-----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, AwYzdVWWM7KsPb3ESEpZS4iGZ7bZEOXMa/QSsU/dCSj6R5odu5sjbgQQ+40S3qQs +dmWD9iDPOU2tapc7wzNrQ== 0000040730-99-000031.txt : 19990416 0000040730-99-000031.hdr.sgml : 19990416 ACCESSION NUMBER: 0000040730-99-000031 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990412 ITEM INFORMATION: FILED AS OF DATE: 19990415 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: 8-K SEC ACT: SEC FILE NUMBER: 001-00143 FILM NUMBER: 99595060 BUSINESS ADDRESS: STREET 1: 100 RENAISSANCE CTR CITY: DETROIT STATE: MI ZIP: 48265-1000 BUSINESS PHONE: 3135565000 MAIL ADDRESS: STREET 1: 3044 W GRAND BOULEVARD CITY: DETROIT STATE: MI ZIP: 48202-3091 8-K 1 RESTATE COVER SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) April 12, 1999 -------------- GENERAL MOTORS CORPORATION ----------------------------------------------------- (Exact name of registrant as specified in its charter) STATE OF DELAWARE 1-143 38-0572515 - ---------------------------- ----------------------- ------------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 100 Renaissance Center, Detroit, Michigan 48265-1000 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 -------------- - 1 - ITEM 5. OTHER EVENTS On April 12, 1999 General Motors Corporation (GM) issued a press release which announced that the GM Board of Directors approved the complete separation of Delphi from GM by means of a tax-free spin-off. GM's press release is included as Exhibit 99.1, and Delphi's press release is included as Exhibit 99.2 to this Form 8-K. GM's consolidated financial statements have been restated to reflect Delphi as discontinued operations and are included as Exhibit 99.3 to this Form 8-K. Exhibit 99.1 GM's press release dated April 12, 1999 Exhibit 99.2 Delphi's press release dated April 12, 1999 Exhibit 99.3 Audited consolidated financial statements and financial statement schedule of General Motors Corporation as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998 and Supplementary Information (Unaudited) relating to Selected Quarterly Data. Exhibit 27 Financial Data Schedule (for SEC information only). * * * * * * 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) Date April 15, 1999 ----------------- By s/Peter R. Bible ------------------------------- (Peter R. Bible, Chief Accounting Officer) - 2 - EX-99.1 2 PRESS RELEASE Exhibit 99.1 GENERAL MOTORS TO COMPLETE ITS SEPARATION OF DELPHI AUTOMOTIVE SYSTEMS IN A TAX-FREE SPIN-OFF DETROIT and TROY, Mich. -- General Motors Corporation (NYSE: GM) and Delphi Automotive Systems Corporation (NYSE: DPH) jointly announced today that the GM Board of Directors has approved the complete separation of Delphi from GM by means of a tax-free spin-off. As a result of the board's action, 80.1 percent of the ownership of Delphi, 452.6 million shares of Delphi common stock now owned by GM, will be distributed to owners of GM $1-2/3 par value common stock. In addition, the GM Board has indicated that it intends to maintain the current $0.50 quarterly dividend on GM $1-2/3 common stock subsequent to the separation of Delphi from GM. "By maintaining our current dividend -- even though Delphi's earnings will no longer contribute to GM's earnings -- GM will effectively be increasing the dividend yield and payout ratio to GM shareholders," said GM Chairman and Chief Executive Officer John F. Smith, Jr. "This reflects the confidence that GM's board and management have in the series of strategic initiatives that GM has undertaken, and our future earnings capacity." The spin-off will result in Delphi becoming a fully independent company on May 28, 1999. One hundred million shares of Delphi common stock were sold by Delphi in an initial public offering completed in February 1999. "Delphi's complete separation from GM through the spin-off provides Delphi the opportunity to achieve the full benefits of an independent company," said J.T. Battenberg III, chairman, chief executive officer and president of Delphi. "We believe that we will have greater opportunities as a fully independent company to leverage our technical expertise in a broad range of product lines, our strong systems integration skills, our expansive global presence and our significant scale advantages," Battenberg said. GM and Delphi will have a significant ongoing customer-supplier relationship following the spin-off. Prior to Delphi's initial public offering in February 1999, the two companies entered into an agreement that is intended to provide Delphi with a substantial base of business with GM well into the next decade. "While General Motors will continue to be an important and, we hope, growing customer following the spin-off, Delphi's full independence will substantially help us expand our revenue base through sales to major automotive vehicle manufacturers other than GM," Battenberg said. GM Chairman and Chief Executive Officer, John F. Smith, Jr. said, "We believe that both companies will become stronger and more competitive in our respective businesses through focused growth, thus allowing us to better meet the needs of our customers, shareholders and employees. - 1 - "We have assured the leadership of the United Auto Workers (UAW), the International Union of Electrical Workers (IUE), and our other unions that we are prepared to promptly enter into agreements to protect the interests of Delphi employees affected by the spin-off," Smith said. "Pension plans will be fully funded, and health-care, and other benefits of Delphi's current employees will be continued," Battenberg said. "We intend to maintain a high-level dialogue with the leadership of the UAW, the IUE and our other unions, and hope to forge long-lasting and constructive relationships." Today's decision by the board was required to implement the full separation of Delphi from GM, and fulfills the objectives announced Aug. 3, 1998, when GM and Delphi jointly outlined plans for Delphi's independence. Related to these actions, and if GM receives a favorable supplemental ruling from the Internal Revenue Service (IRS) prior to May 14, 1999, GM will contribute 12.4 million Delphi shares, or 2.2 percent of the ownership of Delphi, to a Voluntary Employee Beneficiary Association (VEBA) trust which can be used to fund benefits for hourly retirees. If such a ruling is not received, the additional 2.2 percent of Delphi shares held by GM will also be distributed to GM stockholders, in which case the same record date and payment date will be used. GM had previously said that the separation of Delphi would be completed by means of a split-off, a spin-off or some combination of both transactions. "After carefully reviewing these possible transaction structures, we