-----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, M7exzMl7jGw3isp3wguAe6zME4Y5twmlspUNU6gLlf515cq7YEt0xnXdP4x5qtvh K12v3ltmhvOTXebRdv2Fcg== 0000040730-97-000017.txt : 19970520 0000040730-97-000017.hdr.sgml : 19970520 ACCESSION NUMBER: 0000040730-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: CSE SROS: NASD SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MOTORS CORP CENTRAL INDEX KEY: 0000040730 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380572515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00143 FILM NUMBER: 97608213 BUSINESS ADDRESS: STREET 1: 3044 WEST GRAND BLVD CITY: DETROIT STATE: MI ZIP: 48202-3091 BUSINESS PHONE: 3135565000 10-Q 1 FIRST PART OF 10-Q L:\secdraft\version3\mar_97.doc 3 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 March 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-143 GENERAL MOTORS CORPORATION (Exact name of registrant as specified in its charter) STATE OF DELAWARE 38-0572515 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Renaissance Center, Detroit, Michigan 48243-7301 3044 West Grand Boulevard, Detroit, Michigan 48202-3091 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (313) 556-5000 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 March 31, 1997, there were outstanding 729,110,513 shares of the issuer's $1-2/3 par value common stock and 100,903,169 shares of Class H $0.10 par value common stock. - 1 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES INDEX Page No. Part I - Financial Information (Unaudited) Item 1. Financial Statements Consolidated Statements of Income for the Three Months Ended March 31, 1997 and 1996 3 Consolidated Balance Sheets as of March 31, 1997, December 31, 1996 and March 31, 1996 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II - Other Information (Unaudited) Item 1. Legal Proceedings 23 Item 6. Exhibits and Reports on Form 8-K 25 Signature 25 Exhibit 11 Computation of Earnings Per Share Attributable to Common Stocks for the Three Months Ended March 31, 1997 and 1996 26 Exhibit 12 Computation of Ratios of Earnings to Fixed Charges for the Three Months Ended March 31, 1997 and 1996 28 Exhibit 99 Hughes Electronics Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 29 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 March 31, 1997 1996 (Dollars in Millions Except Per Share Amounts) Net sales and revenues Manufactured products $37,440 $34,658 Financial services 3,197 3,179 Other income (Note 4) 1,623 1,403 ------- ------- Total net sales and revenues 42,260 39,240 ------ ------ Costs and expenses Cost of sales and other operating charges, exclusive of items listed below 31,030 30,130 Selling, general, and administrative expenses 3,591 3,070 Depreciation and amortization expenses 3,065 2,972 Interest expense 1,461 1,421 Plant closing expense (Note 7) 80 - Other deductions (Note 4) 248 414 -------- -------- Total costs and expenses 39,475 38,007 ------ ------ Income from continuing operations before income taxes 2,785 1,233 Income taxes 989 433 ------ ------- Income from continuing operations 1,796 800 Income from discontinued operations (Note 3) - 219 --------- ------- Net income 1,796 1,019 Dividends on preference stocks 20 20 ------ ------- Earnings on common stocks $1,776 $999 ===== === Earnings attributable to common stocks (Note 10) $1-2/3 par value from continuing operations $1,717 $704 Income from discontinued operations - 10 ------- ---- Net earnings attributable to $1-2/3 par value $1,717 $714 ===== === Income from discontinued operations attributable to Class E - $209 ===== === Net earnings attributable to Class H $59 $76 == == Average number of shares of common stocks outstanding (in millions) $1-2/3 par value 747 755 Class E - 463 Class H 100 97 Earnings per share attributable to common stocks (Note 10) $1-2/3 par value from continuing operations $2.30 $0.93 Income from discontinued operations - 0.01 ------ ---- Net earnings attributable to $1-2/3 par value $2.30 $0.94 ==== ==== Income from discontinued operations attributable to Class E $ - $0.45 ==== ==== Net earnings attributable to Class H $0.59 $0.78 ==== ==== Cash dividends per share of common stocks $1-2/3 par value $0.50 $0.40 Class E $ - $0.15 Class H $0.25 $0.24 Reference should be made to the notes to consolidated financial statements. - 3 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, March 31, 1997 Dec. 31, 1996 (Unaudited) 1996 (Unaudited) (Dollars in Millions) ASSETS Cash and cash equivalents $10,061 $14,063 $7,901 Other marketable securities 10,168 8,199 5,419 ------ ------- ------- Total cash and marketable securities 20,229 22,262 13,320 Finance receivables - net 62,202 57,550 59,092 Accounts and notes receivable (less allowances) 6,976 6,557 6,663 Inventories (less allowances) (Note 5) 12,851 11,898 12,376 Net assets of discontinued operations - - 5,245 Contracts in process (less advances and progress payments) 2,661 2,507 2,709 Deferred income taxes 20,138 19,510 20,164 Equipment on operating leases (less accumulated depreciation) 30,127 30,112 27,771 Property Real estate, plants, and equipment 69,191 69,770 68,097 Less accumulated depreciation (41,037) (41,298) (41,252) ------ ------ ------ Net real estate, plants, and equipment 28,154 28,472 26,845 Special tools - net 8,850 9,032 8,294 ------- ------- ------- Total property 37,004 37,504 35,139 Intangible assets - net 12,737 12,691 10,295 Other assets - net 21,134 21,551 19,056 -------- -------- -------- Total assets $226,059 $222,142 $211,830 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable (principally trade) $14,014 $14,221 $11,515 Notes and loans payable 88,111 85,300 80,299 Deferred income taxes 4,119 3,207 3,117 Postretirement benefits other than pensions (Note 6) 43,607 43,190 42,015 Pensions 7,814 7,599 6,203 Other liabilities and deferred credits 45,589 45,207 44,659 -------- -------- -------- Total liabilities 203,254 198,724 187,808 Stockholders' equity Preference stocks 1 1 1 Common stocks $1-2/3 par value (Note 9; issued, 729,805,298; 756,619,625; and 756,621,525 shares) 1,216 1,261 1,261 Class E (Note 3; issued, 487,568,555 shares at March 31, 1996) - - 49 Class H (Note 2; issued, 101,108,669; 100,075,000; and 98,154,411 shares) 10 10 10 Capital surplus (principally additional paid-in capital) 17,689 19,189 19,114 Retained earnings 7,511 6,137 7,782 ------- ------- ------- Subtotal 26,427 26,598 28,217 Minimum pension liability adjustment (3,490) (3,490) (4,742) Accumulated foreign currency translation adjustments (475) (113) 118 Net unrealized gains on investments in certain debt and equity securities 343 423 429 ------- -------- -------- Total stockholders' equity 22,805 23,418 24,022 ------ ------ ------ Total liabilities and stockholders' equity $226,059 $222,142 $211,830 Reference should be made to the notes to consolidated financial statements. - 4 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 1997 1996 (Dollars in Millions) Net cash provided by operating activities $4,097 $941 ----- --- Cash flows from investing activities Expenditures for property (1,807) (2,098) Investments in other marketable securities - acquisitions (11,603) (5,107) Investments in other marketable securities - liquidations 10,107 5,220 Finance receivables - acquisitions (37,475) (39,145) Finance receivables - liquidations 26,848 33,812 Proceeds from sales of finance receivables 5,538 5,876 Operating leases - acquisitions (5,527) (4,201) Operating leases - liquidations 4,124 2,744 Other 512 359 ------ ------ Net cash used in investing activities (9,283) (2,540) ----- ----- Cash flows from financing activities Net increase (decrease) in loans payable 2,484 (2,343) Increase in long-term debt 4,207 4,307 Decrease in long-term debt (3,329) (2,823) Proceeds from issuing common stocks 206 190 Repurchases of common stocks (1,761) - Cash dividends paid to stockholders (422) (421) Proceeds from the sale of minority interest in DIRECTV(R) - 138 ----- ------ Net cash provided by (used in) financing activities 1,385 (952) ----- ------ Effect of exchange rate changes on cash and cash equivalents (201) (73) Net cash used in continuing operations (4,002) (2,624) Net cash provided by discontinued operations - 29 Net decrease in cash and cash equivalents (4,002) (2,595) Cash and cash equivalents at beginning of the period 14,063 10,496 Cash and cash equivalents at end of the period $10,061 $7,901 ====== ===== 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. 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. Note 2. Hughes Transactions On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. The transactions would include the tax-free spin-off of the Hughes defense business to holders of GM's $1-2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company. The spin-off will not be proposed in a manner that would result in the recapitalization of Class H common stock into $1-2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the GM Restated Certificate of Incorporation, as amended. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, GM's Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. No assurance can be given that the above transactions will be completed; however, management of GM and Hughes and GM's Board of Directors expect to solicit stockholders' approval of the planned transactions in late 1997, after certain conditions are satisfied. In September 1996, Hughes and PanAmSat Corporation entered into an agreement to merge their respective satellite service operations into a new publicly-held company. Hughes would contribute its Galaxy satellite services business in exchange for a 71.5% interest in the new company. Current PanAmSat stockholders would receive a 28.5% interest in the new company and $1.5 billion in cash. The transaction is expected to close during the second quarter of 1997. Note 3. EDS Split-Off On June 7, 1996, GM split-off Electronic Data Systems Corporation (EDS) to former GM Class E stockholders on a tax-free basis for U.S. federal income tax purposes. The financial data related to EDS for the 1996 first quarter are classified as discontinued operations. The GM unaudited consolidated financial statements for 1997 exclude the assets, liabilities and operating results of EDS. EDS systems and other contracts revenues from outside customers included in income from discontinued operations totaled $2,405 million for the three month period ended March 31, 1996. Income from discontinued operations of $219 million for the three month period ended March 31, 1996 is reported net of income tax expense of $123 million. - 6 - 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 March 31, 1997 1996 Other income Nonfinancing interest $466 $373 Insurance premiums 255 243 Claims and commissions 121 195 Income from sales of receivables programs 128 128 Mortgage servicing and processing fees 171 106 Insurance capital and investment gains 137 76 Mortgage investment and other income 130 83 VW Settlement (1) 88 - Gain on sale of interest in DIRECTV(R)(2) - 120 Equity in net earnings of associates 23 43 Other 104 36 ----- ------ Total other income $1,623 $1,403 ===== ===== Other