for the 1997 third quarter compared with $238 million in the prior year quarter. The 1997 third quarter net income decreased primarily due to the impact of price reductions driven by competitive pressures, and accompanying manufacturing start-up costs associated with a high level of product turnover in line with original equipment manufacturers' (OEMs) new-model introductions. These factors were partially offset by material and structural cost improvements. Net income for the nine months ended September 30, 1997 decreased to $545 million compared with $672 million for the prior year nine month period. The decrease in net income for the nine months of 1997 primarily resulted from a $50 million after-tax charge associated with the announced closure of the Delphi Trenton facility and continued pricing pressures. Net sales and revenues for the 1997 third quarter were $6 billion, a decrease of $326 million or 5.1% compared with the prior year quarter, due primarily to the sale to Peregrine, Inc. of four plants with annual sales of approximately $1 billion, and to pricing pressures. Delphi's 1997 third quarter sales to customers outside the GM-NAO vehicle groups increased more than $67 million compared with the prior year period, including all joint ventures. Net sales and revenues for the nine months ended September 30, 1997 totaled $19.5 billion, compared with $19.9 billion in the prior year nine month period. Approximately 37% of the nine month sales total, including all joint ventures, were to customers outside the GM-NAO vehicle groups. Pre-tax income in the third quarter of 1997 decreased by $157 million compared with the prior year quarter primarily due to competitive price pressures, and accompanying manufacturing start-up costs associated with a high level of product turnover in line with OEMs' new model introductions, partially offset by lower material and manufacturing costs. Pre-tax income for the nine months ended September 30, 1997 decreased to $735 million from the prior year amount of $838 million. Delphi realized a tax benefit in the 1997 third quarter primarily due to research and experimentation credits. Delphi's realization of a tax benefit in the 1996 third quarter reflected the favorable resolution of items related to GM's consolidated tax returns for prior years and the reinstatement of research and experimentation credits for the last half of 1996. On October 6, 1997, the GM Board of Directors approved the final terms for a series of related transactions that would include the transfer of Delco Electronics from Hughes to Delphi. See Note 2 to the consolidated financial statements for additional information. In response to the increasingly competitive automotive components and systems market, Delphi is currently reviewing the adequacy of its strategy which focuses on the competitiveness of its operations, growth opportunities, and increasing market share through technology leadership, quality, cost, and responsiveness. During the third quarter of 1997, Delphi announced its intention to seek expressions of interest from potential buyers of its lighting, coil springs, and seating businesses. These businesses, with combined revenues of approximately $2 billion and global employment of over 11,000, are not core to Delphi's strategic growth objectives. See the Competitiveness Studies section on page 21 for additional information. - 14 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMIO Financial Highlights Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------ ------ ------ ------ (Dollars in Millions) Net sales and revenues $8,641 $8,260 $26,635 $26,358 ----- ----- ------ ------ Pre-tax income 168 268 1,368 1,477 Income taxes (credit) 47 (35) 444 344 Minority interests 18 (3) 28 (9) Earnings (loss) of nonconsolidated affiliates (2) 23 (10) 55 ---- ---- ------ ----- Net income (loss) GM Europe (GME) (21) 75 440 679 Other International 158 248 502 500 --- --- --- ----- Total net income $137 $323 $942 $1,179 === === === ===== Net profit margin (1) 1.6% 3.9% 3.5% 4.5% (1) Net profit margin represents net income as a percentage of net sales and revenues. Vehicle Unit Deliveries of Cars and Trucks - GMIO Three Months Ended September 30, 1997 1996 ----------------------------------------------------- GM as GM as a % of a % of Industry GM Industry Industry GM Industry -------- ---- -------- -------- ---- -------- (Units in Thousands) International Europe 4,593 463 10.1% 4,166 424 10.2% Latin America, Africa and the Middle East 1,212 218 18.0% 1,084 182 16.8% Asia and Pacific 3,245 161 5.0% 3,338 164 4.9% ----- --- ----- --- Total International 9,050 842 9.3% 8,588 770 9.0% ===== === ===== === Wholesale Sales - GMIO Cars 596 544 Trucks 249 208 --- --- Total 845 752 === === Nine Months Ended September 30, 1997 1996 ----------------------------------------------------- GM as GM as a % of a % of Industry GM Industry Industry GM Industry -------- ---- -------- -------- ---- --------- (Units in Thousands) International Europe 13,859 1,421 10.3% 13,078 1,404 10.7% Latin America, Africa and the Middle East 3,420 583 17.1% 3,012 510 16.9% Asia and Pacific 10,196 455 4.5% 10,211 474 4.6% ------ ------ ------ ----- Total International 27,475 2,459 8.9% 26,301 2,388 9.1% ====== ===== ====== ===== Wholesale Sales - GMIO Cars 1,784 1,734 Trucks 680 598 ----- ----- Total 2,464 2,332 ===== ===== - 15 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMIO Financial Review GMIO's 1997 third quarter net income was $137 million or 1.6% of net sales and revenues, compared with $323 million or 3.9% of net sales and revenues in the prior year quarter. The decrease in 1997 third quarter net income was primarily due to intensely competitive market pressures in Europe and higher expenses related to income taxes and ambitious capacity expansion programs in key growth areas, particularly the Latin American and Asia and Pacific regions. Net income for the nine months ended September 30, 1997 totaled $942 million compared with approximately $1.2 billion for the prior year period. The decrease in net income for the nine months of 1997 was due to lower net income for GME. Net sales and revenues for the 1997 third quarter increased by 4.6% to $8.6 billion compared with $8.3 billion in the prior year quarter. The increased net sales and revenues in the 1997 third quarter mainly reflected higher wholesale sales volumes in Latin America and Europe. Net sales and revenues for the nine months ended September 30, 1997, totaled $26.6 billion, which represented an increase of approximately $277 million or 1.1% compared with the prior year nine month period. Pre-tax income for the 1997 third quarter was $168 million compared with $268 million in the prior year quarter. The decrease was primarily due to the intensely competitive market pressures in Europe and higher expenses incurred on expansion programs. GMIO realized an income tax benefit in 1996 primarily due to lower overall foreign income tax rates. GME reported a net loss totaling $21 million in the 1997 third quarter compared with net income of $75 million in the prior year quarter. Net income for GME for the nine months ended September 30, 1997 decreased $239 million compared with the prior year period. The lower net income for the three and nine months ended September 30, 1997 was due primarily to increased sales incentives and marketing expenses in a highly competitive European market, combined with increased expenses at SAAB related to the launch of the all-new 9-5 models in Europe. Net income from the remainder of GMIO's operations, which include the Latin American and Asia and Pacific Operations, totaled $158 million in the third quarter of 1997 compared with $248 million in the prior year quarter. The decreased 1997 third quarter net income primarily resulted from expenses related to expansion programs and the launch of the New Holden Commodore. Net income from the remainder of GMIO's operations for the nine months ended September 30, 1997 totaled $502 million compared with $500 million in the prior year period primarily reflecting higher wholesale sales volumes in Latin America offset by higher marketing and capacity expansion program expenses during the 1997 period. In response to the increasingly competitive European market, GMIO is studying the competitiveness of each of its operations. See the Competitiveness Studies section on page 21 for additional information. - 16 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES General Motors Acceptance Corporation (GMAC) Financial Highlights Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ---- ---- ---- ---- (Dollars in Millions) Financing revenue Retail and lease financing $862 $946 $2,692 $2,859 Operating leases 1,827 1,856 5,446 5,379 Wholesale and term loans 417 362 1,320 1,229 ----- ----- ----- ----- Total financing revenue 3,106 3,164 9,458 9,467 Interest and discount (1,308) (1,220) (3,886) (3,684) Depreciation on operating leases (1,163) (1,164) (3,475) (3,437) ----- ----- ----- ----- Net financing revenue 635 780 2,097 2,346 Other income and insurance premiums earned 1,001 837 2,848 2,410 ----- ----- ----- ----- Net financing revenue and other 1,636 1,617 4,945 4,756 Expenses 1,081 1,077 3,177 3,148 ----- ----- ----- ----- Pre-tax income 555 540 1,768 1,608 Income taxes 243 233 746 642 --- --- ----- --- Net income $312 $307 $1,022 $966 === === ===== === Net income from financing operations (1)$262 $252 $851 $842 Net income from insurance operations 50 55 171 124 ---- ---- ----- --- Net income $312 $307 $1,022 $966 === === ===== === Return on average equity (2) 14.4% 14.6% 16.1% 15.3% (1) Includes GMAC Mortgage Group, Inc. (GMACMG). (2) Return on average equity represents net income as a percentage of average monthly stockholder's equity. GMAC Financial Review GMAC's consolidated third quarter net income for 1997 totaled $312 million, a 1.6% increase from the third quarter of 1996. For the same period, a 4% increase in net income from financing operations was attributed primarily to growth in mortgage financing operations. Earnings from automotive financing were relatively unchanged period-to-period due to reduced net financing margins partially offset by lower operating expenses. Net income from insurance operations decreased 9% during the third quarter, and increased 38% for the nine month period ended September 30, 1997, compared to the same periods in 1996. The quarterly decrease can be attributed to lower capital gains partially offset by improved underwriting results in automobile insurance and extended warranty coverages. The nine month increase is primarily attributable to a $33.3 million increase in capital gains and improved underwriting results. During the three months ended September 30, 1997, GMAC financed 31.3% of new GM vehicles delivered in the U.S., up from 24.9% during the same period last year. Financing of new GM vehicles for the first nine months of 1997 was 27.2% compared with 25.6% for the comparable 1996 period. The increases can be attributed primarily to special rate financing and incentivized retail installment sales programs sponsored by GM. U.S. wholesale inventory financing was provided on 756,000 and 2,428,000 new GM vehicles during the respective three and nine month periods ended September 30, 1997, compared with 799,000 and 2,479,000 during the same 1996 periods. This financing represented 67.5% and 70.1% of GM's U.S. vehicle sales to dealers during the nine months of 1997 and 1996, respectively. The decline in wholesale financing levels can be attributed to competitive market conditions. GMAC's worldwide cost of borrowing for the third quarter and nine months of 1997 