have determined that a spin-off is the most appropriate action," Smith said. To effect the spin-off, the GM board has declared a dividend on GM $1-2/3 common stock consisting of 452.6 million shares of Delphi common stock owned by GM. This dividend will be paid as of the opening of business on May 28, 1999 (9:00 a.m. EDT), to holders of record of GM $1-2/3 stock as of the close of business on May 25, 1999. Delphi shares are issued under the direct registration system, where stockholders receive account statements rather than stock certificates, although an individual stockholder has the right to request and obtain physical certificates. The New York Stock Exchange has advised GM that the ex-dividend date for GM $1 2/3 common stock also will be May 28. Based on the number of shares of GM $1-2/3 stock currently outstanding, this dividend would be approximately 0.7 of a share of Delphi stock for each share of GM $1-2/3 stock. Earlier this year, GM received a ruling from the Internal Revenue Service to the effect that the distribution by GM of its shares of Delphi stock will be tax-free to General Motors and to GM $1-2/3 stockholders for U.S. federal-income-tax purposes. Notwithstanding the "tax-free" ruling from the IRS, the receipt of cash in lieu of fractional shares, which for each stockholder will be no more than a fraction of the price of one share of Delphi stock, will be taxable for U.S. federal-income-tax purposes. Based on the current market price of Delphi stock, the indicated value of the dividend would be approximately $7.8 billion in the aggregate, or approximately $12 per share of GM $1-2/3 stock. GM $1-2/3 stockholders will receive cash instead of any fractional shares of Delphi stock that would otherwise be allocated to them in the stock dividend. - 2 - Subject to its financial results and action by its board of directors, Delphi has announced that it currently intends to pay quarterly dividends at an initial rate of $0.07 per share, commencing with the first declaration in June 1999 for payment in July 1999. The GM board's approval today of the Delphi spin-off completes a series of actions designed to allow Delphi to pursue more strategic growth and competitive initiatives on a stand-alone basis. In 1991, GM established Delphi (then called Automotive Components Group Worldwide) as a separate business sector within GM, with the objective of improving its competitiveness and increasing its business through penetration of new markets. In 1995, GM renamed the business sector "Delphi Automotive Systems" in order to establish its separate identity in the automotive parts industry. GM began publicly disclosing separate financial data for Delphi in March of 1997. In late 1997, in connection with GM's spin-off of its defense electronics business, GM transferred Delco Electronics to Delphi in order to integrate more closely Delco's expertise in electronics with Delphi's capabilities in automotive components and systems. In late 1998, Delphi was incorporated in Delaware and, effective Jan. 1, 1999, GM contributed to Delphi the assets and liabilities Delphi now carries on its automotive components and systems business. Delphi, based in Troy, Mich., is the world's largest and most diversified supplier of automotive components, systems and modules. In 1998, Delphi reported annual revenues of approximately $28.5 billion and a net loss of approximately $93 million. Delphi's net income totaled $820 million, when adjusted to exclude the unfavorable impact of special items and work stoppages. Delphi became a leader in the global automotive parts industry by capitalizing on the extensive experience it has gained as the principal supplier of automotive parts to GM. Delphi has an expansive global presence, with a network of 168 wholly owned and leased manufacturing sites, 27 technical centers, 51 customer service centers and sales activity offices, and 40 joint ventures or other strategic alliances in 36 countries. Delphi employs approximately 198,000 people globally and has regional headquarters located in Paris, Tokyo, and Sao Paulo. General Motors, based in Detroit, is the world's largest manufacturer of automotive vehicles and sells its products in 160 countries worldwide. GM also has telecommunications, financing and insurance operations and, to a lesser extent, engages in other industries. GM participates in the telecommunications industry through its Hughes Electronics subsidiary, which designs, manufactures and markets advanced technology electronic systems, products and services for the telecommunications and space industry. GM's other industrial operations include the design, manufacture and marketing of locomotives and heavy-duty transmissions. GM's financing and insurance operations primarily relate to General Motors Acceptance Corporation, which provides a broad range of financial services, including consumer vehicle financing, full service leasing, mortgage services and vehicle and homeowner's insurance. - 3 - Immediately prior to the spin-off, GM will employ approximately 590,000 people globally, including those employed at Delphi. In 1998, GM reported revenues of approximately $161 billion and net income of approximately $3.0 billion. GM would have had 1998 revenues of approximately $155 billion if Delphi had been a fully independent company throughout that year. In this news release, use of the words expects, intends, believes, plans and similar words are associated with forward-looking statements that are inherently subject to numerous risks and uncertainties. Accordingly, there can be no assurance that the results described in such forward-looking statements will be realized. The principal risk factors that may cause actual results to differ materially from those expressed in forward-looking statements contained in this news release are described in various documents filed by GM and Delphi with the U.S. Securities and Exchange Commission, including GM's Annual Report on Form 10-K for the year ended Dec. 31, 1998, (at page II-22); Delphi's Annual Report on Form 10-K for the year ended Dec. 31, 1998, (at page 54). Stockholders who have questions about technical issues related to the distribution can call the Information Agent, Morrow & Co., at (800) 566-9058. # # # - 4 - EX-99.2 3 DELPHI'S PRESS RELEASE Exhibit 99.2 FULL SEPARATION APPROVED: DELPHI HIGHLIGHTS BENEFITS OF INDEPENDENCE TROY, MICH. - With its full separation from General Motors Corporation (NYSE: GM) approved by the GM board of directors, Delphi Automotive Systems Corporation (NYSE: DPH) today announced plans to move aggressively forward with a post-separation business strategy designed to maximize shareholder value and take