deductions Provision for financing losses $130 $155 Insurance losses and loss adjustment expenses 139 143 Other (21) 116 ---- --- Total other deductions $248 $414 === === (1) During 1997, 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, after deducting certain legal expenses ($55 million after-tax or $0.07 per share of $1-2/3 par value common stock). (2) During 1996, 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): March 31, Dec. 31, March 31, 1997 1996 1996 Productive material, work in process, and supplies $6,801 $6,590 $7,147 Finished product, service parts, etc. 6,050 5,308 5,229 ------- ------- ------- Total inventories (less allowances) $12,851 $11,898 $12,376 ====== ====== ====== Note 6. Postretirement Benefits Other Than Pensions GM has disclosed in the consolidated financial statements certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as "accumulated postretirement benefit obligations," "liabilities," or "obligations." Notwithstanding the recording of such amounts and the use of these terms, GM does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of GM (other than pensions) represent legally enforceable liabilities of GM. Note 7. Plant Closings and Restructuring GM previously recorded charges to realign its North American plant capacity and to provide for a reduction of Hughes' worldwide employment, a major facilities consolidation, and a reevaluation of certain non-strategic businesses. The following table summarizes the activity in the GM plant closings (excluding environmental) and Hughes restructuring reserves for the period from January 1, 1997 to March 31, 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 ===== - 7 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Note 7. Plant Closings and Restructuring (concluded) Separate from the plant closings reserve, during the first quarter of 1997 GM recorded a pre-tax plant closing charge of $80 million ($50 million after-tax or $0.07 per share of $1-2/3 par value common stock) to provide for postemployment benefit costs of $34 million, asset writedowns, including costs of disposal, of $21 million, environmental clean-up costs of $19 million, and other costs of $6 million to be incurred in connection with the decision to cease production at Delphi Interior and Lighting Systems' Trenton, N.J. plant during the 1998 calendar year. 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 affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the Court of Appeals for the Federal Circuit for a rehearing. That petition was denied in October 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 a separate patent matter, remanded Hughes' suit over the Williams Patent back to the Court of Appeals along with patent cases involving other parties then pending before the U. S. Supreme Court, in order to have the Court of Appeals determine whether the results of prior proceedings in those cases are consistent with the U.S. Supreme Court's recent decision in such other matter. 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 by the Court of Appeals. 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 General Motors 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 March 31,1997. After discussion with counsel, it is the opinion of management that such liability is not expected to have a material adverse effect on the Corporation's consolidated operations or financial position. Note 9. Common Stock Repurchases During the first quarter of 1997, GM used approximately $1.6 billion to acquire more than 27 million shares of GM $1-2/3 par value common stock under the Corporation's $2.5 billion stock repurchase program announced in January 1997. GM also used approximately $200 million to repurchase shares of $1-2/3 par value common stock for certain employee benefit plans. 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 Statement of Financial Accounting Standards (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. - 8 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded (Unaudited) Note 10. Earnings Per Share Attributable to Common Stocks (concluded) 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 (100 million during the first quarter of 1997) and the denominator of which was 400 million during the first quarter of 1997. The comparable numerator and denominator for the first quarter of 1996 was 97 million and 400 million, respectively. During the time that EDS was an indirect wholly-owned subsidiary of the Corporation, net earnings attributable to Class E common stock for the period represented the ASCNI of EDS for such period. The ASCNI of EDS for any quarterly period represented the separate consolidated net income of EDS for such period, excluding the effects of purchase accounting adjustments relating to the Corporation's acquisition of EDS, calculated for each such quarterly period and multiplied by a fraction, the numerator of which represented the weighted average number of shares of Class E common stock outstanding during the period (463 million for the first quarter of 1996) and the denominator of which was 484 million for the first quarter of 1996. * * * * * * - 9 - 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 March 31, 1997, included as Exhibit 99 to this GM 1997 Quarterly Report on Form 10-Q for the period ended March 31, 1997, and the GMAC Quarterly Report on Form 10-Q for the period ended March 31, 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 March 31, 1997 1996 (Dollars in Millions) Net sales and revenues $24,859 $21,683 ------ ------ Pre-tax income (loss) 1,127 (517) Income taxes (benefit) 378 (222) Earnings of nonconsolidated affiliates 15 16 ---- ---- Net income (loss) $764 $(279) === === Net profit (loss) margin (1) 3.1% (1.3)% (1) Net profit (loss) margin represents net income (loss) as a percentage of net sales and revenues. Vehicle Unit Deliveries of Cars and Trucks - GM-NAO Three Months Ended March 31, 1997 1996 GM as GM as a % of a % of Industry GM Industry Industry GM Industry (Units in Thousands) United States Cars 2,026 639 31.5% 2,050 661 32.2% Trucks 1,693 484 28.6% 1,643 491 29.9% ----- ----- ----- ------ Total United States 3,719 1,123 30.2% 3,693 1,152 31.2% Canada and Mexico 383 121 31.6% 329 103 31.3% ------ ------ ------ ------ Total North America 4,102 1,244 30.3% 4,022 1,255 31.2% ===== ===== ===== ===== Wholesale Sales - GM-NAO Cars 786 657 Trucks 616 509 ------ ------ Total 1,402 1,166 ===== ===== - 10 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM-NAO Financial Review GM-NAO reported net income of $764 million for the 1997 first quarter compared with a net loss of $279 million in the prior year quarter. The 1996 first quarter results included a $750 million after-tax unfavorable impact from the 17 day work stoppages at two component plants in Dayton, Ohio that temporarily shutdown 26 of 29 GM assembly plants in North America and certain automotive component plants. Excluding the effect of these work stoppages, GM-NAO's wholesale sales volume was essentially unchanged at approximately 1.4 million units while net income increased by $293 million or 62.2% in the 1997 first quarter compared with the 1996 first quarter. The improvement in 1997 first quarter net income was primarily due to the introduction of many new models into the marketplace that are less costly to produce than those they replaced, continued material cost reductions, and production efficiencies. Net sales and revenues for the 1997 first quarter were $24.9 billion, which represented an increase of approximately $3.2 billion or 14.6% compared with the prior year quarter. The increase in net sales and revenues resulted from a 236,000 unit increase in wholesale sales, which primarily reflected low wholesale sales volume in 1996 due to the 17 day work stoppages and the lower 1996 production necessary to balance U.S. vehicle inventories prior to the work stoppages. While sales of new models are gaining strong consumer acceptance, 1997 first quarter wholesale sales volumes were somewhat constrained by restricted availability of certain new models that are early in the launch cycle. Pre-tax income in the first quarter of 1997 increased by $1.6 billion compared with the prior year quarter primarily due to increased wholesale sales and lower manufacturing costs. Partially offsetting this increase were higher retail incentives of $860 per unit in the 1997 first quarter compared with $598 per unit in the prior year quarter combined with increased commercial spending to support the numerous new vehicle launches in this increasingly competitive market. GM vehicle deliveries in North America were 1,244,000 units, which represented a market share of 30.3% in the 1997 first quarter compared with 31.2% in the prior year quarter. Local union members in Oklahoma City, Oklahoma, and Pontiac, Michigan, ceased production at two assembly plants on April 4 and April 22, 1997, respectively, where new local union agreements have not been completed. GM is seeking to resolve the issues which have created the work stoppages, the timing of which is uncertain. To the extent that work stoppages disrupt the production and shipment of vehicles, the resulting deferral or decline in revenues will have a continuing impact on GM's results of operations. GM estimates that as of May 15, 1997, the current work stoppages have resulted in a loss of 54,000 units of production with the related combined cost for GM-NAO, Delphi, and the Delco Electronics unit of Hughes totaling approximately $225 million after taxes or $0.31 per share of $1-2/3 par value common stock. These estimated costs do not consider the effect of recoveries that may occur through production increases that GM is likely to pursue in future periods. The extent of such recoveries may be substantial depending on the timeliness of the resolutions of these work stoppages. - 11 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Delphi Financial Highlights Three Months Ended March 31, 1997 1996 (Dollars in Millions) Net sales and revenues $6,664 $6,189 ----- ----- Pre-tax income 238 122 Income taxes 72 47 Earnings of nonconsolidated affiliates 14 4 ---- --- Net income $180 $79 === == Net profit margin (1) 2.7% 1.3% (1) Net profit margin represents net income as a percentage of net sales and revenues. Delphi Financial Review Delphi reported net income of $180 million for the 1997 first quarter compared with $79 million in the prior year quarter. The first quarter 1997 results included a plant closing charge of $50 million after-tax or $0.07 per share of $1-2/3 par value common stock ($80 million pre-tax), related to the announcement that Delphi Interior and Lighting Systems will cease production at its Trenton, N.J. plant during the 1998 calendar year. The 1996 first quarter net income included a $120 million unfavorable after-tax impact from the 17 day work stoppages previously discussed. Net sales and revenues for the 1997 first quarter were $6.7 billion, which represented an increase of $475 million or 7.7% compared with the prior year quarter. Including total sales from nonconsolidated joint ventures, Delphi's 