averaged 6.34% and 6.30%, respectively, 15 and 26 basis points below the comparable prior year levels. Total borrowing costs for U.S. operations averaged 6.44% and 6.38% for the three and nine month periods ended September 30, 1997, compared with 6.44% and 6.48% for the respective 1996 periods. The lower average borrowing costs for the nine months of 1997 were attributable to a greater proportion of floating rate short-term borrowings in GMAC's funding mix. Consolidated net financing revenue and other income increased 1.2% during the third quarter of 1997 over the same period in 1996. The increase was primarily attributable to higher mortgage investment and servicing income and wholesale revenue, partially offset by lower retail and leasing receivable revenues and increased debt expense incurred to fund higher wholesale balances. As reported in GM's Quarterly Report on Form 10-Q for the period ended June 30, 1997 GMAC announced an agreement providing for Integon Corporation, a non-standard automotive insurance provider, to merge with a wholly-owned subsidiary of GMAC. In October 1997, regulatory and shareholder approvals were received and the acquisition was completed for a purchase price of $528 million plus the assumption of $250 million in long-term debt. In August 1997, GMAC announced that it intended to acquire certain operating assets of LSI Holdings, Inc., a subprime financing and servicing company, and is establishing Nuvell Credit Corporation and Nuvell Financial Services Corporation as two new subsidiaries that will conduct subprime financing and servicing operations, respectively, in the United States. The transaction was completed with an effective date of November 1, 1997. The acquisition will enable GMAC to continue its growth strategy in the financial services industry. - 17 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Hughes Financial Highlights Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------- ------- ------ ------ (Dollars in Millions Except Per Share Amounts) Net sales Outside customers $3,041 $2,591 $8,738 $7,561 GM and affiliates 1,077 1,219 3,773 3,895 ----- ----- ------ ------- Total net sales 4,118 3,810 12,511 11,456 Other (loss) income-net (5) (2) 495 134 -------- -------- ------- -------- Total revenues 4,113 3,808 13,006 11,590 Income before income taxes and minority interests 327 351 1,401 1,255 Income taxes 113 145 498 508 Minority interests in net (income) losses of subsidiaries (4) 15 22 31 ----- ---- ---- ---- Net income $210 $221 $925 $778 === === === === Earnings used for computation of available separate consolidated net income (1) $240 $252 $1,017 $870 === === ===== === Net earnings per share attributable to Class H common stock $0.60 $0.63 $2.54 $2.18 Cash dividends per share of Class H common stock $0.25 $0.24 $0.75 $0.72 - ---------------- Certain 1996 amounts have been reclassified to conform with the 1997 presentation. (1) Excludes amortization of GM purchase accounting adjustments of approximately $31 million for the third quarters of 1997 and 1996, and $92 million for the nine-month periods ended September 30,1997 and 1996, related to GM's acquisition of Hughes Aircraft Company. Segment Highlights Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------- ------ ------- ------- (Dollars in Millions) Telecommunications and Space Revenues $1,242 $989 $3,870 $2,862 Net sales $1,250 $994 $3,407 $2,765 Operating profit (1) $115 $62 $162 $194 Operating profit margin (2) 9.2% 6.2% 4.8% 7.0% Automotive Electronics Revenues $1,210 $1,275 $4,117 $4,099 Net sales $1,205 $1,268 $4,096 $4,068 Operating profit (1) $96 $166 $376 $562 Operating profit margin (2) 8.0% 13.1% 9.2% 13.8% Aerospace and Defense Systems Revenues $1,628 $1,525 $4,913 $4,547 Net sales $1,625 $1,529 $4,905 $4,544 Operating profit (1) $166 $167 $502 $486 Operating profit margin (2) 10.2% 10.9% 10.2% 10.7% - ---------------- Certain 1996 amounts have been reclassified to conform with the 1997 presentation. (1) Operating profit represents net sales less total costs and expenses other than interest expense and amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. (2) Operating profit margin represents operating profit as a percentage of net sales. - 18 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Hughes Financial Review Hughes Electronics reported net income of $210 million for the third quarter of 1997 compared with $221 million in the third quarter of 1996. Excluding amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company, Hughes' earnings used for computation of available separate consolidated net income was $240 million for the third quarter of 1997 compared to $252 million for the same period in 1996. The decrease in quarterly earnings was primarily due to lower operating margins at Delco Electronics caused by continued price reductions. Third quarter revenues increased 8.0% between 1996 and 1997 due to revenue increases in both the Telecommunications and Space and the Aerospace and Defense Systems segments which more than offset the decline in Automotive Electronics revenues. The 25.7% increase in revenues in the Telecommunications and Space segment resulted from continued expansion of the DIRECTV subscriber base in the United States and Latin America and increased revenues related to the PanAmSat (PAS) merger. The 6.8% increase in revenues in the Aerospace and Defense Systems segment was principally due to the build-up of several newer programs, particularly information systems and services programs such as Hughes Air Warfare Center, Desktop V, and Wide Area Augmentation System, and the acquisition of the Marine Systems Group of Alliant Techsystems in March 1997. The 5.1% decline in Automotive Electronics revenues reflects a 9.3% decrease in Delco-supplied electronic content in GM vehicles, from $900 to $816 per vehicle, which more than offset a 9.8% increase in international and non-GM sales from $236 million to $259 million. Operating profit for the third quarter, excluding amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company, declined 3.5% between 1996 and 1997. The operating profit margin on the same basis was 9.1% for 1997 compared to 10.2% in 1996. These reductions were primarily a result of the lower margins in the Automotive Electronics segment driven by continued price reductions resulting from competitive pricing in connection with GM's global sourcing initiative, and the impact from continued international expansion. Also contributing to the operating profit margin decline was a continued sales mix shift within Aerospace and Defense Systems towards information systems and services programs. Partially offsetting these declines were increased margins within the Telecommunications and Space segment due to improved performance in the domestic DIRECTV business and operating profit generated by PanAmSat. On October 6, 1997, the General Motors Board of Directors approved the final terms for a series of related transactions involving Hughes. See Note 2 to the consolidated financial statements for additional information. On November 3, 1997, Hughes entered into an agreement to sell substantially all of the assets and liabilities of the Hughes Avicom International, Inc. ("Hughes Avicom") business to Rockwell Collins, Inc. for cash. The sale is expected to close in the fourth quarter of 1997 pending regulatory approval and result in a gain. The sale will allow Hughes to better focus on its core telecommunications and space business. Hughes Avicom is a supplier of products and services to the commercial airline market. - 19 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES To facilitate analysis, the following sections present the financial statements for the Corporation's manufacturing, wholesale marketing, defense, and electronics operations with the financing and insurance operations (primarily GMAC) reflected on an equity basis. This is the same basis and format used in years prior to the Corporation's adoption of SFAS No. 94, Consolidation of All Majority-Owned Subsidiaries. Consolidated Statements of Income With Financing and Insurance Operations on an Equity Basis (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------ ------ ------- ------- (Dollars in Millions) Net sales and revenues $37,125 $34,607 $114,323 $109,461 ------ ------ ------- ------- Costs and expenses Cost of sales and other operating charges, exclusive of items listed below 31,484 29,627 95,506 92,878 Selling, general, and administrative expenses 3,157 2,850 9,331 8,253 Depreciation and amortization expenses 1,830 1,798 5,627 5,435 Plant closing expense (adjustment) - (409) 80 (409) ------ ------ ------- ------- Total costs and expenses 36,471 33,866 110,544 106,157 ------ ------ ------- ------- Operating income 654 741 3,779 3,304 Other income less income deductions 613 416 2,682 1,568 Interest expense (225) (239) (663) (664) ------ ------ ------ ------ Income from continuing operations before income taxes, minority interests, and earnings of nonconsolidated affiliates 1,042 918 5,798 4,208 Income taxes 289 27 1,928 1,147 ------ ------- ----- ----- Income from continuing operations before minority interests and earnings of nonconsolidated affiliates 753 891 3,870 3,061 Minority interests 13 31 50 21 Earnings of nonconsolidated affiliates 301 349 1,041 1,085 ------ ------ ----- ----- Income from continuing operations 1,067 1,271 4,961 4,167 Income from discontinued operations - - - 10 ----- ----- ----- ----- Net income $1,067 $1,271 $4,961 $4,177 ===== ===== ===== ===== Net profit margin (1) 2.9% 3.7% 4.3% 3.8% (1) Net profit margin represents net income as a percentage of net sales and revenues. Results of Operations With Financing and Insurance Operations on an Equity Basis In the third quarter of 1997, GM's net income totaled $1.1 billion or $1.35 per share of $1-2/3 par value common stock, compared to $1.3 billion or $1.57 per share of $1-2/3 par value common stock in the same 1996 period. Excluding the favorable effect of a nonrecurring adjustment to the plant closing reserve of $253 million after tax, or $0.34 per share, GM's net income in the 1996 third quarter was $1 billion or $1.23 per share of $1-2/3 par value common stock. GM's income from continuing operations for the nine months ended September 30, 1997 was $5 billion or $6.35 per share of $1-2/3 par value common stock, compared with $4.2 billion or $5.15 per share of $1-2/3 par value common stock for the nine months ended September 30, 1996. Highlights of financial performance by GM's major business sectors for the three months and nine months ended September 30 were as follows (in millions): Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------ ------ ------ ------ GM-NAO $423 $277 $1,661 $703 Delphi 55 238 545 672 GMIO 137 323 942 1,179 GMAC 312 307 1,022 966 Hughes 240 252 1,017 870 Other (100) (126) (226) (223) ----- ------ ----- ----- Income from continuing operations $1,067 $1,271 $4,961 $4,167 ===== ===== ===== ===== - 20 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Results of Operations With Financing and Insurance Operations on an Equity Basis (concluded) Reference should be made to the GM sectors' financial reviews that are presented on pages 12 through 19 and incorporated by reference to supplement the information presented herein. Third quarter 1997 net sales and revenues were $37.1 billion, which represented an increase of $2.5 billion compared with the prior year quarter. The increase in net sales and revenues was due to higher wholesale sales volumes, a favorable product mix including increased truck sales in North America, and continued growth at Hughes. Net sales and revenues for the