full advantage of independence. Delphi's board of directors voiced its support of the GM decision. "With independence, Delphi can now fully implement its plans to enhance shareholder value," said Thomas Wyman, Delphi's lead independent director. "For as long as full separation has been an option, we have made clear our intent to focus the business on developing new and advanced automotive technologies, broadening our customer base, improving manufacturing operations and creating new business relationships through acquisition or partnerships," said J.T. Battenberg III, Chairman, Chief Executive Officer and President of Delphi. "This action by the GM Board of Directors pushes us forward on the path to realize our business objectives. "To the extent that full separation will improve Delphi's opportunities to grow the business and become more profitable, we all benefit," said Battenberg. "Sharing this potential with our labor partners and strengthening our relationship with labor is a high priority throughout Delphi." "We plan to have our current pension plan benefits fully funded over the next few years on an economic basis. We expect to start this funding with contributions of approximately $1.8 billion between separation and the first part of next year," said Battenberg. Delphi currently does not have hourly retirees, and anticipates having a small number of hourly retirees in the next few years. Battenberg's comments came in the wake of today's decision by the GM Board of Directors to move forward with the completion of Delphi's separation from GM by means of a tax-free spin-off. As a result of the board's action, 80.1 percent of the ownership of Delphi, 452.6 million shares of Delphi common stock now owned by GM, will be distributed to owners of GM $1-2/3 par value common stock, and if GM receives a favorable ruling from the Internal Revenue Service (IRS) prior to May 14, 1999, GM will contribute the other 2.2% of Delphi shares it owns, 12.4 million shares, to a Voluntary Employee Beneficiary Association (VEBA) trust which can be used to fund benefits for hourly retirees. If such a ruling is not received, the additional 2.2 percent of Delphi shares held by GM also will be distributed to GM stockholders, in which case the same record date and payment date will be used. The spin-off will result in Delphi becoming a fully independent, publicly traded company on May 28, 1999. One hundred million shares of Delphi common stock had been sold by Delphi in an initial public offering completed in February 1999. With 465 million new shares in the marketplace Battenberg today indicated that the company will take steps to familiarize new Delphi shareholders with Delphi business strategies. Battenberg said full separation from General Motors provides a number of key opportunities for Delphi. - 1 - The benefits of separation include: - Increased Sales to Vehicle Manufacturers Other Than GM: Until today's action by the GM Board, Delphi's ability to expand sales to major vehicle manufacturers (VMs) other than GM has been limited by a general reluctance to source from a supplier owned by a major competitor. Separation from GM lifts this barrier, and Delphi will - over time - be able to substantially grow sales to VMs other than GM. - Increased Financial and Strategic Flexibility: Separation will allow Delphi to quickly execute investment and acquisition or partnership decisions and will increase flexibility in financing through capital markets. Formerly, investments required approval from the parent corporation, which balanced competing requests for capital from several business sectors. - Potential for Continued Improvement of Organized Labor Relationships: Delphi has worked hard on its relationship with labor over the last several years, and is proud of the progress made. We will now independently continue to pursue improved relations through collaborative efforts with our union colleagues focused on improving our manufacturing operations and implementing the Delphi Manufacturing System. Through these efforts we hope to continue to improve our quality and responsiveness to customer needs, and provide stability to our business prospects. Where new non-GM business is concerned, Battenberg today noted that Delphi continues to receive greater numbers of bid opportunities since the Initial Public Offering in February 1999, which he said is indicative of non-GM customer acceptance of products and technology from an independent Delphi. Recent examples include: $550M in long-term contracts for supply of modular doors to Navistar International, MAN and two other major OEMs; a $35M contract to provide ABS and GENIII integral wheel spindle bearings to Daewoo; a $20M contract for steering wheels and airbags on a 2000MY VW. "With this kind of reaction by customers we are tremendously excited by the potential that exists in the marketplace to take advantage of the benefits of Delphi's full independence," said Battenberg. "This is just the beginning." Delphi Automotive Systems (NYSE: DPH), with headquarters in Troy, Mich., USA, is a world leader in automotive component and systems technology. Delphi's 3 business sectors -- Dynamics and Propulsion; Safety, Thermal and Electrical Architecture; and Electronics and Mobile Communications -- provide comprehensive product solutions to complex customer needs. Delphi has more than 198,000 employees and operates 168 wholly owned manufacturing sites, 40 joint ventures and 27 technical centers in 36 countries. Regional headquarters are located in Paris, Tokyo and Sao Paulo. Delphi can be found on the Internet at http://www.delphiauto.com. In this press release, use of the terms expects, intends, believes, plans and similar words are associated with forward-looking statements that are inherently subject to numerous risks and uncertainties. Accordingly, there can be no assurance that the results described in such forward-looking statements will be realized. The principle risk factors which may cause actual results to differ materially from those expressed in forward-looking statements contained in this press release are described in various documents filed by GM and Delphi with the U.S. Securities and Exchange Commission, including GM's Annual Report on Form 10-K for the Year Ended December 31, 1998 (at page II-22), and Delphi's Annual Report on Form 10-K for the Year Ended December 31, 1998 (at page 54). Stockholders who have questions about technical issues related to the distribution can call the Information Agent, Morrow & Co., at (800) 566-9058. - 2- EX-99.2 4 FINANCIAL STATEMENTS RESTATED Exhibit 99.3 Independent Auditors' Report General Motors Corporation, its Directors, and Stockholders: We