1997 first quarter sales to customers outside the GM-NAO vehicle groups increased compared to the 1996 first quarter and represented approximately 35% of total sales. Pre-tax income in the first quarter of 1997 increased by $116 million compared with the prior year quarter primarily due to higher production volume at GM-NAO and lower material costs. Reduced manufacturing costs, due in part to the sale of four Delphi plants in 1996, also contributed to the increase in pre-tax income and to the net profit margin more than doubling to 2.7% for the 1997 first quarter compared with 1.3% in the prior year quarter. On January 16, 1997, GM and Hughes announced a series of planned transactions that would include the transfer of Delco Electronics from Hughes to GM's Delphi unit. See the Hughes Transactions section on page 19 for additional information. Currently, Delphi is the principal supplier of automotive components and systems to GM-NAO. Delphi's sales of automotive components and systems today is highly dependent on GM production of vehicles in North America, the level of Delphi-supplied content per GM-NAO vehicle, the price of such automotive components and systems, and the competitiveness of Delphi's product offerings. Delphi's strategy is to minimize its dependence on GM-NAO sales by growing its automotive component and systems sales globally and by expanding its non-GM-NAO sales base in North America. The global automotive component and systems market is also highly competitive which has led Delphi to refine its strategy to focus on profitable growth, as well as increased market share through technology leadership, quality, cost control and responsiveness. - 12 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMIO Financial Highlights Three Months Ended March 31, 1997 1996 (Dollars in Millions) Net sales and revenues $8,283 $8,997 ----- ----- Pre-tax income 476 577 Income taxes 164 170 Earnings of nonconsolidated affiliates 5 25 ----- ----- Net income GM Europe 149 285 Other International 168 147 --- --- Total net income $317 $432 === === Net profit margin (1) 3.8% 4.8% (1) Net profit margin represents total net income as a percentage of net sales and revenues. Vehicle Unit Deliveries of Cars and Trucks - GMIO Three Months Ended March 31, 1997 1996 GM as GM as a % of a % of Industry GM Industry Industry GM Industry (Units in Thousands) International Europe 4,496 466 10.4% 4,497 489 10.9% Latin America, Africa, and the Middle East 1,013 162 16.0% 932 160 17.1% Asia and Pacific 3,826 4.2% 3,599 158 4.4% ----- --- ----- --- Total International 9,335 788 8.4% 9,028 807 8.9% ===== === ===== === Wholesale Sales - GMIO Cars 554 588 Trucks 229 204 --- --- Total 783 792 === === GMIO Financial Review GMIO's 1997 first quarter net income was $317 million or 3.8% of net sales and revenues compared with $432 million or 4.8% of net sales and revenues in the prior year quarter. The decrease in 1997 first quarter net income was primarily due to lower net income for GM Europe (GME). Net sales and revenues for the 1997 first quarter decreased by 7.9% to $8.3 billion compared with $9 billion in the prior year quarter, while pre-tax income was $476 million in the first quarter of 1997 compared with $577 million in the prior year quarter. The decreases in net sales and revenues and pre-tax income were primarily due to lower wholesale sales volumes in the intensely competitive European market, partially offset by higher wholesale sales in Latin America. Net income for GME totaled $149 million in the 1997 first quarter, including a $55 million after-tax gain related to a settlement agreement with Volkswagen A.G.(VW), compared with $285 million in the prior year quarter. The lower 1997 first quarter net income was due to lower net sales and revenues and higher sales incentives across Europe. Lower earnings from nonconsolidated affiliates also contributed to the decrease in 1997 first quarter net income, which included increased engineering and commercial expenses at Saab related to the launch of the all-new 9-5 models in Europe later in 1997. Net income from the remainder of GMIO's operations, which include the Latin American and Asia and Pacific Operations, totaled $168 million in the first quarter of 1997 compared with $147 million in the prior year quarter. The increased 1997 first quarter net income resulted from higher wholesale sales volumes in Latin America. During the first quarter of 1997, GM and Shanghai Automotive Industry Corp. signed joint venture contracts to manufacture 100,000 Buicks annually in China. GM also announced plans to construct a third assembly facility in Brazil to capitalize on volume growth in Latin American markets. - 13 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES General Motors Acceptance Corporation (GMAC) Financial Highlights Three Months Ended March 31, 1997 1996 (Dollars in Millions) Financing revenue Retail and lease financing $940 $958 Operating leases 1,801 1,738 Wholesale and term loans 434 483 ------ ----- Total financing revenue 3,175 3,179 Interest and discount 1,266 1,239 Depreciation on operating leases 1,158 1,151 ----- ----- Net financing revenue 751 789 Other income and insurance premiums earned 932 744 ------ ------ Net financing revenue and other 1,683 1,533 Expenses 1,052 1,026 ----- ----- Pre-tax income 631 507 Income taxes 259 198 --- --- Net income $372 $309 === === Net income from financing operations (1) $294 $272 Net income from insurance operations 78 37 ---- ---- Net income $372 $309 === === Average earning assets $97,753 $92,367 Return on average equity (2) 17.8% 14.8% (1) Includes GMAC Mortgage Group, Inc. (GMACMG). (2) Return on average equity represents net income as a percentage of average stockholder's equity outstanding for each month in the period. - 14 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMAC Financial Review GMAC's consolidated first quarter net income for 1997 totaled $372 million, a 20% increase over the first quarter of 1996. Higher earnings from mortgage operations and continued strong net interest margins in the U.S. and Canada were the major contributors to the 8% increase in net income from financing operations over comparable 1996 results. Net income from insurance operations totaled $78 million in the first quarter of 1997 compared with $37 million for the first quarter of 1996. The 110% improvement over last year was predominantly attributable to a significant increase in realized capital gains. Earnings from insurance operations also benefited from improved underwriting results from multiple product lines. During the three months ended March 31, 1997, GMAC financed 32.1% of new GM vehicle retail deliveries in the U.S., up from 30.9% during the same period last year. Retail financing rate incentives sponsored by GM were the primary contributors to the higher penetration of retail financing over the prior year period. In the United States, wholesale inventory financing was provided on 841,000 and 720,000 new GM vehicles, representing 67.9% and 69.5% of GM sales to dealers during the first quarter of 1997 and 1996, respectively. During the first quarter of 1996, U.S. wholesale unit financing was reduced by a temporary interruption of GM North American vehicle production during the latter half of March 1996, which resulted from parts shortages caused by the 17 day work stoppages previously discussed. The decline in U.S. wholesale financing market share reflects the continued competitive pressures in this market segment. Total financing revenue for the first quarter of 1997 totaled $3.2 billion, a slight decline of $4 million compared with the first quarter of 1996. Lower revenues for retail and wholesale financing were substantially offset by higher income from operating leases in the U.S. and Canada. Other income and insurance premiums earned totaled $932 million and $744 million for the quarters ended March 31, 1997 and 1996, respectively. The 25% improvement was predominantly attributable to higher revenues from mortgage operations and an increase in realized capital gains from insurance operations. GMAC's worldwide cost of borrowing for the first quarter of 1997 averaged 6.27%, a decrease of 47 basis points from the first quarter of 1996. Total borrowing costs for U.S. operations averaged 6.31% for the first quarter of 1997 compared with 6.64% for the same period in 1996. The improvements over the first quarter of 1996 were attributable to a greater proportion of floating rate debt during 1997. As a result of the lower borrowing costs substantially offsetting the effect of a 10% increase in average borrowings, interest and discount expense approximated $1.3 billion for the first quarter of 1997, only 2% higher than the first quarter of 1996. Expenses for the first quarter of 1997 approximated $1.1 billion, a 3% increase over the first quarter of 1996. The higher costs were primarily attributable to increased business activities associated with growth of the mortgage operations, which were partially offset by favorable reductions in the provision for financing losses and insurance losses and loss adjustment expenses. - 15 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Hughes Financial Highlights Three Months Ended March 31, 1997 1996 (Dollars in Millions Except Per Share Amounts) Net sales Outside customers $2,766 $2,439 GM and affiliates 1,363 1,175 ----- ----- Total net sales 4,129 3,614 Other income-net 24 123 ------ ------ Total revenues 4,153 3,737 ----- ----- Pre-tax income 315 472 Income taxes 110 191 --- --- Net income $205 $281 === === Earnings Used for Computation of Available Separate Consolidated Net Income (1) $235 $312 Net earnings attributable to Class H common stock on a per share basis $0.59 $0.78 Cash dividends per share of Class H common stock $0.25 $0.24 (1) Excludes amortization of GM purchase accounting adjustments of $31 million for the first quarters of 1997 and 1996 related to GM's acquisition of Hughes Aircraft Company. Segment Highlights Three Months Ended March 31, 1997 1996 (Dollars in Millions) Telecommunications and Space Revenues $1,023 $936 Net sales $1,019 $821 Operating profit (1) $7 $75 Operating profit margin (2) 0.7% 9.1% Automotive Electronics Revenues $1,447 $1,272 Net sales $1,434 $1,260 Operating profit (1) $146 $159 Operating profit margin (2) 10.2% 12.6% Aerospace and Defense Systems Revenues $1,647 $1,512 Net sales $1,645 $1,502 Operating profit (1) $173 $158 Operating profit margin (2) 10.5% 10.5% (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. - 16 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Hughes Financial Review Hughes Electronics reported net income of $205 million for the first quarter of 1997 compared with $281 million for the first 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 $235 million for the first quarter of 1997 compared with $312 million for the same period in 1996. Excluding the 1996 first quarter $72 million after-tax gain ($0.18 per share) from the sale of a 2.5% equity interest in DIRECTV(R) to AT&T, earnings for the first quarter of 1997 decreased 2.0% from the $240 million reported