nine months ended September 30, 1997 were $114.3 billion compared with $109.5 billion for the nine months ended September 30, 1996, reflecting higher wholesales sales volumes. The gross margin percentage for the 1997 third quarter was 15.2% compared with 14.4% in the prior year quarter. The gross margin percentage for the nine months ended September 30, 1997 was 16.5%, compared with 15.1% for the nine months ended September 30, 1996. The increases in the gross margin percentages for the three and nine months periods primarily resulted from lower material and manufacturing costs and the sale of more profitable new products. Selling, general, and administrative expenses increased to $3.2 billion in the third quarter of 1997 compared with $2.9 billion in the prior year quarter and to $9.3 billion for the nine months ended September 30, 1997 compared with $8.3 billion in the prior year period. The increases for the 1997 three and nine month periods primarily reflected higher consumer influence spending associated with the launches of new vehicles and increased expenses related to continued efforts to grow the business in all of GM's business sectors. Depreciation and amortization expenses increased in the third quarter of 1997 and for the nine months ended September 30, 1997 compared with the prior year periods in connection with expenditures for expansion initiatives and production and quality improvements worldwide. Other income less income deductions increased to $613 million for the 1997 third quarter compared with $416 million in the prior year quarter. Other income less income deductions for the nine months ended September 30, 1997 increased to $2.7 billion compared with $1.6 billion for the nine months ended September 30, 1996 primarily due to gains recognized in 1997 related to the PAS merger (see Note 2 to the consolidated financial statements for additional information) and the sale of GME's equity interest in Avis Europe, combined with favorable settlements of legal claims and higher interest income. GM completed the split-off of Electronic Data Systems Corporation (EDS) on June 7, 1996, and accordingly, the financial results of EDS for the nine months ended September 30, 1996 have been reported as discontinued operations. Competitiveness Studies The global automotive industry, including the components and systems market, has become increasingly competitive and is presently undergoing significant restructuring and consolidation activities. All of the major industry participants are continuing to increase their focus on efficiency and cost improvements, while announced capacity increases for the North American market and excess capacity in the European market have led to continuing price pressures. As a result, GM is currently studying the competitiveness of each of its lines of business. The findings of these studies will result in changes to or the realignment of those activities that are not performing as effectively as necessary to meet GM's objectives of increasing market share, customer satisfaction and profitability. To date, Delphi has announced its intention to seek expressions of interest from potential buyers of its lighting, coil spring, and seating businesses and Opel Belgium has informed its unions of its intention to significantly lower structural costs, which could include a reduction of the workforce by up to 1,900 employees. The studies are ongoing and the majority of them are expected to be completed in the fourth quarter of 1997 or early 1998. Currently, GM estimates that the studies will result in charges against income for plant closures and asset impairments totaling approximately $2 billion to $3 billion after-taxes or $2.85 to $4.27 per share of $1-2/3 par value common stock, to be recorded in the quarter during which the respective studies are completed. GM will continue to study its efficiency and cost effectiveness and, as necessary, will initiate further competitiveness studies. Hughes Business Matters On October 6, 1997, the GM Board of Directors approved the final terms for a series of related transactions (the "Hughes Transactions") designed to address strategic challenges facing the three principal businesses of Hughes and to unlock stockholder value in GM. The transactions approved by the GM Board of Directors include the tax-free spin-off of the defense electronics business of Hughes, known as Hughes Defense, to holders of $1-2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. (See Note 2 to the consolidated financial statements for additional information on the Hughes Transactions.) - 21 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets With Financing and Insurance Operations on an Equity Basis (Unaudited) Sept. 30, Dec. 31, Sept. 30, 1997 1996 1996 ---------- -------- --------- (Dollars in Millions) ASSETS Cash and cash equivalents $9,930 $13,320 $12,475 Other marketable securities 4,669 3,642 2,068 ------ ------- ------- Total cash and marketable securities 14,599 16,962 14,543 Accounts and notes receivable (less allowances) Trade 5,627 4,909 6,118 Nonconsolidated affiliates 1,722 927 1,452 Inventories (less allowances) 12,820 11,898 12,129 Contracts in process (less advances and progress payments) 2,169 2,187 2,159 Equipment on operating leases (less accumulated depreciation) 3,854 3,918 4,081 Deferred income taxes and other 2,820 3,140 5,374 ------- ------- ------- Total current assets 43,611 43,941 45,856 Equity in net assets of nonconsolidated affiliates 10,313 9,855 9,806 Deferred income taxes 20,341 20,075 18,460 Other investments and miscellaneous assets 13,926 11,712 11,728 Property - net 38,010 37,156 35,888 Intangible assets -net 14,803 12,523 10,080 -------- -------- -------- Total assets $141,004 $135,262 $131,818 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $11,871 $11,527 $10,679 Loans payable 1,766 1,214 1,202 Accrued liabilities and customer deposits 32,440 29,822 30,193 ------ ------ ------ Total current liabilities 46,077 42,563 42,074 Long-term debt 6,002 5,192 5,256 Capitalized leases 184 198 163 Postretirement benefits other than pensions 41,820 40,578 40,184 Pensions 4,275 5,966 5,104 Other liabilities and deferred income taxes 16,444 15,650 15,237 Deferred credits 1,697 1,605 1,856 -------- -------- -------- Total liabilities 116,499 111,752 109,874 ------- ------- ------- Minority interests 705 92 144 General Motors - obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures of General Motors Series D 79 - - Series G 143 - - Stockholders' equity 23,578 23,418 21,800 ------- ------- ------- Total liabilities and stockholders' equity $141,004 $135,262 $131,818 ======= ======= ======= Liquidity and Capital Resources With Financing and Insurance Operations on an Equity Basis GM's cash and marketable securities totaled $14.6 billion at September 30, 1997, compared with $17 billion at December 31, 1996 and $14.5 billion at September 30, 1996. The decrease in cash and marketable securities from December 31, 1996 to September 30, 1997 was primarily due to cash of $1.5 billion contributed to the U.S. pension plans and approximately $2.85 billion in cash used to acquire shares of $1-2/3 par value common stock under the Corporation's two stock repurchase programs. Excluding the effect of the stock repurchase programs, the increase in cash and marketable securities from September 30, 1996 to September 30, 1997 was due primarily to higher cash levels generated from continuing operations for the period. Loans payable and long-term debt increased by approximately $1.4 billion to $7.8 billion at September 30, 1997 from balances of $6.4 billion at December 31, 1996 and $6.5 billion at September 30, 1996, respectively. The increases in 1997 were primarily due to an increase of more than $600 million in long-term debt assumed in the PAS merger, an increase of approximately $400 million in long-term debt issued to redeem preferred stock outstanding related to PAS, and other funding used for worldwide growth initiatives. Net liquidity, calculated as cash and marketable securities less the total of loans payable, long-term debt and capitalized leases was $6.6 billion at September 30, 1997, compared with $10.4 billion at December 31, 1996 and $7.9 billion at September 30, 1996. In August 1997, GM established a $1 billion commercial paper program and plans to issue commercial paper to manage liquidity, enhance funding flexibility, and lower its blended cost of capital. Book value per share of $1-2/3 par value common stock increased to $30.17 at September 30, 1997, from $27.95 at December 31, 1996 and $25.95 at September 30, 1996. Book value per share of Class H common stock increased to $15.09 at September 30, 1997, from $13.97 at December 31, 1996 and $12.98 at September 30, 1996. - 22 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Liquidity and Capital Resources for GMAC At September 30, 1997, GMAC owned assets and serviced automotive receivables totaling $113.6 billion, $5.5 billion above year-end 1996, and $7.0 billion above September 30, 1996. Earning assets totaled $102.3 billion at September 30, 1997, compared with $95.7 billion and $93.2 billion at December 31 and September 30, 1996, respectively. The increases over year-end 1996 and September 30, 1996 levels were attributable to higher outstanding balances for wholesale and operating lease receivables, real estate mortgages and investments in securities. As of September 30, 1997, GMAC's total borrowings were $82.9 billion, an increase of $4.2 billion and $7.9 billion from December 31, 1996 and September 30, 1996, respectively. The higher borrowings were principally used to fund increased earning asset levels. GMAC's ratio of debt to total stockholder's equity at September 30, 1997 was 9.6:1, compared with 9.5:1 at December 31, 1996 and 9.1:1 at September 30, 1996. Continuing to utilize its asset securitization program, GMAC sold additional retail finance receivables totaling $2.1 billion (net) during the third quarter of 1997. GMAC and its subsidiaries maintain substantial bank lines of credit which totaled $39.6 billion at September 30, 1997, compared with $40.7 billion at year-end 1996 and $40.8 billion at September 30, 1996. The unused portion of these credit lines totaled $31.1 billion at September 30, 1997, $500 million higher and $900 million lower compared to December 31 and September 30, 1996 balances, respectively. Condensed Consolidated Statements of Cash Flows With Financing and Insurance Operations on an Equity Basis (Unaudited) Nine Months Ended September 30, 1997 1996 (Dollars in Millions) Net cash provided by operating activities $11,254 $11,053 ------ ------ Cash flows from investing activities Expenditures for property (6,648) (6,518) Investments in companies, net of cash acquired (1,788) (126) Investments in other marketable securities - acquisitions (11,083) (8,226) Investments in other marketable securities - liquidations 10,056 7,352 Operating leases - acquisitions (3,963) (3,342) Operating leases - liquidations 2,981 3,142 Special inter-company payment from EDS - 500 Other - 352 ------ ------ Net cash used in investing activities (10,445) (6,866) ------ ----- Cash flows from financing activities Net increase (decrease) in loans payable 552 (985) Increase in long-term debt 358 1,918 Decrease in long-term debt (568) (788) Proceeds from issuing common stocks 471 211 Repurchases of common stocks (3,353) - Cash dividends paid to stockholders (1,252) (1,183) Proceeds from sale of minority interest in DIRECTV - 138 ----- ----- Net cash used in financing activities (3,792) (689) ----- ---- Effect of exchange rate changes on cash and cash equivalents (407) (173) ----- ----- Net