have audited the Consolidated Balance Sheets of General Motors Corporation and subsidiaries as of December 31, 1998 and 1997, and the related Consolidated Statements of Income, Cash Flows, and Stockholders' Equity for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule on page 49. These financial statements and the financial statement schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of General Motors Corporation and subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/DELOITTE & TOUCHE LLP - ------------------------ DELOITTE & TOUCHE LLP Detroit, Michigan April 12, 1999 CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, ------------------------ 1998 1997 1996 ---- ---- ---- (Dollars in Millions Except Per Share Amounts) GENERAL MOTORS CORPORATION AND SUBSIDIARIES Manufactured products sales and revenues (Note 1) $134,276 $148,143 $140,057 Financing revenues (Note 1) 13,585 12,762 12,674 Other income (Note 21) 7,584 11,675 5,550 --------- -------- --------- Total net sales and revenues 155,445 172,580 158,281 ------- ------- ------- Cost of sales and other operating charges, exclusive of items listed below (Note 2) 114,542 128,225 121,472 Selling, general and administrative expenses 15,867 14,777 13,135 Depreciation and amortization expense (Notes 1 and 2) 11,147 14,646 10,997 Interest expense (Note 10) 6,629 5,883 5,427 Other expenses (Notes 2 and 21) 2,316 1,480 1,810 --------- --------- --------- Total costs and expenses 150,501 165,011 152,841 ------- ------- ------- Income from continuing operations before income taxes and minority interests 4,944 7,569 5,440 Income tax expense (Note 6) 1,636 1,025 1,464 Minority interests (20) 44 53 (Losses) earnings of nonconsolidated associates (239) (105) 71 ------ -------- ------- Income from continuing operations $3,049 $6,483 $4,100 (Loss) income from discontinued operations (Notes 1 and 23) (93) 215 863 ------ -------- ------- Net income $2,956 $6,698 $4,963 ------ ------ ------ Premium on exchange of preference stocks (Note 16) - 26 - Dividends on preference stocks (Note 17) 63 72 81 ------- ------- ------- Earnings on common stocks $2,893 $6,600 $4,882 ===== ===== ===== Basic earnings per share attributable to common stocks (Note 18) $1-2/3 par value common stock Continuing operations $4.40 $8.52 $5.08 Discontinued operations (Notes 1 and 23) (0.14) 0.18 0.98 ---- ---- ---- Earnings per share attributable to $1-2/3 par value $4.26 $8.70 $6.06 ==== ==== ==== Income from discontinued operations attributable to Class E $ - $ - $0.04 ==== ==== ==== Class H (prior to recapitalization on December 17, 1997 (Note 1) Continuing operations $ - $2.30 $1.83 Discontinued operations - 0.87 1.05 ---- ---- ---- Earnings per share attributable to Class H (prior to its recapitalization on December 17, 1997) (Note 1) $ - $3.17 $2.88 ==== ==== ==== Earnings per share attributable to Class H (subsequent to its recapitalization on December 17, 1997) (Note 1) $0.68 $0.02 $ - ==== ==== ==== Diluted earnings per share attributable to common stocks (Note 18) $1-2/3 par value common stock Continuing operations $4.32 $8.45 $5.04 Discontinued operations (Notes 1 & 23) (0.14) 0.17 0.98 ---- ---- ---- Earnings per share attributable to $1-2/3 par value $4.18 $8.62 $6.02 ==== ==== ==== Income from discontinued operations attributable to Class E $ - $ - $0.04 ==== ==== ==== Class H (prior to recapitalization on December 17, 1997 (Note 1) Continuing operations $ - $2.30 $1.83 Discontinued operations - 0.87 1.05 ---- ---- ---- Earnings per share attributable to Class H (prior to its recapitalization on December 17, 1997) (Note 1) $ - $3.17 $2.88 ==== ==== ==== Earnings per share attributable to Class H (subsequent to its recapitalization on December 17, 1997) (Note 1) $0.68 $0.02 $ - ==== ==== ==== Reference should be made to the notes to consolidated financial statements. - 1 - CONSOLIDATED STATEMENTS OF INCOME - Concluded Years Ended December 31, ------------------------ 1998 1997 1996 ---- ---- ---- (Dollars in Millions) AUTOMOTIVE, ELECTRONICS AND OTHER OPERATIONS Manufactured products sales and revenues (Note 1) $134,276 $148,143 $140,057 Other income (Note 21) 2,885 7,952 2,529 --------- --------- --------- Total net sales and revenues 137,161 156,095 142,586 ------- ------- ------- Cost of sales and other operating charges, exclusive of items listed below (Note 2) 114,542 128,225 121,472 Selling, general and administrative expenses 11,848 11,971 10,554 Depreciation and amortization expense (Notes 1 and 2) 6,227 9,833 6,302 -------- -------- ------- Total operating costs and expenses 132,617 150,029 138,328 ------- ------- ------- Interest expense (Note 10) 786 633 503 Other expenses (Notes 2 and 21) 792 210 519 Net expense (income) from transactions with Financing and Insurance Operations (Note 1) 82 (101) (125) -------- -------- ------- Income from continuing operations before income taxes and minority interests 2,884 5,324 3,361 Income tax expense (Note 6) 1,018 111 626 Minority interests - 57 53 (Losses) earnings of nonconsolidated associates (239) (105) 71 -------- -------- ------- Income from continuing operations 1,627 5,165 2,859 (Loss) income from discontinued operations (Notes 1 and 23) (93) 215 863 -------- -------- ------- Net income - Automotive, Electronics and Other Operations $1,534 $5,380 $3,722 ===== ===== ===== Years Ended December 31, ------------------------ 1998 1997 1996 ---- ---- ---- (Dollars in Millions) FINANCING AND INSURANCE OPERATIONS Financing revenues (Note 1) $13,585 $12,762 $12,674 Insurance, mortgage and other income (Note 21) 4,699 3,723 3,021 ------ ------ ------ Total revenues and other income 18,284 16,485 15,695 ------ ------ ------ Interest expense (Note 10) 5,843 5,250 4,924 Depreciation and amortization expense (Note 1) 4,920 4,813 4,695 Operating and other expenses 4,019 2,806 2,581 Provisions for financing losses (Notes 1 and 21) 463 523 669 Insurance losses and loss adjustment expenses (Note 21) 1,061 747 622 ------- -------- -------- Total costs and expenses 16,306 14,139 13,491 ------ ------ ------ Net (income) expense from transactions with Automotive, Electronics and Other Operations (Note 1) (82) 101 125 -------- -------- -------- Income before income taxes 2,060 2,245 2,079 Income tax expense (Note 6) 618 914 838 Minority interests (20) (13) - ------ ------ -------- Net income - Financing and Insurance Operations $1,422 $1,318 $1,241 ===== ===== ===== The above supplemental consolidating information is explained in Note 1, "Nature of Operations". Reference should be made to the notes to consolidated financial statements. - 2 - CONSOLIDATED BALANCE SHEETS December 31, ------------ GENERAL MOTORS CORPORATION AND