in the same period in 1996, or $0.01 per share from $0.60 per share. The decline was principally due to lower operating profit in the Telecommunications and Space and Automotive Electronics segments, offset in part by the favorable impact of a lower effective tax rate in the quarter. First quarter revenues increased 11.1% between 1996 and 1997, due to revenue increases in each of Hughes' three business segments. The 25.4% increase in revenues in the Telecommunications and Space segment, excluding the $120 million pre-tax gain recognized from the sale of 2.5% of DIRECTV to AT&T, was due to continued expansion of the DIRECTV subscriber base in the United States and Latin and South America, and increased sales of commercial and government satellites which more than offset the impact from lower Galaxy transponder sales. The 13.8% increase in revenues for the Automotive Electronics segment was principally due to a 20.5% increase in GM vehicles produced in the United States and Canada (excluding joint ventures) and a 12.2% increase in international and non-GM sales, partially offset by a 5.9% decline in Delco-supplied electronic content. Last year's first quarter performance was negatively impacted by the 17 day work stoppages previously discussed. The 8.9% increase in revenues from the Aerospace and Defense Systems segment was principally due to additional revenues resulting from the build-up of newer programs, particularly information systems and services programs such as Desktop V, Wide Area Augmentation System, and Hughes Air Warfare Center. Operating profit, excluding amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company, declined 15.7% between the first quarter of 1996 and the first quarter of 1997. The operating profit margin on the same basis was 7.9% for the first quarter of 1997 compared with 10.7% for the same period in 1996. The decreases were primarily a result of lower Galaxy transponder sales, start-up operating losses from the Company's Latin and South American DIRECTV subsidiary, Galaxy Latin America, increased expenses resulting from the change in the amortization period for certain DIRECTV subscriber acquisition costs, and price reductions in the Automotive Electronics segment resulting from competitive pricing in connection with GM's global sourcing initiative. On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. See the Hughes Transactions section on page 19 for additional information regarding the planned transactions. - 17 - 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 March 31, 1997 1996 (Dollars in Millions) Net sales and revenues $37,457 $34,672 ------ ------ Costs and expenses Cost of sales and other operating charges, exclusive of items listed below 31,024 30,123 Selling, general, and administrative expenses 2,884 2,448 Depreciation and amortization expenses 1,879 1,788 Plant closing expense 80 - -------- ---------- Total costs and expenses 35,867 34,359 ------ ------ Operating income 1,590 313 Other income less income deductions 758 567 Interest expense 219 196 ----- ------ Income from continuing operations before income t 2,129 684 Income taxes 730 235 ------ ------ Income from continuing operations before earnings of nonconsolidated affiliates 1,399 449 Earnings of nonconsolidated affiliates 397 351 ------ ------ Income from continuing operations 1,796 800 Income from discontinued operations - 219 -------- ------ Net income $1,796 $1,019 ===== ===== Net profit margin (1) 4.8% 2.3% (1) Net profit margin represents income from continuing operations as a percentage of net sales and revenues. Results of Operations With Financing and Insurance Operations on an Equity Basis In the first quarter of 1997, GM's income from continuing operations totaled $1.8 billion or $2.30 per share of $1-2/3 par value common stock, which represented an increase of $1 billion compared with $800 million or $0.93 per share of $1-2/3 par value common stock in the first quarter of 1996. GM's 1996 first quarter income from continuing operations included a $900 million after-tax unfavorable impact from the 17 day work stoppages previously discussed. Highlights of first quarter financial performance by GM's major business sectors were as follows (in millions): Three Months Ended March 31, 1997 1996 GM-NAO $764 $(279) Delphi 180 79 GMIO 317 432 GMAC 372 309 Hughes 235 312 Other (72) (53) Income from continuing operations $1,796 $800 ===== === - 18 - 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-NAO, Delphi, GMIO, GMAC, and Hughes Financial Reviews that are presented on pages 10 through 17 and incorporated by reference to supplement the information presented herein. First quarter 1997 net sales and revenues were $37.5 billion, which represented an increase of $2.8 billion compared with the prior year quarter. The increase in net sales and revenues was primarily due to higher wholesale sales in North America and Latin America, and the continued growth of Delphi and the three Hughes business segments. The gross margin percentage for the 1997 first quarter was 17.2% compared with 13.1% in the prior year quarter. The 4.1% improvement in the gross margin resulted from increased wholesale sales and favorable product mix, production of more cost efficient new models, lower material costs, and manufacturing and engineering efficiencies. Selling, general, and administrative expenses increased to $2.9 billion in the first quarter of 1997 compared with $2.4 billion in the prior year quarter primarily due to higher consumer influence spending associated with the launches of new vehicles and continued efforts to grow the business in all of GM's business sectors. Depreciation and amortization expenses increased in connection with expenditures for production and quality improvements worldwide. The first quarter 1997 results included a pre-tax plant closing charge of $80 million related to the announcement that Delphi Interior and Lighting Systems will cease production at its Trenton, N.J. plant during the 1998 calendar year. Additional information regarding the 1997 plant closing charge is contained in Note 7 to the unaudited GM consolidated financial statements. Other income less income deductions amounted to $758 million for the 1997 first quarter compared with $567 million in the prior year quarter. The increase of $191 million was primarily due to favorable settlements of legal claims and higher interest income during the 1997 first quarter. The 1997 first quarter included a $88 million pre-tax gain, after deducting certain legal expenses, that resulted from an agreement with VW settling a civil lawsuit which GM brought against VW. The 1996 first quarter amount included a $120 million pre-tax gain associated with the sale of a 2.5% equity interest in DIRECTV to AT&T. GM completed the split-off of Electronic Data Systems Corporation (EDS) on June 7, 1996, and accordingly, the 1996 first quarter financial results of EDS have been reported as discontinued operations. GM's 1996 first quarter net income, which included income from discontinued operations of $219 million, totaled $1 billion or $0.94 per share of $1-2/3 par value common stock. Hughes Transactions On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. The transactions would include the tax-free spin-off of the Hughes defense business to holders of GM's $1-2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company. The spin-off will not be proposed in a manner that would result in the recapitalization of Class H common stock into $1-2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the GM Restated Certificate of Incorporation, as amended. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, GM's Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. No assurance can be given that the above transactions will be completed; however, management of GM and Hughes and GM's Board of Directors expect to solicit stockholders' approval of the planned transactions in late 1997, after certain conditions are satisfied. In September 1996, Hughes and PanAmSat Corporation entered into an agreement to merge their respective satellite service operations into a new publicly-held company. Hughes would contribute its Galaxy satellite services business in exchange for a 71.5% interest in the new company. Current PanAmSat stockholders would receive a 28.5% interest in the new company and $1.5 billion in cash. The transaction is expected to close during the second quarter of 1997. - 19 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets With Financing and Insurance Operations on an Equity Basis (Unaudited) March 31, Dec. 31, March 31, 1997 1996 1996 (Dollars in Millions) ASSETS Cash and cash equivalents $9,395 $13,320 $6,539 Other marketable securities 5,233 3,642 1,100 ------- ------- ----- Total cash and marketable securities 14,628 16,962 7,639 Accounts and notes receivable (less allowances) Trade 5,507 4,909 5,290 Nonconsolidated affiliates 1,844 927 2,077 Inventories (less allowances) 12,851 11,898 12,376 Net assets of discontinued operations - - 5,245 Contracts in process - net 2,661 2,507 2,709 Net equipment on operating leases 4,187 3,918 3,909 Deferred income taxes and other 3,483 3,141 5,481 ------- ------- ------ Total current assets 45,161 44,262 44,726 Equity in net assets of nonconsolidated affiliates 9,696 9,855 9,669 Deferred income taxes 20,354 20,075 17,737 Other investments and miscellaneous assets 11,594 11,391 11,844 Property - net 36,634 37,156 35,005 Intangible assets - net 12,573 12,523 10,129 -------- -------- -------- Total assets $136,012 $135,262 $129,110 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $11,379 $11,527 $9,123 Loans payable 1,306 1,214 1,779 Accrued liabilities and customer deposits 30,168 29,822 27,569 ------ ------ ------ Total current liabilities 42,853 42,563 38,471 Long-term debt 5,316 5,192 4,510 Capitalized leases 191 198 163 Postretirement benefits other than pensions40,988 40,578 39,410 Pensions 6,183 5,966 5,102 Other liabilities and deferred income taxes15,956 15,742 15,829 Deferred credits 1,720 1,605 1,603 --------- --------- --------- Total liabilities 113,207 111,844 105,088 ------- ------- ------- Stockholders' equity 22,805 23,418 24,022 -------- -------- -------- Total liabilities and stockholders' equity $136,012 $135,262 $129,110 ======= ======= ======= Liquidity and Capital Resources With Financing and Insurance Operations on an Equity Basis GM's cash and marketable securities totaled $14.6 billion at March 31, 1997, compared with $17 billion at December 31, 1996 and $7.6 billion at March 31, 1996. The decrease in cash and marketable securities from December 31, 1996 was primarily due to approximately $1.6 billion of cash used to acquire over 27 million shares of $1-2/3 par value common stock under the stock repurchase program announced in January 1997. The increase in accounts and notes receivable from December 31, 1996 primarily reflected low receivable balances at the 1996 year end due to the seasonal nature of the business. During the first quarter of 1997, loans payable and long-term debt increased by $216 million to $6.6 billion at