cash (used in) provided by continuing operations (3,390) 3,325 ----- ----- Net cash provided by discontinued operations - 103 ----- ----- Net (decrease) increase in cash and cash equivalents (3,390) 3,428 Cash and cash equivalents at beginning of the period 13,320 9,047 ------ ------ Cash and cash equivalents at end of the period $9,930 $12,475 ====== ====== Cash Flows With Financing and Insurance Operations on an Equity Basis Net cash provided by operating activities was approximately $11.3 and $11.1 billion for the nine months ended September 30, 1997, and 1996, respectively. The year-over-year increase was primarily the result of an increase in cash generated from higher income from continuing operations, partially offset by increased pension contributions and changes in other assets and liabilities. During the nine months of 1997, GM made cash contributions of $1.5 billion to the U.S. pension plans, which is expected to be adequate to maintain a fully funded status on an economic basis for the remainder of the year. For the nine months ended September 30, 1996, cash contributions to U.S. pension plans totaled $800 million. - 23 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Cash Flows With Financing and Insurance Operations on an Equity Basis (concluded) Net cash used in investing activities amounted to $10.4 billion for the nine months ended September 30, 1997 compared with $6.9 billion in the prior year period. The increase in net cash used in investing activities during the 1997 period was primarily due to approximately $1.5 billion of cash consideration used to consummate the merger of the satellite service operations of Hughes and PAS in 1997, combined with a $782 million net increase in cash used for operating leases. In addition, the 1996 investing activities reflected a $500 million special intercompany payment from EDS. Net cash used in financing activities totaled $3.8 billion for the nine months ended September 30, 1997, compared with $689 million for the prior year period. The increase was primarily due to the use of $2.85 billion during the 1997 period to acquire 49.2 million shares of $1-2/3 par value common stock under the Corporation's two $2.5 billion stock repurchase programs, one of which was completed in July. GM also used approximately $503 million to repurchase shares of $1-2/3 par value common stock for certain employee benefit plans. A third quarter cash dividend on $1-2/3 par value common stock of $0.50 per share was paid on September 10, 1997. This dividend declaration raises cash dividends in the nine months of 1997 to $1.50 per share compared with $1.20 per share in the same 1996 period. A third quarter cash dividend on Class H common stock of $0.25 per share was paid on September 10, 1997. This continues the level established in the first quarter of 1997 and raises cash dividends in the nine months of 1997 to $0.75 per share compared with $0.72 per share in the same 1996 period. On November 3, 1997, the GM Board of Directors declared a cash dividend for the fourth quarter of 1997 on $1-2/3 par value and Class H common stocks of $0.50 and $0.25 per share, respectively, payable December 10, 1997. The GM Board of Directors also declared quarterly dividends on the Series B, Series D, and Series G Depositary Shares of $0.57, $0.495, and $0.57 per share, respectively, payable February 2, 1998. Upon completion of the Hughes Transactions, which would include the recapitalization of Class H common stock, future earnings (if any) from the telecommunications and space business of Hughes Electronics would be retained for the development of that business. Accordingly, GM does not currently intend to initially pay any cash dividends on the recapitalized Class H common stock. Cash Flows for GMAC Cash provided by operating activities during the nine months ended September 30, 1997 totaled $3.8 billion, a decrease from the $4.7 billion provided during the comparable 1996 period. The decrease was primarily attributable to increased net purchases of both mortgage loans and mortgage trading securities, partially offset by higher taxes payable and increases in payables to GM for vehicle shipments to dealers under GMAC wholesale finance agreements. Cash used for investing activities during the nine months of 1997 totaled $8.6 billion, compared with $4.5 billion during the same period in 1996. The period-to-period increase was primarily attributable to lower sale of receivable proceeds resulting from decreased asset securitization activity. During the nine months of 1997, cash provided by financing activities totaled $4.5 billion, compared with approximately $0.7 billion of cash used by financing activities during the nine months ended September 30, 1996. The $5.2 billion change was primarily attributable to increased proceeds from the issuance of short term debt used to fund increases in wholesale receivable balances. Foreign Currency GM records the financial performance of operations in Brazil using the U.S. dollar as the functional currency due to GM's classification of the Brazilian economy as highly inflationary. Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" defines a highly inflationary economy as one that has cumulative inflation of approximately 100% or more over a three-year period. In mid-1997, the Brazilian three-year cumulative inflation rate fell below the 100% level. Accordingly, GM is evaluating historical inflation rate trends and certain other factors in order to determine whether it should no longer classify the Brazilian economy as highly inflationary. If such a reclassification is determined to be appropriate, GM would record the financial performance for operations in Brazil using the local currency as the functional currency. GM expects to complete its evaluation in late 1997 or early 1998 and has not yet determined the effect a change in the Brazilian functional currency would have on GM's consolidated financial statements. Security Ratings GM's $1 billion commercial paper program established in August 1997 received the following security ratings from the various agencies: Fitch Investors Service (Fitch) rated GM's commercial paper program F-1. Fitch's F-1 rating for commercial paper and other short-term obligations is the second highest of four investment grade ratings available from Fitch and is assigned to short-term issues that possess a very strong credit quality based primarily on the existence of liquidity necessary to meet the obligation in a timely manner. Moody's Investors Service (Moody's) assigned the GM commercial paper program a credit rating of P-2, which is the second highest within Moody's three commercial paper investment grade ratings. Moody's P-2 rating indicates that the issuer has a strong ability for repayment relative to other issuers. - 24- GENERAL MOTORS CORPORATION AND SUBSIDIARIES Security Ratings - concluded Duff & Phelps Credit Rating Co. (D&P) assigned a short-term debt rating of D-1+ to GM's commercial paper program. The D-1+ rating by D&P, the highest of five investment grade ratings available, signifies the highest certainty of timely payment based on outstanding liquidity, including internal operating factors and/or access to alternative sources of funds, with safety just below risk-free U.S. Treasury short-term obligations. Standard and Poor's Ratings Services, a division of McGraw-Hill Companies, Inc. (S&P), assigned a rating of A-2 to GM's commercial paper program, which is the third highest within S&P's four commercial paper investment grade ratings. The A-2 rating indicates a satisfactory capacity for timely payment with a lower degree of relative safety compared with issues designated as A-1+, S&P's highest rating for commercial paper. Employment and Payrolls 1997 1996 Worldwide Employment at September 30, (in thousands) GM-NAO 239 245 Delphi 175 180 GMIO 116 110 GMAC 18 17 Hughes 87 84 Other 11 11 ---- ---- Total 646 647 === === Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------- ------ ------ ------ Worldwide payrolls - continuing operations (in billions) $7,464 $7,490 $22,828 $22,462 ===== ===== ====== ====== * * * * * * - 25 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS (a) Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation became, or was, a party during the quarter ended September 30, 1997 or subsequent thereto, but before the filing of this report are summarized below. Environmental Matters In August, 1997 the Delaware Department of Natural Resources & Environmental Control (DDNREC) issued a Notice of Administrative Penalty Assessment to the GM Wilmington Assembly Plant seeking civil penalties in excess of $100,000 for alleged violations of the Delaware volatile organic compound rules. GM filed a request for hearing, and is pursuing discussions with DDNREC to resolve the matter. Other Matters As previously reported, eight suits, denominated by plaintiffs as class actions, were filed in Delaware Chancery Court against General Motors and its directors challenging the spin-off of Hughes Electronics Corporation's defense business and related transactions. A ninth suit, Nicholas M. Patinkin v. General Motors Corporation, et al, was filed on March 31, 1997 which makes essentially the same allegations as the previously filed suits. All nine suits have been consolidated under the caption, In Re General Motors Class H Shareholders Litigation. *** With respect to the previously reported matter, In re General Motors Anti-lock Brake Products Liability Litigation, the plaintiffs' motion for reconsideration of the dismissal of the eleven consolidated actions was denied. Plaintiffs have appealed to the U.S. Court of Appeals for the Eight Circuit. *** With respect to the previously reported matter, Jacobson, et. al. v Hughes Aircraft Co. et. al., the Ninth Circuit has denied the request of Hughes for a rehearing. *** (b) Previously reported legal proceedings which have been terminated, either during the quarter ended September 30, 1997, or subsequent thereto, but before the filing of this report are summarized below: With respect to the previously reported tentative settlement of a claim by the State of North Dakota that GM had disposed of hazardous waste in a non-hazardous waste landfill in North Dakota, GM and the State of North Dakota have resolved the matter pursuant to an administrative Consent Agreement (Case No. 97-1147 HWM N.D.C.C. 23-20.3) effective September 29, 1997. Under the Consent Agreement GM removed all of the drums of aluminum grinding waste which could be feasibly removed and made a voluntary contribution of $120,000 to the state's Environmental Quality Restoration Fund. In addition, GM agreed to pay $20,000 representing the remaining portion of a suspended penalty under a prior Order between the State and GM. *** As previously reported, on July 12, 1996 the Corporation was served with a putative Class Action Complaint filed in the Circuit Court of Greene County, Alabama alleging that the paint on 1985 through 1995 model year GM vehicles is defective (Robert J. Reinning et al. v. General Motors Corporation). On September 11, 1997, the Court dismissed the case without prejudice at the request of the plaintiffs. * * * * * * - 26 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS (Including Those Incorporated by Reference). Exhibit Number Exhibit Name Page No. 2(a) Agreement and Plan of Merger by and between HE Holdings, Inc. and Raytheon Company dated as of January 16, 1997, filed as Exhibit 2(a) to the Current Report on Form 8-K of General Motors Corporation dated January 16, 1997 N/A 2(b) Implementation Agreement by and between General Motors Corporation and Raytheon