SUBSIDIARIES 1998 1997 ---- ---- ASSETS (Dollars in Millions) Automotive, Electronics and Other Operations Cash and cash equivalents $9,728 $9,696 Marketable securities 402 3,815 ------- ------- Total cash and marketable securities (Notes 1 and 3) 10,130 13,511 Accounts and notes receivable (less allowances) 4,750 4,551 Inventories (less allowances) (Note 5) 10,437 10,234 Net assets of discontinued operations (Notes 1 and 23) 77 - Equipment on operating leases (less accumulated depreciation) (Note 7) 4,954 4,677 Deferred income taxes and other current assets (Note 6) 10,051 6,034 Net receivable from Financing and Insurance Operations (Note 1) - 319 ------- ------- Total current assets 40,399 39,326 Equity in net assets of nonconsolidated associates 950 1,060 Property - net (Note 8) 32,222 29,315 Intangible assets - net (Notes 1 and 9) 9,994 10,655 Deferred income taxes (Note 6) 14,967 17,714 Other assets 16,062 15,246 ------- ------- Total Automotive, Electronics and Other Operations assets 114,594 113,316 Financing and Insurance Operations Cash and cash equivalents (Note 1) 146 577 Investments in securities (Note 3) 8,748 7,896 Finance receivables - net (Note 4) 70,436 58,289 Investment in leases and other receivables (Note 7) 32,798 28,523 Other assets 18,807 12,799 Net receivable from Automotive, Electronics and Other Operations (Note 1) 816 - ------- ------- Total Financing and Insurance Operations assets 131,751 108,084 ------- ------- Total assets $246,345 $221,400 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Automotive, Electronics and Other Operations Accounts payable (principally trade) $13,542 $12,400 Loans payable (Note 10) 1,204 691 Accrued expenses (Note 14) 30,548 31,590 Net payable to Financing and Insurance Operations (Note 1) 816 - ------- ------- Total current liabilities 46,110 44,681 Long-term debt (Note 10) 7,118 5,669 Postretirement benefits other than pensions (Note 13) 33,503 33,600 Pensions (Note 13) 4,410 2,472 Net liabilities of discontinued operations (Notes 1 and 23) - 335 Other liabilities and deferred income taxes (Note 14) 17,807 16,888 ------- ------- Total Automotive, Electronics and Other Operations liabilities 108,948 103,645 Financing and Insurance Operations Accounts payable 4,148 3,095 Debt (Note 10) 107,753 86,902 Deferred income taxes and other liabilities (Note 14) 9,661 8,962 Net payable to Automotive, Electronics and Other Operations (Note 1) - 319 ------- ------- Total Financing and Insurance Operations liabilities 121,562 99,278 Minority interests 563 671 General Motors - obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures of General Motors (Note 16) Series D 79 79 Series G 141 143 Stockholders' equity (Notes 17 and 19) Preference stocks 1 1 $1-2/3 par value common stock (issued, 655,008,344 and 693,456,394 shares) 1,092 1,156 Class H common stock (issued, 106,159,776 and 103,885,803 shares) 11 10 Capital surplus (principally additional paid-in capital) 12,661 15,369 Retained earnings 6,984 5,416 ------ ------ Subtotal 20,749 21,952 Accumulated foreign currency translation adjustments (1,089) (810) Net unrealized gains on securities 481 504 Minimum pension liability adjustment (5,089) (4,062) ----- ----- Accumulated other comprehensive loss (5,697) (4,368) ----- ----- Total stockholders' equity 15,052 17,584 -------- -------- Total liabilities and stockholders' equity $246,345 $221,400 ======= ======= Reference should be made to the notes to consolidated financial statements. - 3 - CONSOLIDATED BALANCE SHEETS - Concluded December 31, ------------ AUTOMOTIVE, ELECTRONICS AND OTHER OPERATIONS 1998 1997 ---- ---- (Dollars in Millions) ASSETS Cash and cash equivalents $9,728 $9,696 Marketable securities 402 3,815 -------- ------- Total cash and marketable securities (Notes 1 and 3) 10,130 13,511 Accounts and notes receivable (less allowances) 4,750 4,551 Inventories (less allowances) (Note 5) 10,437 10,234 Net assets of discontinued operations (Notes 1 and 23) 77 - Equipment on operating leases (less accumulated depreciation) (Note 7) 4,954 4,677 Deferred income taxes and other current assets (Note 6) 10,051 6,034 Net receivable from Financing and Insurance Operations (Note 1) - 319 ------ ------ Total current assets 40,399 39,326 Equity in net assets of nonconsolidated associates 950 1,060 Property - net (Note 8) 32,222 29,315 Intangible assets - net (Notes 1 and 9) 9,994 10,655 Deferred income taxes (Note 6) 14,967 17,714 Other assets 16,062 15,246 ------ ------ Total Automotive, Electronics and Other Operations assets $114,594 $113,316 ======== ======== LIABILITIES AND GM INVESTMENT Accounts payable (principally trade) $13,542 $12,400 Loans payable (Note 10) 1,204 691 Accrued expenses (Note 14) 30,548 31,590 Net payable to Financing and Insurance Operations (Note 1) 816 - ------- ------- Total current liabilities 46,110 44,681 Long-term debt (Note 10) 7,118 5,669 Postretirement benefits other than pensions (Note 13) 33,503 33,600 Pensions (Note 13) 4,410 2,472 Net liabilities of discontinued operations (Notes 1 and 23) - 335 Other liabilities and deferred income taxes (Note 14) 17,807 16,888 ------ ------ Total Automotive, Electronics and Other Operations liabilities 108,948 103,645 Minority interests 511 639 GM investment in Automotive, Electronics and Other Operations 5,135 9,032 ------- ------- Total Automotive, Electronics and Other Operations liabilities and GM investment $114,594 $113,316 ======== ======== December 31, ------------ FINANCING AND INSURANCE OPERATIONS 1998 1997 ---- ---- (Dollars in Millions) ASSETS Cash and cash equivalents (Note 1) $146 $577 Investments in securities (Note 3) 8,748 7,896 Finance receivables - net (Note 4) 70,436 58,289 Investment in leases and other receivables (Note 7) 32,798 28,523 Other assets 18,807 12,799 Net receivable from Automotive, Electronics and Other Operations (Note 1) 816 - ------- ------- Total Financing and Insurance Operations assets $131,751 $108,084 ======= ======= LIABILITIES AND GM INVESTMENT Accounts payable $4,148 $3,095 Debt (Note 10) 107,753 86,902 Deferred income taxes and other liabilities (Note 14) 9,661 8,962 Net payable to Automotive, Electronics and Other Operations (Note 1) - 319 ------- ------- Total Financing and Insurance Operations liabilities 121,562 99,278 Minority interests 52 32 GM investment in Financing and Insurance Operations 10,137 8,774 ------- ------- Total Financing and Insurance Operations liabilities and GM investment $131,751 $108,084 ======== ======== The above supplemental consolidating information is explained in Note 1, "Nature of Operations". Reference should be made to the notes to consolidated financial statements. - 4 - CONSOLIDATED STATEMENTS OF CASH