March 31, 1997 from a balance of $6.4 billion at December 31, 1996. The increase was primarily due to increased funding for Hughes and other worldwide growth initiatives. Net liquidity, calculated as cash and marketable securities less the total of loans payable, long-term debt and capitalized leases was $7.8 billion at March 31, 1997, compared with $10.4 billion at December 31, 1996 and $1.2 billion at March 31, 1996. Book value per share of $1-2/3 par value common stock increased to $28.10 at March 31, 1997, from $27.95 at December 31, 1996. Book value per share of Class H common stock increased to $14.05 at March 31, 1997, from $13.97 at December 31, 1996. - 20 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Liquidity and Capital Resources for GMAC At March 31, 1997, GMAC owned assets and serviced automotive receivables totaling $109.4 billion, which was $1.3 billion and $5.0 billion higher than at December 31 and March 31, 1996, respectively. Earning assets totaled $99.5 billion at March 31, 1997 compared with $95.7 billion and $91.7 billion at December 31 and March 31, 1996, respectively. The increase since year-end 1996 was primarily attributable to higher outstanding balances for wholesale receivables. The greater asset levels over March 31, 1996 resulted principally from increased wholesale finance receivables, operating lease assets and real estate mortgages. As of March 31, 1997, GMAC's total borrowings were $81.3 billion, compared with $78.7 billion and $74.0 billion at December 31 and March 31, 1996, respectively. The increased debt levels were used to fund increased earning asset levels. GMAC's ratio of debt to total stockholder's equity at March 31, 1997 was 9.9:1 compared with 9.5:1 at December 31, 1996 and 8.9:1 at March 31, 1996. GMAC maintains and has access to substantial bank credit facilities which totaled $40.0 billion at March 31, 1997, compared with $40.7 billion at year-end 1996 and $40.4 billion at March 31, 1996. The unused portion of these credit facilities totaled $31.3 billion at March 31, 1997, compared with $30.6 billion and $31.6 billion at December 31 and March 31, 1996, respectively. Condensed Consolidated Statements of Cash Flows With Financing and Insurance Operations on an Equity Basis (Unaudited) Three Months Ended March 31, 1997 1996 (Dollars in Millions) Net cash provided by (used in) operating activities $1,808 $(998) ----- ---- Cash flows from investing activities Expenditures for property (1,724) (2,054) Investments in other marketable securities - acquisitions (6,199) (2,219) Investments in other marketable securities - liquidations 4,608 2,313 Operating leases - acquisitions (1,352) (1,002) Operating leases - liquidations 1,001 1,500 Other (104) 106 ------ ------ Net cash used in investing activities (3,770) (1,356) ----- ------ Cash flows from financing activities Net increase (decrease) in loans payable 93 (407) Increase in long-term debt 154 962 Decrease in long-term debt (30) (570) Proceeds from issuing common stocks 206 190 Proceeds from sale of minority interest in DIRECTV - 138 Repurchases of common stocks (1,761) - Cash dividends paid to stockholders (422) (421) ------ --- Net cash used in financing activities (1,760) (108) ----- ---- Effect of exchange rate changes on cash and cash equivalents (203) (75) Net cash used in continuing operations (3,925) (2,537) Net cash provided by discontinued operations - 29 Net decrease in cash and cash equivalents (3,925) (2,508) Cash and cash equivalents at beginning of the period 13,320 9,047 Cash and cash equivalents at end of the period $9,395 $6,539 Cash Flows With Financing and Insurance Operations on an Equity Basis Net cash provided by operating activities was $1.8 billion for the 1997 first quarter compared with net cash used in operating activities of $1 billion in the prior year quarter. The increase of $2.8 billion in cash provided by operating activities was primarily the result of higher net income, an increase in cash from changes in other operating assets and liabilities, and lower pension contributions in the 1997 first quarter compared with the 1996 first quarter. Net cash used in investing activities amounted to $3.8 billion in the 1997 first quarter compared with $1.4 billion in the prior year quarter. The increase in net cash used in investing activities during the 1997 first quarter was primarily attributable to a $1.7 billion net increase in investments in marketable securities combined with a $849 million net increase in cash used for operating leases. - 21 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Cash Flows With Financing and Insurance Operations on an Equity Basis (concluded) Net cash used in financing activities totaled $1.8 billion for the first quarter of 1997 compared with $108 million for the prior year quarter. The increase was primarily due to approximately $1.6 billion of cash used to acquire over 27 million shares of $1-2/3 par value common stock under the stock repurchase program. A first quarter cash dividend on $1-2/3 par value common stock of $0.50 per share was paid on March 10, 1997. On May 5, 1997, the Board of Directors declared a cash dividend on $1-2/3 par value common stock of $0.50 per share for the second quarter of 1997 payable June 10, 1997. This dividend declaration raises cash dividends in the first six months of 1997 to $1.00 per share compared with $0.80 per share in the same 1996 period. A first quarter cash dividend on Class H common stock of $0.25 per share was paid on March 10, 1997. On May 5, 1997, the GM Board of Directors also declared a cash dividend of $0.25 per share on Class H common stock payable June 10, 1997. This continues the level established in the first quarter of 1997 and raises cash dividends in the first six months of 1997 to $0.50 per share compared with $0.48 per share in the same 1996 period. Cash Flows for GMAC Cash provided by operating activities totaled $2.9 billion and $1.9 billion during the three months ended March 31, 1997 and 1996, respectively. The increase in cash generated by operating activities was predominantly attributable to higher amounts due to GM for vehicle shipments to dealers under GMAC wholesale finance agreements. Cash used for investing activities during the first quarter of 1997 totaled $5.8 billion, a $4.9 billion increase over the same period in 1996, as a result of lower liquidations of finance receivables. During the latter half of March 1996, vehicle production was temporarily suspended due to the work stoppages previously discussed, which resulted in the lower amount due to GM at March 31, 1996 as well as the reduced wholesale acquisitions during the first quarter of 1996. Cash provided by financing activities during the three months ended March 31, 1997 totaled $2.8 billion, compared with $1.1 billion used in financing activities during the quarter ended March 31, 1996. Net changes in debt during the respective quarters were the predominant contributors to the $3.9 billion increase over last year. Pensions Under SFAS No. 87, Employers' Accounting for Pensions, changes in interest rates on long-term, high quality corporate bonds, the actual return on pension investments and various other factors would affect the unfunded pension obligation, minimum pension liability adjustment to stockholders' equity, and 1998 pension expense. General Motors' unfunded pension obligation, minimum pension liability adjustment to stockholders' equity, and 1998 pension expense could be unfavorably impacted should lower than expected asset returns continue through the remainder of the year. Conversely, year-to-year changes in the rate of interest on long term, high quality corporate bonds would necessitate a change in the discount rate used to calculate the actuarial present value of pension plan obligations under SFAS No. 87. General Motors' unfunded pension obligation, minimum pension liability adjustment to stockholders' equity, and 1998 pension expense could be favorably impacted should the 1997 year-end interest rates stabilize at the March 31, 1997 levels. Security Ratings On April 24, 1997, Standard and Poor's Ratings Services, a division of McGraw-Hill Companies, Inc. (S&P), affirmed its security ratings of GM, GMAC, and various overseas affiliates of GMAC. S&P also revised the ratings outlook from stable to positive based on GM's generation of very strong overall earnings and cash flows over the past three years, which S&P indicated reflects the effectiveness of restructuring measures at GM's North American automotive operations. In addition, S&P affirmed its security ratings of Hughes and indicated that the security ratings outlook for Hughes remains developing. Employment and Payrolls 1997 1996 Worldwide Employment at March 31, (in thousands) GM-NAO 242 252 Delphi 178 178 GMIO 112 109 GMAC 18 17 Hughes 88 83 Other 10 11 ---- ---- Employees associated with continuing operations 648 650 === === Worldwide payrolls - continuing operations (in billions $7.7 $7.5 - 22- GENERAL MOTORS CORPORATION AND SUBSIDIARIES New Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (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 GM 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. * * * * * * 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 March 31, 1997 or subsequent thereto, but before the filing of this report are summarized below. Other Matters With respect to the previously reported matter in which a jury in California State Court awarded two former Hughes employees, Lane and Villalpando, a total of $89.5 million in damages against Hughes based principally on allegations of racial discrimination and retaliation, which award, as also previously reported, had been reduced by the Court of Appeal to $17.33 million, the California Supreme Court on March 19, 1997 granted Hughes' request for a review of the $17.33 million judgment, and ordered the Court of Appeal to vacate its decision and reconsider the case. On March 27, 1997 the Court of Appeal issued such an order. The parties have filed briefs with the Court of Appeal and Hughes has requested oral argument. *** 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 affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the Court of Appeals for the Federal Circuit for a rehearing. That petition was denied in October 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 a separate patent matter, remanded Hughes' suit over the Williams Patent back to the Court of Appeals along with patent cases involving other parties then pending before the U. S. Supreme Court, in order to have the Court of Appeals determine whether the results of prior proceedings in those cases are consistent with the U.S. Supreme Court's recent decision in such other matter. 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 by the Court of Appeals. 