Company dated as of January 16, 1997, filed as Exhibit 2(b) to the Current Report on Form 8-K of General Motors Corporation dated January 16, 1997 N/A 2(c)* List of Omitted Schedules and Other Attachments, filed as Exhibit 2(d) to the Current Report on Form 8-K of General Motors Corporation dated January 16, 1997 N/A 2(d) Agreement and Plan of Merger by and between General Motors Corporation and GM Mergeco Corporation, dated as of October 17, 1997, included as Appendix A to the Solicitation Statement/Prospectus dated as of November 10, 1997, which is a part of the Registration Statement on Form S-4 of General Motors Corporation (Registration No. 333-37215) N/A 3(ii) By-Laws of General Motors Corporation, as amended to August 4, 1997, incorporated by reference to the General Motors June 30, 1997 Quarterly Report on Form 10-Q N/A 4(e)(i) Amended and Restated Declaration of Trust of General Motors Capital Trust D, incorporated by reference to Exhibit 4(c)(i) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997 N/A 4(e)(ii) Amended and Restated Declaration of Trust of General Motors Capital Trust G, incorporated by reference to Exhibit 4(c)(ii) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997 N/A 4(f)(i) Indenture between General Motors Corporation and Wilmington Trust Company, incorporated by reference to Exhibit 4(d)(i) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997 N/A 4(f)(ii) First Supplemental Indenture between General Motors Corporation and Wilmington Trust Company With Respect To The Series D Junior Subordinated Debentures, incorporated by reference to Exhibit 4(d)(ii) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997 N/A 4(f)(iii) Second Supplemental Indenture between General Motors Corporation and Wilmington Trust Company With Respect To The Series G Junior Subordinated Debentures, incorporated by reference to Exhibit 4(d)(iii) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997 N/A 4(g)(i) Series D Preferred Securities Guarantee Agreement, General Motors Capital Trust D, incorporated by reference to Exhibit 4(g)(i) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997 N/A 4(g)(ii) Series G Preferred Securities Guarantee Agreement, General Motors Capital Trust G, incorporated by reference to Exhibit 4(g)(ii) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997 N/A * The registrant hereby undertaken to furnish supplementally a copy of any omitted schedule or other attachment to the Securities and Exchange Commission upon request. - 27 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - concluded 11 Computation of Earnings Per Share Attributable to Common Stocks for the Three and Nine Month Periods Ended September 30, 1997 and 1996 29 99 Hughes Electronics Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 33 27 Financial Data Schedule (for SEC information only) (b) REPORTS ON FORM 8-K. Two reports on Form 8-K, dated July 1, 1997 and July 14, 1997 , were filed during the quarter ended September 30, 1997 reporting matters under Item 5, Other Events. * * * * * * SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GENERAL MOTORS CORPORATION (Registrant) November 12, 1997 /s/Peter R. Bible (Date) (Peter R. Bible, Chief Accounting Officer) - 28 - EX-11 2 EXHIBIT 11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS (Unaudited) Three Months Ended September 30, 1997 ------------------ $1-2/3 Par Value Class H Common Common Stock Stock --------- -------- (Dollars in Millions Except Per Share Amounts) Net income $1,006 $61 Premium on exchange of preference stocks 26 - Dividends on preference stocks 16 - ----- --- Earnings on common stocks 964 61 Dividends on common stocks 355 26 --- -- Net earnings retained $609 $35 === == Weighted average shares outstanding (in millions) 713 102 Per Share Data Net earnings retained per share $0.85 $0.35 Cash dividends per share 0.50 0.25 ---- ---- Net earnings per share $1.35 $0.60 ==== ==== Note: The difference between fully diluted and primary earnings per share is immaterial. - 29 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS - Continued (Unaudited) Three Months Ended September 30, 1996 ------------------------ $1-2/3 Par Value Class H Common Common Stock Stock --------- -------- (Dollars in Millions Except Per Share Amounts) Net income $1,209 $62 Dividends on preference stocks 21 - ------ --- Earnings on common stocks 1,188 62 Dividends on common stocks 301 24 --- -- Net earnings retained $887 $38 === == Weighted average shares outstanding (in millions) 756 99 Per Share Data Net earnings retained per share $1.17 $0.39 Cash dividends per share 0.40 0.24 ---- ---- Net earnings per share $1.57 $0.63 ==== ==== Note: The difference between fully diluted and primary earnings per share is immaterial. - 30 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS - Continued (Unaudited) Nine Months Ended September 30, 1997 ----------------------- $1-2/3 Par Value Class H Common Common Stock Stock --------- --------- (Dollars in Millions Except Per Share Amounts) Net income $4,704 $257 Premium on exchange of preference stocks 26 - Dividends on preference stocks 56 - ------ ----- Earnings on common stocks 4,622 257 Dividends on common stocks 1,094 76 ----- ---- Net earnings retained $3,528 $181 ===== === Weighted average shares outstanding (in millions) 728 101 Per Share Data Net earnings retained per share $4.85 $1.79 Cash dividends per share 1.50 0.75 ---- ---- Net earnings per share $6.35 $2.54 ==== ==== Note: The difference between fully diluted and primary earnings per share is immaterial. - 31 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS - Concluded (Unaudited) Nine Months Ended September 30, 1996 ------------------------------ $1-2/3 Par Value Class E Class H Common Common Common Stock Stock Stock --------- -------- -------- (Dollars in Millions Except Per Share Amounts) Income from continuing operations $3,953 $ - $214 Income (loss) from discontinued operations (5) 15 - ------- -- ----- Net income 3,948 15 214 Dividends on preference stocks 61 - - ------ ----- ----- Earnings on common stocks 3,887 15 214 Dividends on common stocks 906 145 71 ------ --- ---- Net earnings retained (loss accumulated) $2,981 $(130) $143 ===== === === Net earnings retained from continuing operations $2,986 $ - $143 ===== === === Loss accumulated from discontinued operations $(5) $(130) $ - = === === Weighted average shares outstanding (in millions) 756 470 98 Per Share Data Net earnings retained per share from continuing operations $3.95 $ - $1.46 Loss accumulated per share from discontinued operations (0.01) (0.26) - Cash dividends per share 1.20 0.30 0.72 ---- ---- ---- Net earnings per share $5.14 $0.04 $2.18 ==== ==== ==== Note: The difference between fully diluted and primary earnings per share is immaterial. - 32 - EX-99 3 Unknown;Steven R. Mark; EXHIBIT 99 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED STATEMENT OF INCOME AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------- -------- ------- ------- (Dollars in Millions Except Per Share Amounts) Revenues Net sales Outside customers $3,040.3 $2,590.8 $8,737.8 $7,560.9 General Motors and affiliates 1,077.2 1,219.3 3,773.5 3,895.4 Other (loss) income - net (4.8) (2.3) 495.2 134.1 --------- --------- --------- --------- Total revenues 4,112.7 3,807.8 13,006.5 11,590.4 ------- ------- -------- -------- Costs and expenses Cost of sales and other operating charges, exclusive of items listed below 3,126.2 2,890.5 9,668.0 8,781.6 Selling, general, and administrative expenses 435.9 383.6 1,312.4 1,041.9 Depreciation and amortization 179.6 146.7 491.2 407.9 Amortization of GM purchase accounting adjustments related to Hughes Aircraft Company 30.5 30.5 91.7 91.7 Interest expense - net 14.0 5.1 41.7 11.7 -------- --------- -------------------- Total costs and expenses 3,786.2 3,456.4 11,605.0 10,334.8 ------- ------- -------- -------- Income before income taxes and minority interests 326.5 351.4 1,401.5 1,255.6 Income taxes 112.8 144.7 498.1 508.4 Minority interests in net (income) losses of subsidiaries (4.0) 14.8 21.7 31.4 ------ ------ ------ ------ Net income 209.7 221.5 925.1 778.6 Adjustments to exclude the effect of GM purchase accounting adjustments related to Hughes Aircraft Company 30.5 30.5 91.7 91.7 ---- ---- ---- ---- Earnings Used for Computation of Available Separate Consolidated Net Income $240.2 $252.0 $1,016.8 $870.3 ===== ===== ======= ===== Available Separate Consolidated Net Income Average number of shares of General Motors Class H Common Stock outstanding (in millions)(numerator) 102.0 98.8 101.2 98.2 Class H dividend base (in millions) (denominator) 399.9 399.9 399.9 399.9 Available Separate Consolidated Net Income $61.3 $62.3 $257.1 $213.5 ==== ==== ===== ===== Earnings Per Share Attributable to General Motors Class H Common Stock $0.60 $0.63 $2.54 $2.18 ==== ==== ==== ==== Certain 1996 amounts have been reclassified to conform with the 1997 presentation. Reference should be made to the Notes to Consolidated Financial Statements. - 33 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET September 30, 1997 December 31, (Unaudited) 1996 ------------- ----------- (Dollars in Millions Except Per Share Amount) ASSETS Current assets Cash and cash equivalents $1,443.1 $1,161.3 Accounts and notes receivable Trade receivables (less allowances) 1,303.9 1,200.6 General Motors and affiliates 126.1 113.4 Contracts in process, (less advances and progress payments) 2,169.4 2,186.5 Inventories (less allowances) Productive material, work in process, and supplies 1,577.6 1,383.1 Finished product 184.1 145.4 Prepaid expenses, including deferred income taxes 694.6 568.1 ------- ------- Total current assets 7,498.8 6,758.4 ------- ------- Property-net 2,934.0 2,886.6 Telecommunications and other equipment - net 2,586.4 1,133.5 Intangible assets - net 5,757.8 3,466.0 Investments and other assets - principally at cost (less allowances) 2,436.1 2,235.6 -------- -------- Total assets $21,213.1 $16,480.1 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable Outside $982.3 $896.4 General Motors and affiliates 13.0 27.5 Advances on contracts 753.3 868.9 Notes and loans payable 687.7 248.1 Income taxes payable 218.8 132.9 Accrued liabilities 1,706.2 2,025.8 ------- ------- Total current liabilities 4,361.3 4,199.6 ------- ------- Long-term debt and capitalized leases 2,836.1 34.5 Postretirement benefits other than pensions 1,692.5 1,658.9 Other liabilities and deferred credits 1,873.8 1,386.4 Minority interests 639.4 20.8 Stockholder's equity Capital stock (outstanding, 1,000 shares, par value) and additional paid-in capital 6,365.2 6,347.2 Net income retained for use in the business 3,593.9 2,968.8 ------- ------- Subtotal 9,959.1 9,316.0 Minimum pension liability adjustment (113.5) (113.5) Accumulated foreign currency translation adjustments (35.6) (22.6) Total stockholder's equity 9,810.0 9,179.9 ------- ------- Total liabilities and stockholder's equity $21,213.1 $16,480.1 Certain 1996 amounts have been reclassified to conform with the 1997 presentation. Reference should be made to the Notes to Consolidated Financial Statements. - 34 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended September 30, ----------------- 1997 1996 ------ ------- (Dollars in Millions) Net cash provided by operating activities $767.4 $844.3 ----- ----- Cash flows from investing activities Investment in companies, net of cash acquired (1,609.5) (28.7) Expenditures for property and special tools (351.4) (485.0) Increase in telecommunications and other equipment (456.4) (145.5) Proceeds from sale and leaseback of satellite transponders with GMAC - 252.0 Proceeds from disposal of property 28.2 