FLOWS For The Years Ended December 31, -------------------------------- 1998 1997 1996 ---- ---- ---- (Dollars in Millions) GENERAL MOTORS CORPORATION AND SUBSIDIARIES Cash flows from operating activities Income from continuing operations $3,049 $6,483 $4,100 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and amortization expenses 11,147 14,646 10,997 Gain on Hughes Defense spin-off (Note 1) - (4,269) - Postretirement benefits other than pensions, net of payments and VEBA contributions 188 (874) 1,172 Pension expense, net of contributions 223 269 707 Originations and purchases of mortgage loans (54,433) (30,878) (19,455) Proceeds on sales of mortgage loans 51,582 28,543 18,157 Originations and purchases of mortgage securities (2,237) (2,516) (970) Proceeds on sales of mortgage securities 849 1,449 758 Change in other investments and miscellaneous assets 1,411 842 (748) Change in other operating assets and liabilities (Note 1) 1,582 (644) (900) Other 982 533 2,144 ------- ------ ------- Net cash provided by operating activities 14,343 13,584 15,962 ------ ------ ------ Cash flows from investing activities Expenditures for property (8,231) (8,647) (8,550) Investments in other marketable securities - acquisitions (34,162) (30,594) (27,278) Investments in other marketable securities - liquidations 37,960 28,958 24,798 Mortgage servicing rights - acquisitions (1,862) (479) (409) Mortgage servicing rights - liquidations 80 23 99 Finance receivables - acquisitions (155,613) (163,614) (155,477) Finance receivables - liquidations 114,662 129,615 120,323 Proceeds from sales of finance receivables 27,681 31,191 36,657 Operating leases - acquisitions (23,525) (21,073) (18,494) Operating leases - liquidations 15,386 12,187 10,224 Proceeds from borrowings of Hughes Defense prior to the Hughes Defense spin-off (Note 1) - 4,006 - Investments in companies, net of cash acquired (1,144) (2,272) (113) Special inter-company payment from EDS (Note 1) - - 500 Other (1,131) 765 1,144 ------ ------ ------ Net cash used in investing activities (29,899) (19,934) (16,576) ------ ------ ------ Cash flows from financing activities Net increase in loans payable 8,186 5,346 732 Increase in long-term debt 24,035 14,971 15,922 Decrease in long-term debt (12,869) (12,500) (12,810) Repurchases of common and preference stocks (3,089) (4,365) (251) Proceeds from issuing common stocks 343 614 480 Cash dividends paid to stockholders (1,388) (1,620) (1,530) ----- ----- ----- Net cash provided by financing activities 15,218 2,446 2,543 ------ ----- ----- Effect of exchange rate changes on cash and cash equivalents 317 (482) (180) ------ ----- ----- Net cash (used in) provided by continuing operations (21) (4,386) 1,749 Net cash (used in) provided by discontinued operations (Notes 1 & 23) (378) 1,567 1,804 ----- ------ ------ Net (decrease) increase in cash and cash equivalents (399) (2,819) 3,553 Cash and cash equivalents at beginning of the year 10,273 13,092 9,539 ------ ------ ----- Cash and cash equivalents at end of the year $9,874 $10,273 $13,092 ====== ======= ======= Reference should be made to the notes to consolidated financial statements. - 5 - CONSOLIDATED STATEMENTS OF CASH FLOWS - Concluded For The Years Ended December 31, --------------------------------
1998 1997 1996 ---- ---- ---- Automotive, Financing Automotive, Financing Automotive, Financing Electronics and Electronics and Electronics and and Other Insurance and Other Insurance and Other Insurance --------- --------- --------- --------- --------- --------- Cash flows from operating activities (Dollars in Millions) Income from continuing operations $1,627 $1,422 $5,165 $1,318 $2,859 $1,241 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and amortization expenses 6,227 4,920 9,833 4,813 6,302 4,695 Gain on Hughes Defense spin-off (Note 1) - - (4,269) - - - Postretirement benefits other than pensions, net of payment and VEBA contributions 157 31 (900) 26 1,146 26 Pension expense, net of contributions 223 - 269 - 707 - Originations and purchases of mortgage loans - (54,433) - (30,878) - (19,455) Proceeds on sales of mortgage loans - 51,582 - 28,543 - 18,157 Originations and purchases of mortgage securities - (2,237) - (2,516) - (970) Proceeds on sales of mortgages securities - 849 - 1,449 - 758 Change in other investments and miscellaneous assets 503 908 242 600 29 (777) Change in other operating assets and liabilities (Note 1) 90 1,492 (993) 349 (555) (345) Other (84) 1,066 270 263 1,294 850 ------- ------- ------ ------ ------- ------ Net cash provided by operating activities 8,743 5,600 9,617 3,967 11,782 4,180 ------- ------- ------ ------ ------- ------ Cash flows from investing activities Expenditures for property (7,952) (279) (8,409) (238) (8,429) (121) Investments in other marketable securities - acquisitions (13,010) (21,152) (12,864) (17,730) (14,187) (13,091) Investments in other marketable securities - liquidations 16,272 21,688 12,663 16,295 11,723 13,075 Mortgage servicing rights - acquisitions - (1,862) - (479) - (409) Mortgage servicing rights - liquidations - 80 - 23 - 99 Finance receivables - acquisitions - (155,613) - (163,614) - (155,477) Finance receivables - liquidations - 114,662 - 129,615 - 120,323 Proceeds from sales of finance receivables - 27,681 - 31,191 - 36,657 Operating leases - acquisitions (6,397) (17,128) (5,680) (15,393) (4,089) (14,405) Operating leases - liquidations 5,609 9,777 3,711 8,476 3,819 6,405 Proceeds from borrowings of Hughes Defense prior to the Hughes Defense spin-off (Note 1) - - 4,006 - - - Investments in companies, net of cash acquired (971) (173) (1,850) (422) (113) - Special inter-company payment from EDS (Note 1) - - - - 500 - Net investing activity with Financing and Insurance Operations 338 - 750 - 1,200 - Other (889) (242) 554 211 711 433 ------- ------- ------ ------ ------- ------ Net cash used in investing activities (7,000) (22,561) (7,119) (12,065) (8,865) (6,511) ------ ------- ------ ------- ------ ------ Cash flows from financing activities Net increase (decrease) in loans payable (94) 8,280 (398) 5,744 (1,012) 1,744 Increase in long-term debt 2,937 21,098 384 14,587 1,913 14,009 Decrease in long-term debt (1,492) (11,377) (1,189) (11,311) (871) (11,939) Net financing activity with Automotive, Electronics and Other Operations - (338) - (750) - (1,200) Repurchases of common and preference stocks (3,089) - (4,365) - (251) - Proceeds from issuing common stocks 343 - 614 - 480 - Cash dividends paid to stockholders (1,388) - (1,620) - (1,530) - ------ ------ ------ ----- ------ ----- Net cash (used in) provided by financing activities (2,783) 17,663 (6,574) 8,270 (1,271) 2,614 ------ ------ ------ ----- ------ ----- Effect of exchange rate changes on cash and cash equivalents 315 2 (482) - (180) - Net transactions with Automotive/Financing Operations 1,135 (1,135) 338 (338) 989 (989) ------ ------ ------ ----- ------ ----- Net cash provided by (used in) continuing operations 410 (431) (4,220) (166) 2,455 (706) Net cash (used in) provided by discontinued Operations (Notes 1 and 23) (378) - 1,567 - 1,804 - ------ ------ ------ ----- ------ ----- Net increase (decrease) in cash and cash equivalents 32 (431) (2,653) (166) 4,259 (706) Cash and cash equivalents at beginning of the year 9,696 577 12,349 743 8,090 1,449 ------ ------ ------ ----- ------ ----- Cash and cash equivalents at end of the year $9,728 $146 $9,696 $577 $12,349 $743 ====== ==== ====== ==== ======= ====