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 General Motors attributable to Class H common stock. *** - 23 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Three class actions have recently been filed against General Motors, as well as a number of other vehicle manufacturers and dealers, claiming that the front seat air bags installed in 1993 to 1997 model vehicles are defective: Eloisa Rodriguez, et al. v. General Motors Corporation, Ford Motor Company, Chrysler Corporation, Volvo of North America, Inc., Armadillo Motor Company, Inc. and Wickstrom Chevrolet Co., Inc., filed on April 11, 1997, in the District Court of Maverick County, Texas; Ellen Smith, et al. v. General Motors Corporation, Ford Motor Corporation, Chrysler Corporation, Sylacauga Auto Plex, et al., filed on April 25, 1997, in Circuit Court of Coosa County, Alabama; and Frederick Lewis, et al. v. Volvo of North America, Inc., General Motors Corporation, Ford Motor Corporation, Chrysler Motors Corporation, and Spinato Chrysler Plymouth, Inc. dba Bergeron Volvo filed in Civil District Court for the Parish of Orleans, Louisiana. In essence, the complaints allege the air bags are defective because, when deployed, they are likely to injure small-statured adults and children. The Texas and Louisiana matters purport to be statewide classes, while the Alabama matter purports to be a nationwide class. Before the complaint was served on GM, the Alabama state court entered an order conditionally certifying a nationwide class but made no determination that plaintiffs have met the requirements for maintaining the case as a class action. GM has the right to challenge the order and will oppose the class action status of the case. The complaints generally seek compensatory damages and the cost of repair or replacement of the allegedly defective air bags. Two of the matters, Louisiana and Texas, have been removed to federal court and GM intends to seek removal of the other case. GM intends to vigorously defend these actions. *** There are currently 11 purported class actions alleging that certain antilock braking systems on 1989 to 1996 light-duty GM trucks are defective. The cases, which were filed in various federal courts in nine states, have been transferred to and consolidated before the United States District Court for the Eastern District of Missouri in St. Louis, Missouri, for coordinated pretrial discovery as In Re General Motors Anti-Lock Brake Products Liability Litigation USDC, Eastern District of Missouri, Eastern Division. No determination has been made that the cases may be maintained as class actions. GM intends to vigorously defend these actions. *** As previously reported, in connection with the matter of Jacobson, et al v. Hughes Aircraft Co., et al, plaintiffs in that action had sought to have the U.S. Court of Appeals for the 9th Circuit enjoin Hughes and the Hughes Non-Bargaining Retirement Plan from transferring assets, control or administration of the Plan to any other employers or from terminating or amending the Plan. The injunction was designed to maintain the status quo of plan assets pending disposition of the proceedings in the suit and in doing so, could have prevented or delayed the planned spin-off of Hughes Aircraft Company and its subsequent merger with Raytheon. On March 14, 1997, the court denied plaintiffs request for an injunction. * * * * * * - 24 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. Exhibit Number Exhibit Name Page No. 11 Computation of Earnings Per Share Attributable to Common Stocks for the Three Months Ended March 31,1997 and 1996 26 12 Computation of Ratios of Earnings to Fixed Charges for the Three Months Ended March 31, 1997 and 1996 28 99 Hughes Electronics Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 29 27 Financial Data Schedule (for SEC information only) (b) REPORTS ON FORM 8-K. Three reports on Form 8-K, dated January 16, 1997, January 27, 1997, and March 12, 1997, were filed during the quarter ended March 31, 1997 reporting matters under Item 5, Other Events, and reporting certain agreements under Item 7, Financial Statements, Pro Forma Financial Information, and Exhibits. * * * * * * SIGNATURE 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) By Date May 15, 1997 /s/Peter R. Bible - ----------------- -------------------------------------- (Peter R. Bible, Chief Accounting Officer) - 25 - EX-11 2 EXHIBIT 11 l:\secdraft\version3\exhib_11.doc2 EXHIBIT 11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS (Unaudited) Three Months Ended March 31, 1997 $1-2/3 Par Value Class H Common Common Stock Stock (Dollars in Millions Except Per Share Amounts) Net income $1,737 $59 Dividends on preference stocks 20 - ------ ---- Earnings on common stocks 1,717 59 Dividends on common stocks 377 25 ----- -- Net earnings retained $1,340 $34 ===== == Weighted average shares outstanding (in millions) 747 100 Per Share Data Net earnings retained per share $1.80 $0.34 Cash dividends per share 0.50 0.25 ---- ---- Net earnings per share $2.30 $0.59 ==== ==== Note: The difference between fully diluted and primary earnings per share is immaterial. - 26 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS - Concluded (Unaudited) Three Months Ended March 31, 1996 $1-2/3 Par Value Class E Class H Common Common Common Stock Stock Stock (Dollars in Millions Except Per Share Amounts) Income from continuing operations $724 $ - $76 Income from discontinued operations 10 209 - ---- --- ---- Net income 734 209 76 Dividends on preference stocks 20 - - ---- ----- ---- Earnings on common stocks 714 209 76 Dividends on common stocks 306 72 23 --- ---- -- Net earnings retained $408 $137 $53 === === == Net earnings retained from continuing operations $398 $ - $53 === ==== == Income retained from discontinued operations $10 $137 $ - == === === Weighted average shares outstanding (in millions) 755 463 97 === === == Per Share Data Net earnings retained per share from continuing operations $0.53 $ - $0.54 Income retained per share from discontinued operations 0.01 0.30 - Cash dividends per share 0.40 0.15 0.24 ---- ---- ---- Net earnings per share $0.94 $0.45 $0.78 ==== ==== ==== Note: The difference between fully diluted and primary earnings per share is immaterial. - 27 - EX-12 3 EXHIBIT 12 l:\secdraft\version3\exhib_12.doc1 EXHIBIT 12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Unaudited) Three Months Ended March 31, 1997 1996 (Dollars in Millions) Income from continuing operations $1,796 $800 Income taxes 989 433 Equity in income of associates (44) (28) Cash dividends received from associates 1 2 Amortization of capitalized interest 14 14 ----- ----- Income from continuing operations before income taxes, undistributed income of associates, and amortization of capitalized interest 2,756 1,221 Fixed charges included in income from continuing operations Interest and related charges on debt 1,445 1,422 Portion of rentals deemed to be interest 72 64 Total fixed charges included in income from continuing operations 1,517 1,486 Earnings available for fixed charges $4,273 $2,707 ===== ===== Fixed charges Fixed charges included in income from continuing operations $1,517 $1,486 Interest capitalized in the period 15 7 Total fixed charges $1,532 $1,493 ===== ===== Ratios of earnings to fixed charges 2.79 1.81 ==== ==== - 28 - EX-99 4 EXHIBIT 99 L:\secdraft\version3\exhib99.doc3 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 March 31, 1997 1996 (Dollars in Millions Except Per Share Amounts) Revenues Net sales Outside customers $2,765.7 $2,438.9 General Motors and affiliates 1,362.5 1,174.7 Other income - net 24.5 123.1 -------- -------- Total revenues 4,152.7 3,736.7 ------- ------- Costs and expenses Cost of sales and other operating charges, exclusive of items listed below 3,216.8 2,796.5 Selling, general, and administrative expenses 440.5 300.3 Depreciation and amortization 146.1 131.6 Amortization of GM purchase accounting adjustments related to Hughes Aircraft Company 30.6 30.6 Interest expense - net 3.9 5.2 --------- ---------- Total costs and expenses 3,837.9 3,264.2 ------- ------- Income before income taxes 314.8 472.5 Income taxes 110.2 191.4 ----- ----- Net income 204.6 281.1 Adjustments to exclude the effect of GM purchase accounting adjustments related to Hughes Aircraft Company 30.6 30.6 ------ ------ Earnings Used for Computation of Available Separate Consolidated Net Income $235.2 $311.7 Available Separate Consolidated Net Income Average number of shares of General Motors Class H Common Stock outstanding (in millions) (numerator) 100.4 97.4 Class H dividend base (in millions) (denominator) 399.9 399.9 Available Separate Consolidated Net Income $59.1 $76.0 ==== ==== Earnings Per Share Attributable to General Motors Class H Common Stock $0.59 $0.78 ==== ==== Reference should be made to the Notes to Consolidated Financial Statements. - 29 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET March 31, 1997 December 31, (Unaudited) 1996 (Dollars in Millions Except Per Share Amount) ASSETS Current assets Cash and cash equivalents $893.0 $1,161.3 Accounts and notes receivable Trade receivables (less allowances) 1,291.9 1,200.6 General Motors and affiliates 116.8 113.4 Contracts in process, (less advances and progress payments) 2,661.0 2,507.1 Inventories (less allowances) Productive material, work in process, and supplies 1,439.9 1,383.1 Finished product 172.4 145.4 Prepaid expenses, including deferred income taxes 737.6 568.1 Total current assets 7,312.6 7,079.0 Property-net 2,879.4 2,886.6 Telecommunications and other equipment - net 1,168.4 1,133.5 Intangible assets - net 3,522.7 3,466.0 Investments and other assets - principally at cost (less allowances) 1,858.7 1,915.0 Total assets $16,741.8 $16,480.1 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable Outside $1,008.9 $896.4 General Motors and affiliates 22.4 27.5 Advances on contracts 850.3 868.9 Notes and loans payable 634.9 248.1 Income taxes payable 189.2 132.9 Accrued liabilities 1,641.8 2,025.8 ------- ------- Total current liabilities 4,347.5 4,199.6 ------- ------- Long-term debt and capitalized leases 31.3 34.5 Postretirement benefits other than pensions 1,668.4 1,658.9 Other liabilities and deferred credits 1,407.5 1,407.2 Stockholder's equity Capital stock (outstanding, 1,000 shares, $0.10 par value) and additional paid-in capital 6,355.3 6,347.2 Net income retained for use in the business 3,073.4 2,968.8 ------- ------- Subtotal 9,428.7 9,316.0 Minimum pension liability adjustment (113.5) (113.5) Accumulated foreign currency translation adjustments (28.1) (22.6) Total stockholder's equity 9,287.1 9,179.9 ------- ------- Total liabilities and stockholder's equity $16,741.8 $16,480.1 Reference should be made to the Notes to Consolidated Financial Statements. - 30 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Three Months Ended March 31, 1997 1996 (Dollars in Millions) Net cash used in operating activities $(281.6) $(13.1) ----- ---- Cash flows from investing activities Investment in companies, net of cash acquired (143.3) (28.7) Expenditures for property and special tools (103.3) (135.3) (Increase) decrease in telecommunications and other equipment (56.9) 22.1 Proceeds from sale and leaseback of satellite transponders with GMAC - 252.0 Proceeds from disposal of property 22.9 16.7 Decrease (increase) in notes receivable 10.3 (2.2) Net cash (used