60.9 Decrease in notes receivable 12.4 5.7 ------- ----- Net cash used in investing activities (2,376.7) (340.6) ------- ----- Cash flows from financing activities Net increase (decrease) in notes and loans payable 435.3 (397.2) Increase in long-term debt 1,767.0 12.8 Decrease in long-term debt (11.2) (26.6) Proceeds from sale of minority interest in subsidiary - 137.5 Cash dividends paid to General Motors (300.0) (288.0) ------- ------ Net cash provided by (used in) financing activities 1,891.1 (561.5) ------- ------ Net increase (decrease) in cash and cash equivalents 281.8 (57.8) Cash and cash equivalents at beginning of the period 1,161.3 1,139.5 ------- ------- Cash and cash equivalents at end of the period $1,443.1 $1,081.7 ======= ======= Reference should be made to the Notes to Consolidated Financial Statements. - 35 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting. In the opinion of management, all adjustments (consisting of only normal recurring items) which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year. For further information, refer to the consolidated financial statements and notes thereto included in General Motors' (GM) 1996 Annual Report on Form 10-K, the unaudited information relating to Hughes filed as Exhibit 99 in GM's Quarterly Reports on Form 10-Q dated March 31, 1997 and June 30, 1997, and Current Reports on Form 8-K filed subsequent to the filing date for the GM 1996 Annual Report on Form 10-K. Note 2. Other (loss) income - net for the nine months ended September 30, 1997 includes a $489.7 million pre-tax gain recognized in connection with the PanAmSat merger (See Note 5); the nine months ended September 30, 1996 includes a $120.3 million pre-tax gain from the sale of a 2.5% equity interest in DIRECTV(R) to AT&T. Note 3. During the first quarter of 1997, the Company's DIRECTV subsidiary changed the amortization period for certain subscriber acquisition costs related to a consumer rebate and manufacturers' incentive program. Based on guidance from the staff of the Securities and Exchange Commission, the period over which such costs are amortized has been reduced from three years to one year, equal to the length of the subscriber's prepaid programming commitment. The effect of this change on prior periods was not material. Note 4. On October 6, 1997, the GM Board of Directors approved the final terms for a series of related transactions (the "Hughes Transactions") designed to address strategic challenges facing the three principal businesses of Hughes and to unlock stockholder value in GM. The transactions approved by the GM Board of Directors include the tax-free spin-off of the defense electronics business of Hughes, known as Hughes Defense, to holders of GM $1-2/3 par value and Class H common stocks, to be followed immediately by the tax-free merger of that business with Raytheon Company. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, GM Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. The GM Board of Directors also approved the formula to be used to determine the distribution ratio for the allocation of the Class A common stock of Hughes Defense between GM $1-2/3 and Class H common stockholders in connection with the Hughes Defense spin-off. GM would distribute approximately 103 million shares of Class A common stock of Hughes Defense, which will represent about 30 percent of the total equity of the combined Hughes Defense/Raytheon Company, to GM $1-2/3 and Class H common stockholders if the Hughes Transactions are approved. The distribution to GM Class H common stockholders will account for their tracking stock interest in Hughes Defense, plus an additional amount valued at approximately $1.733 billion to compensate for the elimination of their tracking stock interest in Delco Electronics and other factors. GM $1-2/3 common stockholders would receive the remaining shares of Class A common stock. In July 1997, GM received a private letter ruling from the U.S. Internal Revenue Service confirming that the spin-off of Hughes Defense would be tax free to GM and its stockholders for U.S. federal income tax purposes. In addition, GM and Raytheon have reached agreement with the U.S. Department of Justice regarding the basis upon which the merger of Hughes Defense and Raytheon can proceed consistent with the Government's enforcement of U.S. antitrust laws. The agreement was filed, in the form of a proposed final judgment, with the U.S. District Court for the District of Columbia on October 16, 1997. On October 24, 1997, the court entered a stipulation and order requiring the parties to abide by the provisions of the agreement pending expiration of the 60-day statutory notice and comment period and entry of final judgment, thereby permitting the parties to consummate the merger of Hughes Defense and Raytheon. A solicitation statement/prospectus of General Motors and Hughes Defense (in the name of HE Holdings) has been filed with the Securities and Exchange Commission and will be distributed to holders of GM $1-2/3 and Class H common stock in order to secure their approval of the proposed Hughes Transactions. If such approval is obtained, the Hughes Transactions could occur before the end of the year. In addition, the merger of Hughes Defense and Raytheon is subject to approval by Raytheon shareholders. No assurance can be given that the above transactions will be completed. No offering of Hughes Defense common stock or the new GM Class H common stock nor any solicitation by means of a proxy or written consent would be made except through the use of the solicitation statement/prospectus. - 36 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded (Unaudited) Note 5. In May 1997, Hughes and PanAmSat Corporation (PAS) completed the merger of their respective satellite service operations into a new publicly-held company. Hughes contributed its Galaxy(R) satellite services business in exchange for a 71.5% interest in the new company. Existing PAS stockholders received a 28.5% interest in the new company and $1.5 billion in cash. Such cash consideration and other funds required to consummate the merger were funded by new debt financing totaling $1.725 billion. This debt financing was provided by Hughes, which borrowed such funds from GM. For accounting purposes, the merger was treated by Hughes as an acquisition of 71.5% of PAS and accounted for using the purchase method. Accordingly, the purchase price was allocated to the net assets acquired, including intangible assets, based on estimated fair values at date of acquisition. In addition, the merger was treated as a partial sale of the Galaxy business by Hughes and resulted in a one-time pre-tax gain of $489.7 million ($318.3 million after-tax or $0.80 per share of GM Class H common stock). The preferred stock of PAS outstanding at the time of the merger was exchanged into 12 3/4% Senior Subordinated Notes on September 30, 1997. On November 3, 1997, Hughes entered into an agreement to sell substantially all of the assets and liabilities of the Hughes Avicom International, Inc. ("Hughes Avicom") business to Rockwell Collins, Inc. for cash. The sale is expected to close in the fourth quarter of 1997 pending regulatory approval and result in a gain. Note 6. Earnings per share attributable to GM's Class H common stock was determined based on the Available Separate Consolidated Net Income (ASCNI) of Hughes divided by the weighted average number of common shares outstanding. Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). The ASCNI of Hughes for any quarterly period represents the separate consolidated net income of Hughes for such period, excluding the effects of GM purchase accounting adjustments arising from the acquisition of Hughes Aircraft Company (Earnings Used for Computation of Available Separate Consolidated Net Income), calculated for such period and multiplied by a fraction, the numerator of which is a number equal to the weighted average number of shares of GM Class H common stock outstanding during the quarter (102 million and 98.8 million during the third quarters of 1997 and 1996, respectively) and the denominator of which was 399.9 million during the third quarters of 1997 and 1996. Note 7. Hughes has disclosed in the financial statements certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as "accumulated postretirement benefit obligations," "liabilities," or "obligations." Notwithstanding the recording of such amounts and the use of these terms, Hughes does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of Hughes (other than pensions) represent legally enforceable liabilities of Hughes. Note 8. As previously reported, Hughes has maintained a suit against the U.S. Government since September 1973 regarding the Government's infringement and use of a Hughes patent (the "Williams Patent") covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites. On June 17, 1994, the U.S. Court of Claims awarded Hughes damages of $114 million. Because Hughes believed that the record supported a higher royalty rate, it appealed that decision. The U.S. Government, contending that the award was too high, also appealed. On June 19, 1996, the Court of Appeals for the Federal Circuit (CAFC) affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the CAFC for a rehearing. That petition was denied in October 1996. The U.S. Government then filed a petition with the U.S. Supreme Court seeking certiorari. On April 21, 1997 the U.S. Supreme Court, citing a recent decision it had rendered in Warner-Jenkinson v. Hilton Davis, remanded Hughes' suit over the Williams Patent back to the CAFC in order to have the CAFC determine whether the ruling in the Williams Patent matter was consistent with the U.S. Supreme Court's decision in the Warner-Jenkinson case. The previous liability decision of the Court of Claims in the Williams Patent matter, and its $114 million damage award to Hughes, currently remain in effect pending reconsideration of the case by the CAFC. Hughes is unable to estimate the duration of this reconsideration process. While no amount has been recorded in the financial statements of Hughes to reflect the $114 million award or the interest accumulating thereon, a resolution of this matter could result in a gain that would be material to the earnings of GM attributable to Class H common stock. - 37 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis should be read in conjunction with the Hughes management's discussion and analysis included in GM's 1996 Annual report to the SEC on Form 10-K, the management's discussion and analysis relating to Hughes included in Exhibit 99 to GM's Quarterly Reports on Form 10-Q dated March 31, 1997 and June 30, 1997, and Current Reports on Form 8-K filed subsequent to the filing date for GM's 1996 Form 10-K. In addition, the following discussion excludes the purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company (see Supplemental Data beginning on page 41). Statements made concerning expected financial performance, ongoing financial performance strategies, and possible future actions which Hughes intends to pursue to achieve the strategic objectives for each of its three principal business segments constitute forward-looking information. The implementation of these strategies and future actions and the achievement of such financial performance are each subject to numerous conditions, uncertainties and risk factors, and, accordingly, no assurance can be given that Hughes will be able to successfully accomplish its strategic objectives or achieve such financial performance. The principal important risk factors which could cause actual performance and future actions to differ materially from the forward-looking statements made herein include economic conditions, product demand and market acceptance, government action, competition, ability to achieve cost reductions, GM's global sourcing strategy with respect to automotive electronics, GM's North American Operations (GM-NAO) volumes, technological risk and interruptions to production attributable to causes outside Hughes' control. Transactions Update On October 6, 1997, the GM Board of Directors approved the final terms for a series of related transactions (the "Hughes Transactions") designed to address strategic challenges facing the three principal businesses of Hughes and to unlock stockholder value in GM. The transactions approved by the GM Board of Directors include the tax-free spin-off of the defense electronics business of Hughes, known as Hughes Defense, to holders of GM $1-2/3 par value and Class H common stocks, to be followed immediately by the tax-free merger of that business with Raytheon Company. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, GM Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. (See Note 4 to the Hughes consolidated financial statements for additional information on the Hughes Transactions.) Results of Operations Hughes reported 1997 third quarter earnings, before the effects of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company, of $240.2 million, a 4.7% decrease from the $252.0 million reported in the third quarter of 1996. Earnings per share of GM Class H common stock decreased to $0.60 per share from $0.63 per share in the third quarter of 1996. These declines were principally due to lower operating margins at Delco Electronics caused by continued price reductions, partially offset by increased margins in the Telecommunications and Space segment resulting from DIRECTV subscriber growth and the PanAmSat merger. Revenues for the third quarter of 1997 were $4,112.7 million, an 8.0% increase from the $3,807.8 million reported in the third quarter of 1996. Costs and expenses as a percentage of revenues increased slightly to 91.3% from 90.0% in the third quarter of 1996. Income taxes were $112.8 million, or 31.6% of income before income taxes and minority interests, for the third quarter of 1997 compared with $144.7 million, or 37.9% of income before income taxes and minority interests, in the third quarter of 1996. The decrease in the effective tax rate for both the quarter and nine month period ended September 30, 1997 from approximately 41% to approximately 35% resulted primarily from the use of tax credits. Operating profit was $375.8 million for the quarter ended September 30, 1997, a 3.5% decrease from the operating profit of $389.3 million reported during the comparable period in 1996. The operating profit margin was 9.1% for the third quarter of 1997 compared with 10.2% in the third quarter of 1996. Telecommunications and Space segment revenues for the quarter ended September 30, 1997 were $1,242.2 million, an increase of 25.7% over revenues of $988.5 million reported in the prior year's third quarter. This growth was primarily due to continued expansion of the DIRECTV subscriber base in the United States and Latin America and increased revenues as a result of the PanAmSat merger. Operating profit in the third quarter of 1997 increased to $115.0 million compared with $62.0 million reported in the same period of 1996. This increase was largely the result of improved performance in the domestic DIRECTV business and operating profit generated by PanAmSat. As a result, the third quarter operating profit margin increased to 9.2% compared with 6.2% last year. - 38 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The global telecommunications industry is highly competitive and undergoing rapid technological and structural change. The ability of the telecommunications and space business of Hughes to realize its strategic goals is accordingly subject to numerous uncertainties. However, based on the current business plan for the telecommunications and space business of Hughes and Hughes management's current assessment of industry conditions, Hughes management currently anticipates that the revenues and earnings of the telecommunications and space business of Hughes should each be able to grow at a compound rate of at least 20 percent per year through 2001. In general, the Telecommunications and Space segment systems businesses (principally the satellite manufacturing and network systems) are expected to have more moderate growth in revenues and earnings, with greater growth coming in the services businesses (principally the direct-to-home broadcast and satellite services). With respect to the worldwide DIRECTV businesses, particularly in the United States, Hughes is considering a number of strategic initiatives designed to expand its market share and enhance its competitive position. These include new distribution channels, new services, broader programming and marketing and other promotional strategies designed to address "barriers to entry" identified by consumers. To the extent that such strategies are implemented, subscriber acquisition costs are likely to increase and, as a result, the execution of such strategies is likely to affect the timing and amount of revenues and the overall profitability of the DIRECTV businesses. However, Hughes believes that early capture of market share and the establishment of market leadership are important to maximization of the long-term value of the DIRECTV businesses. On November 3, 1997, Hughes entered into an agreement to sell substantially all of the assets and liabilities of the Hughes Avicom International, Inc. ("Hughes Avicom") business to Rockwell Collins, Inc. for cash. The sale is expected to close in the fourth quarter of 1997 pending regulatory approval and result in a gain. The sale will allow Hughes to better focus on its core telecommunications and space business. Hughes Avicom is a supplier of products and services to the commercial airline market. The Automotive Electronics segment reported third quarter 1997 revenues of $1,209.5 million, a decrease of 5.1% from revenues of $1,274.6 million for the same period in 1996. The decline reflects a 9.3% decrease in Delco-supplied electronic content in GM vehicles, from $900 to $816 per vehicle, which more than offset a 9.8% increase in international and non-GM sales from $236 million to $259 million. Operating profit declined to $95.9 million in the third quarter of 1997 from $166.3 million in the comparable 1996 period. The decline was primarily due to price reductions resulting from competitive pricing in connection with GM's global sourcing initiative, and the impact from continued international expansion. As a result, third quarter operating profit margin declined to 8.0% from 13.1% in 1996. As the principal supplier of automotive electronics to GM-NAO, Hughes' sales of automotive electronics will continue to be heavily dependent on GM's production of vehicles in North America, the level of Hughes-supplied electronic content per GM vehicle, the price of such electronics, and the competitiveness of Hughes' product offerings. In this regard, it is anticipated that competition through GM's global purchasing process will negatively impact Hughes' sales to GM-NAO and result in a decline in the portion of GM-NAO automotive electronics supplied by Hughes. The segment's strategy is to aggressively reduce costs in order to minimize the effect of continuing price reductions and to manage the loss of GM-NAO market share by offering competitive products which increase electronic functionality through a focus on safety, security, communications, and convenience. The segment will also seek to improve its systems capability and cost competitiveness both internally and by developing key design, manufacturing, and marketing alliances and other relationships with mechanical and electrical automotive component suppliers. The international market for automotive electronic products is also highly competitive. The segment has refined its strategy for this market to focus on profitable growth as well as increased market share, and accordingly, will seek to enhance the cost competitiveness of its international operations. The competitive environment described above is making it increasingly difficult to maintain the level of operating profit margins realized in this segment in recent years as price and volume declines associated with GM's global souring initiatives more than offset Hughes' ability to achieve costs reductions. In response to the increased pressure on margins and to enhance future competitiveness, management is taking action to reduce the cost structure of the business. As a result of the factors described above, the operating margin is expected to be at low double digits for the remainder of 1997, and then show modest improvement in 1998 and 1999. In connection with Delco's planned integration with Delphi as part of the Hughes Transactions, Delco is participating with Delphi in a review of the adequacy of its strategy which focuses on the competitiveness of its operations, growth opportunities and increasing market share through technology leadership, quality, cost and responsiveness. Delco and Delphi are continuing to study the outlook for some of their major - 39 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS product lines and their capacity to achieve Delphi's goals of increased growth and profitability. The findings of this study may result in the modifying, selling or closing of certain lines of business that are not performing as effectively as necessary to enable Delphi to meet its strategic plans, while further expanding and growing product lines which will help to meet corporate objectives. The study is expected to be completed in late 1997 or early 1998. Presently, Delco and Delphi cannot estimate the impact the findings of this study may have on Delco's existing lines of business and results of operations. The Aerospace and Defense Systems segment reported 1997 third quarter revenues of $1,628.4 million, a 6.8% increase over revenues of $1,524.5 million reported last year. The growth was principally due to the build-up of several newer programs, particularly information systems and services programs such as Hughes Air Warfare Center, Desktop V, and Wide Area Augmentation System, and the acquisition of the Marine Systems Group of Alliant Techsystems in March 1997. Operating profit for the third quarter of 1997 decreased slightly to $165.7 million compared with $167.1 million for the comparable period in 1996. The 1997 third quarter operating profit margin decreased to 10.2% as compared to 10.9% in 1996 primarily due to a continued sales mix shift toward information systems and services programs. Future operating profits could be adversely impacted by further reductions in the U.S. defense budget. Liquidity and Capital Resources Cash and cash equivalents at September 30, 1997 were $1,443.1 million, an increase of $281.8 million from the $1,161.3 million reported at December 31, 1996. The increase was primarily due to the positive impact on cash of $258.8 million as a result of the PAS merger, the proceeds of $629.5 million from short-term commercial paper borrowings under an existing credit facility, and cash generated by operating activities, partially offset by the acquisition of the Marine Systems Group of Alliant Techsystems, Inc. for $143.3 million, capital expenditures, cash dividends paid to GM, and the repayment of $208.8 million of short-term borrowings. The completion of the PAS merger in the second quarter of 1997 had a significant impact on the