The above supplemental consolidating information is explained in Note 1, "Nature of Operations". Reference should be made to the notes to consolidated financial statements. - 6 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
Accumulated Total Other Total Capital Capital Comprehensive Retained Comprehensive Stockholders' Stock Surplus Income Earnings Income/(Loss) Equity ----- ------- ------ -------- ------------- ------ Balance at January 1, 1996 $1,310 $18,871 $7,185 $(4,056) $23,310 Shares reacquired (8) (243) - - (251) Shares issued 14 519 - - 533 Series C conversion 5 (7) - - (2) EDS split-off (49) 49 (4,481) - (4,481) Comprehensive income: Net income - - $4,963 4,963 - 4,963 ----- Other comprehensive income (loss): Foreign currency translation adjustments - - (305) - - - Unrealized losses on securities - - (70) - - - Minimum pension liability adjustment - - 1,246 - - - ----- Other comprehensive income - - 871 - 871 871 ------ Comprehensive income - - $5,834 - - - ===== Cash dividends - - (1,530) - (1,530) ------ ------ ----- ----- ----- Balance at December 31, 1996 1,272 19,189 6,137 (3,185) 23,413 Shares reacquired (122) (4,243) - - (4,365) Shares issued 17 619 - - 636 Preference stock exchange - (196) (26) - (222) Hughes Defense spin-off - - (5,773) - (5,773) Comprehensive income: Net income - - $6,698 6,698 - 6,698 ----- Other comprehensive income (loss): Foreign currency translation adjustments - - (692) - - - Unrealized gains on securities - - 81 - - - Minimum pension liability adjustment - - (572) - - - ----- Other comprehensive loss - - (1,183) - (1,183) (1,183) ----- Comprehensive income - - $5,515 - - - ===== Cash dividends - - (1,620) - (1,620) ----- ------ ----- ----- ----- Balance at December 31, 1997 1,167 15,369 5,416 (4,368) 17,584 Shares reacquired (75) (3,105) - - (3,180) Shares issued 12 397 - - 409 Comprehensive income: Net income - - $2,956 2,956 - 2,956 ----- Other comprehensive income (loss): Foreign currency translation adjustments - - (279) - - - Unrealized losses on securities - - (23) - - - Minimum pension liability adjustment - - (1,027) - - - ----- Other comprehensive loss - - (1,329) - (1,329) (1,329) ----- Comprehensive income - - $1,627 - - - ===== Cash dividends - - (1,388) - (1,388) ----- ------ ----- ----- ----- Balance at December 31, 1998 $1,104 $12,661 $6,984 $(5,697) $15,052 ===== ====== ===== ===== ======
Reference should be made to the notes to consolidated financial statements. - 7 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of General Motors Corporation (hereinafter referred to as the Corporation) and domestic and foreign subsidiaries that are more than 50% owned, principally General Motors Acceptance Corporation and Subsidiaries (GMAC) and Hughes Electronics Corporation and Subsidiaries, prior to the December 17, 1997 restructuring of the company (hereinafter referred to as "former Hughes") and subsequent to the December 17, 1997 restructuring of the company (hereinafter referred to as "Hughes") (see "Hughes Transactions" below) (collectively referred to as "General Motors or GM"). General Motors' share of earnings or losses of associates, in which at least 20% of the voting securities is owned, is included in the consolidated operating results using the equity method of accounting. The financial data related to Delphi Automotive Systems Corporation (Delphi) is presented as discontinued operations for all periods presented and EDS is presentd as discontinued operations for 1996 (refer to Note 23). GM encourages reference to the Delphi and the GMAC Annual Reports on Form 10-K for the period ended December 31, 1998, both filed with the Securities and Exchange Commission, and the Hughes consolidated financial statements included as Exhibit 99 to the GM Annual Report on Form 10-K for the period ended December 31, 1998. Certain amounts for 1997 and 1996 have been reclassified to conform with the 1998 classifications. Nature of Operations GM presents separate supplemental consolidating financial information for the following businesses: (1) Automotive, Electronics and Other Operations which consists of the design, manufacturing and marketing of cars, trucks, locomotives and heavy duty transmissions and related parts and accessories, as well as the operations of Hughes; and (2) Financing and Insurance Operations which consists primarily of GMAC, which provides a broad range of financial services, including consumer vehicle financing, full-service leasing and fleet leasing, dealer financing, car and truck extended service contracts, residential and commercial mortgage services, and vehicle and homeowners insurance. Transactions between businesses have been eliminated in the Corporation's consolidated statements of income. Automotive, Electronics and Other Operations' net expense (income) from transactions with Financing and Insurance Operations was as follows (in millions): Years Ended December 31, ------------------------ 1998 1997 1996 ---- ---- ---- Interest $140 $89 $71 Service fees 58 34 27 Insurance - net (24) (127) (138) Other (92) (97) (85) -- --- --- Net expense (income) $82 $(101) $(125) == === === Use of Estimates in the Preparation of the Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates. Revenue Recognition Sales are generally recorded when products are shipped or when services are rendered to independent dealers or other third parties. Provisions for normal dealer sales incentives, returns and allowances, and GM Card rebates are made at the time of vehicle sales. Costs related to special sales incentive programs are recognized as reductions to sales when determinable. Financing revenue is recorded over the terms of the receivables using the interest method. Certain loan origination costs are deferred and amortized to financing revenue over the lives of the related loans using the interest method. Income from operating lease assets is recognized on a straight-line basis