in) provided by investing activities (270.3) 124.6 Cash flows from financing activities Net increase (decrease) in notes and loans payable 386.8 (316.1) Increase in long-term debt 7.4 10.3 Decrease in long-term debt (10.6) - Proceeds from sale of minority interest in subsidiary - 137.5 Cash dividends paid to General Motors (100.0) (96.0) Net cash provided by (used in) financing activities 283.6 (264.3) Net decrease in cash and cash equivalents (268.3) (152.8) Cash and cash equivalents at beginning of the period 1,161.3 1,139.5 Cash and cash equivalents at end of the period $893.0 $986.7 Reference should be made to the Notes to Consolidated Financial Statements. - 31 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments (consisting of only normal recurring items) which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year. For further information, refer to the consolidated financial statements and notes thereto included in General Motors' 1996 Annual Report on Form 10-K. NOTE 2. Other income - net for the first quarter of 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(R) subsidiary changed the amortization period for certain subscriber acquisition costs related to a consumer rebate and manufacturers' incentive program. Based on guidance from the staff of the Securities and Exchange Commission, the period over which such costs are amortized has been reduced from three years to one year. The amortization period is now equal to the length of the subscriber's prepaid programming commitment. The effect of this change on prior periods was not material. NOTE 4. On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. The transactions would include the tax-free spin-off of the Hughes defense business to holders of GM's $1-2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company. The spin-off will not be proposed in a manner that would result in the recapitalization of Class H common stock into $1-2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the GM Restated Certificate of Incorporation, as amended. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, GM's Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. No assurance can be given that the above transactions will be completed; however, management of GM and Hughes and GM's Board of Directors expect to solicit stockholders' approval of the planned transactions in late 1997, after certain conditions are satisfied. In September 1996, Hughes and PanAmSat Corporation entered into an agreement to merge their respective satellite service operations into a new publicly-held company. Hughes would contribute its Galaxy(R) satellite services business in exchange for a 71.5% interest in the new company. Current PanAmSat stockholders would receive a 28.5% interest in the new company and $1.5 billion in cash. Such cash consideration and other funds required to consummate the merger are expected to be funded by new debt financing totaling $1.725 billion. This debt financing is expected to be provided by Hughes, which currently intends to borrow such funds from GM. The transaction is expected to close during the second quarter of 1997. NOTE 5. Earnings per share attributable to General Motors 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 and the denominator of which was 399.9 million during the first quarters of 1997 and 1996. - 32 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded (Unaudited) NOTE 6. 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 7. 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 affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the Court of Appeals for the Federal Circuit for a rehearing. That petition was denied in October 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 a separate patent matter, remanded Hughes' suit over the Williams Patent back to the Court of Appeals along with patent cases involving other parties then pending before the U. S. Supreme Court, in order to have the Court of Appeals determine whether the results of prior proceedings in those cases are consistent with the U.S. Supreme Court's recent decision in such other matter. 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 by the Court of Appeals. 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 General Motors attributable to Class H common stock. * * * * * * - 33 - 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. In addition, the following discussion excludes the purchase accounting adjustments related to General Motors' acquisition of Hughes Aircraft Company (see Supplemental Data beginning on page 36). Statements made concerning expected financial performance, ongoing financial performance strategies, and possible future action which Hughes intends to pursue to achieve strategic objectives for each of its three principal business segments constitute forward-looking information. The implementation of these strategies and of such future actions and the achievement of such financial performance are each subject to numerous conditions, uncertainties and risk factors, and, accordingly, no assurance can be given that Hughes will be able to successfully accomplish its strategic objectives or achieve such financial performance. The principal important risk factors which could cause actual performance and future actions to differ materially from the forward-looking statements made herein include economic conditions, product demand and market acceptance, government action, competition, ability to achieve cost reductions, GM's global sourcing strategy with respect to automotive electronics, General Motors' North American Operations (GM-NAO) volumes, technological risk, and interruptions to production attributable to causes outside Hughes' control. Planned Transactions On January 16, 1997, GM and Hughes announced a series of planned transactions designed to address strategic challenges and unlock stockholder value in the three Hughes business segments. The transactions would include the tax-free spin-off of the Hughes defense business to holders of GM's $1-2/3 par value and Class H common stocks, followed immediately by the tax-free merger of that business with Raytheon Company. The spin-off will not be proposed in a manner that would result in the recapitalization of Class H common stock into $1-2/3 par value common stock at a 120% exchange ratio, as currently provided for under certain circumstances in the GM Restated Certificate of Incorporation, as amended. At the same time, Delco Electronics, the automotive electronics subsidiary of Hughes, would be transferred from Hughes to GM's Delphi Automotive Systems unit. Finally, GM's Class H common stock would be recapitalized into a GM tracking stock linked to the telecommunications and space business of Hughes. No assurance can be given that the above transactions will be completed; however, management of GM and Hughes and GM's Board of Directors expect to solicit stockholders' approval of the planned transactions in late 1997, after certain conditions are satisfied. In September 1996, Hughes and PanAmSat Corporation entered into an agreement to merge their respective satellite service operations into a new publicly-held company. Hughes would contribute its Galaxy satellite services business in exchange for a 71.5% interest in the new company. Current PanAmSat stockholders would receive a 28.5% interest in the new company and $1.5 billion in cash. Such cash consideration and other funds required to consummate the merger are expected to be funded by new debt financing totaling $1.725 billion. This debt financing is expected to be provided by Hughes, which currently intends to borrow such funds from GM. The transaction is expected to close during the second quarter of 1997. Results of Operations Hughes reported first quarter 1997 earnings of $235.2 million, compared with $311.7 million reported in the first quarter of 1996. Excluding the 1996 first quarter $71.6 million after-tax gain ($0.18 per share of GM Class H common stock) from the sale of a 2.5% equity interest in DIRECTV(R) to AT&T, earnings for the first quarter of 1997 decreased 2.0% from the $240.1 million reported in the same period in 1996, and earnings per share decreased $0.01 per share from $0.60 per share in the prior year period. The decline was principally due to lower operating profit in the Telecommunications and Space and Automotive Electronics segments, offset in part by the favorable impact of a lower effective tax rate in the quarter. Revenues for the first quarter of 1997 were $4,152.7 million, an 11.1% increase from the $3,736.7 million reported in the first quarter of 1996. Costs and expenses as a percentage of revenues increased to 91.7% from 86.5% in the first quarter of 1996. Income taxes were $110.2 million, or 31.9% of income before income taxes, for the first quarter of 1997 compared with $191.4 million, or 38.0% of income before income taxes, in the comparable 1996 quarter. Operating profit was $324.8 million for the quarter ended March 31, 1997, a 15.7% decrease from the operating profit of $385.2 million reported during the comparable period in 1996. The operating profit margin was 7.9% for the first quarter of 1997 compared with 10.7% in the first quarter of 1996. - 34 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES Telecommunications and Space segment revenues for the quarter ended March 31, 1997 were $1,023.4 million, an increase of 9.3% over revenues of $936.4 million reported in the prior year's first quarter. Excluding the $120.3 million pre-tax gain recognized from the sale of 2.5% of DIRECTV to AT&T in the first quarter of 1996, revenues increased 25.4%. The growth was primarily due to continued expansion of the DIRECTV subscriber base in the United States and Latin and South America and increased sales of commercial and government satellites which more than offset the impact from lower Galaxy(R) satellite transponder sales. Operating profit in the first quarter of 1997 was $7.2 million compared with $74.5 million reported in the same period in 1996. This decrease was largely the result of lower Galaxy transponder sales, start-up operating losses from the Company's Latin and South American DIRECTV subsidiary, Galaxy Latin America, and increased expenses resulting from the change in the amortization period for DIRECTV subscriber acquisition costs related to a consumer rebate and manufacturers' incentive program. The change in the amortization period for DIRECTV subscriber acquisition costs resulted in a decrease in operating profit of $35.8 million. As a result, first quarter operating profit margin decreased to 0.7% in 1997 from 9.1% in 1996. The Automotive Electronics segment reported first quarter 1997 revenues of $1,447.0 million, an increase of 13.8% from revenues of $1,271.8 million for the same period in 1996. The growth was principally due to a 20.5% increase in GM vehicles produced in the United States and Canada (excluding joint ventures) and a 12.2% increase in international and non-GM sales (from $245 million to $275 million) partially offset by a 5.9% decline in Delco-supplied electronic content (from $929 to $874 per GM vehicle produced in the United States and Canada, excluding joint ventures). Last year's first quarter performance was negatively impacted by the 17 day work stoppages at two GM component plants in Dayton, Ohio that temporarily shutdown 26 of 29 GM assembly plants in North America and certain automotive component plants. Operating profit decreased 8.6% in the first quarter to $145.6 million from $159.3 million in the comparable period in 1996. 