liquidity and debt of Hughes. Existing PAS cash and non-current marketable securities of $296.9 million and $330 million, respectively, were acquired by Hughes as a result of the merger. Total Hughes long-term debt increased by the acquisition financing of $1,725 million provided by GM, as well as the assumption of the existing PAS debt of $613.4 million. Existing redeemable preferred stock of PAS amounting to $395.8 million was also assumed in connection with the merger and was subsequently exchanged into 12 3/4% Senior Subordinated Notes on September 30, 1997. Capital expenditures, including expenditures for telecommunications and other equipment, were $761.6 million through September 30, 1997, compared with $627.6 million for the same period in 1996 reflecting increased expenditures in the Telecommunications and Space segment, primarily for satellites. Long-term debt and capitalized leases were $2,836.1 million at September 30, 1997, consisting primarily of PAS related debt described above. The ratio of long-term debt and capitalized leases to the total of such debt and pro forma stockholder's equity was 28.3% at September 30, 1997 and 0.1% at December 31, 1996. As a measure of liquidity, Hughes' current ratio (ratio of current assets to current liabilities) of 1.72 at September 30, 1997 remained relatively unchanged from 1.61 at December 31, 1996. Working capital increased to $3,137.5 million at September 30, 1997 from $2,558.8 million at December 31, 1996. Hughes expects the remaining 1997 cash requirements prior to the consummation of the planned Hughes Transactions to result in additional short-term borrowings of up to $600.0 million under the Hughes commercial paper program. Cash flows for the fourth quarter of 1997 and beyond are expected to be negatively impacted by a change in the credit terms between Delco and GM-NAO for purchases of automotive electronics. Prior to the 1997 third quarter, GM-NAO had generally paid Delco for product shipments immediately upon billing. The policy governing Delco/GM-NAO credit terms was changed such that Delco and GM-NAO are implementing credit terms substantially equivalent to those given to GM-NAO's non-affiliated suppliers. This change in credit terms is subject to a four year phase-in period. However, if the spin-off of the Hughes defense business is completed with Delco transferred to Delphi, the credit terms for Delco will change, effective immediately after such transactions are completed, without any phase-in period. - 40 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS New Accounting Standards In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 requires that an entity classify items of other comprehensive income by their nature in that financial statement. In addition, the accumulated balance of other comprehensive income must be displayed separately from retained earnings and additional paid-in capital in the equity section of the statement of financial position. Reclassification of financial statements for earlier periods, provided for comparative purposes, is required. SFAS No. 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS No. 131 requires reporting segment profit or loss, certain specific revenue and expense items and segment assets. It also requires reconciliations of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts reported in the financial statements. Restatement of comparative information for earlier periods presented is required in the initial year of application. Interim information is not required until the second year of application, at which time comparative information is required. SFAS No. 130 and No. 131 are effective for fiscal years beginning after December 15, 1997. Security Ratings On April 24, 1997, Standard and Poor's Rating Services, a division of McGraw-Hill Companies, Inc., affirmed its security ratings of Hughes and indicated that the security ratings outlook for Hughes remains developing. Supplemental Data The Consolidated Financial Statements reflect the application of purchase accounting adjustments as previously discussed. However, as provided in GM's Restated Certificate of Incorporation, as amended, the earnings attributable to GM Class H common stock for purposes of determining the amount available for the payment of dividends on GM Class H common stock specifically excludes such adjustments. More specifically, amortization of the intangible assets associated with GM's purchase of Hughes Aircraft Company amounted to $30.5 million for the third quarters of 1997 and 1996. Such amounts were excluded from the earnings available for the payment of dividends on GM Class H common stock and were charged against the earnings available for the payment of dividends on GM's $1-2/3 par value stock. Unamortized purchase accounting adjustments associated with GM's purchase of Hughes Aircraft Company were $2,631.8 million at September 30, 1997 and $2,723.5 million at December 31, 1996. In order to provide additional analytical data to the users of Hughes' financial information, supplemental data in the form of unaudited summary pro forma financial data are provided. Consistent with the basis on which earnings of Hughes available for the payment of dividends on the GM Class H common stock is determined, the pro forma data exclude purchase accounting adjustments related to General Motors' acquisition of Hughes Aircraft Company. Included in the supplemental data are certain financial ratios which provide measures of financial returns excluding the impact of purchase accounting adjustments. The pro forma data are not presented as a measure of GM's total return on its investment in Hughes. - 41 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------- -------- -------- -------- (Dollars in Millions Except Per Share Amounts) Total Revenues $4,112.7 $3,807.8 $13,006.5 $11,590.4 Total Costs and Expenses 3,755.7 3,425.9 11,513.3 10,243.1 ------- ------- -------- -------- Income before Income Taxes and Minority Interests 357.0 381.9 1,493.2 1,347.3 Income Taxes 112.8 144.7 498.1 508.4 Minority Interests in Net (Income) Losses of Subsidiaries (4.0) 14.8 21.7 31.4 ------ ------ -------- ------- Earnings Used for Computation of Available Separate Consolidated Net Income $240.2 $252.0 $1,016.8 $870.3 ===== ===== ======= ===== Earnings Per Share Attributable to General Motors Class H Common Stock $0.60 $0.63 $2.54 $2.18 ==== ==== ==== ==== PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET September 30, December 31, ASSETS 1997 1996 ------------ ------------ (Dollars in Millions) Total Current Assets $7,498.8 $6,758.4 Property - Net 2,934.0 2,886.6 Telecommunications and Other Equipment - Net 2,586.4 1,133.5 Intangible Assets, Investments, and Other Assets - Net 5,562.1 2,978.1 --------- --------- Total Assets $18,581.3 $13,756.6 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Total Current Liabilities $4,361.3 $4,199.6 Long-Term Debt and Capitalized Leases 2,836.1 34.5 Postretirement Benefits Other Than Pensions, Other Liabilities, Deferred Credits, Minority Interests and Redeemable Preferred Stock of Subsidiary 4,205.7 3,066.1 Total Stockholder's Equity ** 7,178.2 6,456.4 Total Liabilities and Stockholder's Equity ** $18,581.3 $13,756.6 Certain 1996 amounts have been reclassified to conform with the 1997 presentation. * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. ** GM's equity in its wholly-owned subsidiary, Hughes. Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). - 42 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* - Continued PRO FORMA SELECTED SEGMENT DATA Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1997 1996 1997 1996 ------ ------ ------- ------- (Dollars in Millions) Telecommunications and Space Revenues Amount $1,242.2 $988.5 $3,870.3 $2,862.1 As a percentage of Hughes Revenues 30.2% 26.0% 29.8% 24.7% Net Sales $1,249.9 $993.9 $3,407.0 $2,765.2 Operating Profit(1) $115.0 $62.0 $162.3 $193.5 Operating Profit Margin(2) 9.2% 6.2% 4.8% 7.0% Depreciation and Amortization(3) $79.0 $53.9 $196.2 $141.8 Capital Expenditures(4) $332.9 $109.3 $551.9 $344.9 Automotive Electronics Revenues Amount $1,209.5 $1,274.6 $4,116.6 $4,099.1 As a percentage of Hughes Revenues 29.4% 33.5% 31.6% 35.4% Net Sales $1,205.1 $1,267.6 $4,095.9 $4,068.0 Operating Profit(1) $95.9 $166.3 $375.9 $562.0 Operating Profit Margin(2) 8.0% 13.1% 9.2% 13.8% Depreciation and Amortization $58.1 $48.2 $169.9 $147.5 Capital Expenditures $36.9 $53.5 $109.2 $155.9 Aerospace And Defense Systems Revenues Amount $1,628.4 $1,524.5 $4,912.6 $4,546.7 As a percentage of Hughes Revenues 39.6% 40.0% 37.8% 39.2% Net Sales $1,624.8 $1,529.3 $4,904.7 $4,543.5 Operating Profit(1) $165.7 $167.1 $502.0 $486.4 Operating Profit Margin(2) 10.2% 10.9% 10.2% 10.7% Depreciation and Amortization(3) $39.5 $43.9 $116.0 $109.9 Capital Expenditures $28.5 $50.6 $96.6 $105.7 Corporate And Other Operating Profit (Loss)(1) $(0.8) $(6.1) $(0.5) $(17.0) Certain 1996 amounts have been reclassified to conform with the 1997 presentation. * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. (1) Net Sales less Total Costs and Expenses other than Interest Expense. (2) Operating Profit as a percentage of Net Sales. (3) Excludes amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company amounting to $5.3 million in each of the third quarters and $15.9 million in each of the nine-month periods for the Telecommunications and Space segment; and $25.2 million in each of the third quarters and $75.6 million in each of the nine-month periods for the Aerospace and Defense Systems segment. (4) Includes expenditures related to telecommunications and other equipment amounting to $280.6 million, $38.7 million, $410.2 million, and $142.6 million, respectively. - 43 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* - Concluded PRO FORMA SELECTED FINANCIAL DATA Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------- -------- ------- -------- (Dollars in Millions Except Per Share Amounts) Operating profit $375.8 $389.3 $1,039.7 $1,224.9 Income before income taxes and minority interests $357.0 $381.9 $1,493.2 $1,347.3 Earnings used for computation of available separate consolidated net income $240.2 $252.0 $1,016.8 $870.3 GM Class H dividend base shares (1) 399.9 399.9 399.9 399.9 Stockholder's Equity $7,178.2 $6,271.8 $7,178.2 $6,271.8 Dividends per share of GM Class H common stock $0.25 $0.24 $0.75 $0.72 Working capital $3,137.5 $3,017.7 $3,137.5 $3,017.7 Operating profit as a percent of net sales 9.1% 10.2% 8.3% 10.7% Income before income taxes and minority interests as a percent of net sales 8.7% 10.0% 11.9% 11.8% Net income as percent of net sales 5.8% 6.6% 8.1% 7.6% Certain 1996 amounts have been reclassified to conform with the 1997 presentation. * The summary excludes GM purchase accounting adjustments related to the acquisition of Hughes Aircraft Company. (1) GM Class H dividend base shares is used in calculating earnings per share attributable to GM Class H common stock. This is not the same as the average number of GM Class H shares outstanding, which was 102 million for the third quarter of 1997 and 98.8 million for the third quarter of 1996. * * * * * * - 44 - EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GENERAL MOTORS CORPORATION SEPTEMBER 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THIRD QUARTER 1997 FORM 10-Q. 0000040730 GENERAL MOTORS CORPORATION 1,000,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 10,406 10,490 66,189 0 12,820 0 79,807 41,287 233,135 0 90,914 222 1 1,190 22,387 233,135 114,267 129,277 95,522 104,559 159 396 4,469 7,595 2,675 4,961 0 0 0 4,961 6.35 0
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