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 which more than offset the increased production volume benefits. The 1996 first quarter results included an operating loss of approximately $50 million related to the work stoppage described above. First quarter operating profit margin declined to 10.2% from 12.6% in 1996. As the principal supplier of automotive electronics to GM-NAO, Hughes' sales of automotive electronics will continue to be heavily dependent on General Motors production of vehicles in North America, the level of Hughes-supplied electronic content per GM vehicle, the price of such electronics, and the competitiveness of Hughes' product offerings. In this regard, it is anticipated that competition through GM's global purchasing process will negatively impact Hughes' sales to GM-NAO and result in a decline in the portion of GM-NAO automotive electronics supplied by Hughes. The segment's strategy is to aggressively reduce costs in order to minimize the effect of continuing price reductions and to manage the loss of GM-NAO market share by offering competitive products which increase electronic functionality through a focus on safety, security, communications, and convenience. The segment will also seek to improve its systems capability and cost competitiveness both internally and by developing key design, manufacturing, and marketing alliances and other relationships with mechanical and electrical automotive component suppliers. The international market for automotive electronic products is also highly competitive. The segment has refined its strategy for this market to focus on profitable growth as well as increased market share, and accordingly, will seek to enhance the cost competitiveness of its international operations. The competitive environment described above is making it increasingly difficult to maintain the level of operating profit margins realized in this segment in the past. Operating margins are expected to be lower than recent historical levels as price and volume declines associated with GM's global sourcing initiatives more than offset Hughes' ability to achieve cost reductions. In response to the increased pressure on margins and to enhance future competitiveness, management will take action to reduce the cost structure of the business. As a result of the factors described above, the operating margin is expected to remain at low double digits in 1997, and then show modest improvement in 1998 and 1999. The Aerospace and Defense Systems segment reported 1997 first quarter revenues of $1,646.6 million, an 8.9% increase over revenues of $1,512.4 million reported in the same period in 1996. The growth was principally due to additional revenues resulting from the build-up of newer programs, particularly information systems and services programs such as Desktop V, Wide Area Augmentation System, and Hughes Air Warfare Center. Operating profit for the first quarter of 1997 increased 9.8% to $173.4 million compared with $157.9 million for the first quarter of 1996 primarily due to these revenue increases. The operating profit margin in the period remained unchanged at 10.5% as compared to 1996. Future operating profits could be adversely impacted by further reductions in the U.S. defense budget. - 35 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES Liquidity and Capital Resources Cash and cash equivalents at March 31, 1997 were $893.0 million, a decrease of $268.3 million from the $1,161.3 million reported at December 31, 1996. The decrease was primarily due to the use of cash in operating activities of $281.6 million, capital expenditures, the acquisition of the Marine Systems Division of Alliant Techsystems, Inc. for $143.3 million in cash, cash dividends paid to General Motors, and the repayment of $100.0 million of short-term borrowings, partially offset by proceeds of $487.5 million from short-term commercial paper borrowings under an existing credit facility. As a measure of liquidity, Hughes' current ratio (ratio of current assets to current liabilities) of 1.68 at March 31, 1997 remained relatively unchanged from 1.69 at December 31, 1996. Working capital increased to $2,965.1 million at March 31, 1997 from $2,879.4 million at December 31, 1996. Capital expenditures, including expenditures for telecommunications and other equipment, were $160.9 million for the quarter ended March 31, 1997, compared with $151.3 million for the comparable period in 1996 reflecting increased expenditures in the Telecommunications and Space segment. Long-term debt and capitalized leases were $31.3 million at March 31, 1997, relatively unchanged from the $34.5 million at December 31, 1996. The ratio of long-term debt and capitalized leases to the total of such debt and pro forma stockholder's equity was 0.1% at March 31, 1997 and December 31, 1996. Hughes expects 1997 cash requirements prior to the consummation of the planned transactions to result in additional short-term borrowings of up to $800 million under new credit facilities. In addition, as described in Note 4 to the Hughes Consolidated Financial Statements, Hughes expects to incur new long-term debt of $1.725 billion in connection with the PanAmSat merger. Hughes currently intends to borrow such funds from GM. Security Ratings On April 24, 1997, Standard and Poor's Rating Services, a division of McGraw-Hill Companies, Inc., affirmed its security ratings of Hughes and indicated that the security ratings outlook for Hughes remains developing. Supplemental Data The Consolidated Financial Statements reflect the application of purchase accounting adjustments as previously discussed. However, as provided in GM's Restated Certificate of Incorporation, as amended, the earnings attributable to GM Class H common stock for purposes of determining the amount available for the payment of dividends on GM Class H common stock specifically excludes such adjustments. More specifically, amortization of the intangible assets associated with GM's purchase of Hughes Aircraft Company amounted to $30.6 million for the first 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 $2,692.9 million at March 31, 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. - 36 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME Three Months Ended March 31, 1997 1996 (Dollars in Millions Except Per Share Amounts) Total Revenues $4,152.7 $3,736.7 Total Costs and Expenses 3,807.3 3,233.6 ------- ------- Income before Income Taxes 345.4 503.1 Income taxes 110.2 191.4 ----- ----- Earnings Used for Computation of Available Separate Consolidated Net Income $235.2 $311.7 Earnings Per Share Attributable to General Motors Class H Common Stock $0.59 $0.78 ==== ==== PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET March 31, December 31, ASSETS 1997 1996 (Dollars in Millions) Total Current Assets $7,312.6 $7,079.0 Property - Net 2,879.4 2,886.6 Telecommunications and Other Equipment - Net 1,168.4 1,133.5 Intangible Assets, Investments, and Other Assets - Net 2,688.5 2,657.5 --------- --------- Total Assets $14,048.9 $13,756.6 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Total Current Liabilities $4,347.5 $4,199.6 Long-Term Debt and Capitalized Leases 31.3 34.5 Postretirement Benefits Other Than Pensions, Other Liabilities, and Deferred Credits 3,075.9 3,066.1 Total Stockholder's Equity ** 6,594.2 6,456.4 --------- --------- Total Liabilities and Stockholder's Equity ** $14,048.9 $13,756.6 ======== ======== * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. ** General Motors' equity in its wholly-owned subsidiary, Hughes. Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). - 37 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* - Continued PRO FORMA SELECTED SEGMENT DATA Three Months Ended March 31, 1997 1996 (Dollars in Millions) Telecommunications and Space Revenues $1,023.4 $936.4 Revenues as a percentage of Hughes Revenues 24.6% 25.1% Net Sales $1,018.8 $821.0 Operating Profit (1) $7.2 $74.5 Operating Profit Margin (2) 0.7% 9.1% Depreciation and Amortization (3) $50.3 $46.2 Capital Expenditures (4) $94.0 $70.3 Automotive Electronics Revenues $1,447.0 $ 1,271.8 Revenues as a percentage of Hughes Revenues 34.8% 34.0% Net Sales $1,433.9 $1,260.2 Operating Profit (1) $145.6 $159.3 Operating Profit Margin (2) 10.2% 12.6% Depreciation and Amortization $56.2 $48.8 Capital Expenditures $35.9 $50.3 Aerospace and Defense Systems Revenues $1,646.6 $1,512.4 Revenues as a percentage of Hughes Revenues 39.7% 40.5% Net Sales $1,644.8 $1,502.2 Operating Profit (1) $173.4 $157.9 Operating Profit Margin (2) 10.5% 10.5% Depreciation and Amortization (3) $37.0 $32.7 Capital Expenditures $30.3 $28.5 Corporate and Other Operating Loss (1) $(1.4) $(6.5) * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. (1) Net Sales less Total Costs and Expenses other than Interest Expense. (2) Operating Profit as a percentage of Net Sales. (3) Excludes amortization arising from purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company amounting to $5.3 million for the Telecommunications and Space segment and $25.2 million for the Aerospace and Defense Systems segment in 1997 and 1996. (4) Includes expenditures related to telecommunications and other equipment amounting to $57.6 million and $16.0 million in 1997 and 1996, respectively. - 38 - HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA* - Concluded PRO FORMA SELECTED FINANCIAL DATA Three Months Ended March 31, 1997 1996 (Dollars in Millions Except Per Share Amounts) Operating profit $324.8 $385.2 Income before income taxes $345.4 $503.1 Earnings used for computation of available separate consolidated net income $235.2 $311.7 GM Class H dividend base shares (1) 399.9 399.9 Stockholder's Equity $6,594.2 $5,898.6 Dividends per share of GM Class H common stock $0.25 $0.24 Working capital $2,965.1 $3,035.5 Operating profit as a percent of net sales 7.9% 10.7% Pre-tax income as a percent of net sales 8.4% 13.9% Net income as a percent of net sales 5.7% 8.6% * 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 100.4 million for the first quarter of 1997 and 97.4 million for the first quarter of 1996. * * * * * * - 39 - EX-27 5 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GENERAL MOTORS CORPORATION MARCH 31, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FIRST QUARTER 1997 FORM 10-Q. 0000040730 GENERAL MOTORS CORPORATION 1,000,000 U.S. DOLLARS 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 10,061 10,168 69,178 0 12,851 0 78,041 41,037 226,059 0 88,111 0 1 1,226 21,578 226,059 37,440 42,260 31,030 34,051 44 130 1,461 2,785 989 1,796 0 0 0 1,796 2.30 0
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