over the scheduled lease term. Certain operating lease origination costs are deferred and amortized to financing revenue over the lives of the related operating leases using the straight-line method. Insurance premiums are earned on a basis related to coverage provided over the terms of the policies. Commission, premium taxes, and other costs incurred in acquiring new business are deferred and amortized over the terms of the related policies on the same basis as premiums are earned. The liability for losses and loss expenses includes a provision for unreported losses, based on past experience, net of the estimated salvage and subrogation recoverable. - 8 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 1. Significant Accounting Policies (continued) Product-Related Expenses Advertising and sales promotion, research and development, and other product-related costs are charged to expense as incurred. Provisions for estimated expenses related to product warranty are made at the time the products are sold. Advertising expense was $3.7 billion in 1998, $4.0 billion in 1997, and $3.3 billion in 1996. Research and development expense was $6.5 billion in 1998, $6.6 billion in 1997, and $7.3 billion in 1996. Depreciation and Amortization Depreciation is provided based on the estimated useful lives of property groups generally using accelerated methods, which accumulate depreciation of approximately two-thirds of the depreciable cost during the first half of the estimated useful lives. Leasehold improvements are amortized over the period of the lease or the life of the property, whichever is shorter, with the amortization applied directly to the asset account. Depreciation on capitalized leases with terms of five years or less is provided using the straight-line method; leases with terms in excess of five years are depreciated using the foregoing accelerated methods. Depreciation of vehicles and other equipment on operating leases or in GM's use is provided generally on a straight-line basis. The difference between the net book value and the proceeds of sale or salvage on items disposed of is accounted for as a charge against or credit to the provision for depreciation. Expenditures for special tools are amortized over their estimated useful lives, primarily using the units of production method. Amortization is applied directly to the asset account. Replacement of special tools for reasons other than changes in products is charged directly to cost of sales. Depreciation and amortization expense was as follows (in millions): Years Ended December 31, ------------------------ Automotive, Electronics and Other Operations 1998 1997 1996 - -------------------------------------------- ---- ---- ---- Depreciation (Note 2) $3,772 $4,178 $3,366 Amortization of special tools (Note 2) 2,350 5,427 2,786 Amortization of intangible assets (Note 9) 105 228 150 ------ ------- ------ Total $6,227 $9,833 $6,302 ===== ===== ===== Financing and Insurance Operations - ---------------------------------- Depreciation and amortization expense $4,920 $4,813 $4,695 ===== ===== ===== Foreign Currency Translation Foreign currency exchange transaction and translation losses on an after-tax basis included in consolidated net income in 1998, 1997, and 1996, pursuant to Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation, amounted to $298 million, $497 million, and $401 million, respectively. Cash and Cash Equivalents Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less. - 9 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 1. Significant Accounting Policies (continued) Statement of Cash Flows Supplementary Information Years Ended December 31, ------------------------ Automotive, Electronics and Other Operations 1998 1997 1996 - -------------------------------------------- ---- ---- ---- (Dollars in Millions) Changes in other operating assets and liabilities were as follows: Accounts receivable $(80) $(1,006) $(103) Prepaid expenses and other deferred charges 217 1,006 (159) Inventories (494) (808) (690) Accounts payable 1,249 1,212 827 Deferred taxes and income taxes payable (2,315) (3,565) (694) Accrued expenses and other liabilities 1,513 2,168 264 ----- ----- --- Total $90 $(993) $(555) == === === Cash paid for interest and income taxes was as follows: Interest $435 $449 $632 Income taxes $1,132 $1,120 $1,202 Years Ended December 31, ------------------------ Financing and Insurance Operations 1998 1997 1996 - ---------------------------------- ---- ---- ---- (Dollars in Millions) Changes in other operating assets and liabilities were as follows: Other receivables $206 $(714) $(384) Other assets (36) (55) 44 Accounts payable 858 624 592 Deferred taxes and other liabilities 464 494 (597) ------ --- --- Total $1,492 $349 $(345) ===== === === Cash paid for interest and income taxes was as follows: Interest $5,695 $5,202 $4,893 Income taxes $138 $338 $1,004 Allowance for Credit Losses An allowance for credit losses is generally established during the period in which receivables are acquired and is maintained at a level deemed appropriate by management based on historical and other factors that affect collectibility. Losses arising from the sale of repossessed collateral are charged to the allowance for credit losses. Where repossession has not taken place, receivables are charged off as soon as it is determined that the collateral cannot be repossessed, generally not more than 150 days after default. Repossessed Property and Impaired Loans Losses arising from the repossession of collateral supporting doubtful accounts and property supporting defaulted operating leases are recognized upon repossession. Repossessed assets are recorded at the lower of historical cost or estimated realizable value and are reclassified from finance receivables or operating leases to nonearning assets with the related adjustments to the valuation allowance included in other operating expenses. Non-retail finance receivables are reduced to the lower of book value or the estimated fair value of collateral when determined to be impaired or uncollectible. Valuation of Long-Lived Assets GM periodically evaluates the carrying value of long-lived assets to be held and used, including goodwill and other intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. - 10 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 1. Significant Accounting Policies (continued) Derivative Instruments GM is party to a variety of foreign exchange, interest rate, and commodity forward contracts and options entered into in connection with the management of its exposure to fluctuations in foreign exchange rates, interest rates, and certain commodity prices. These financial exposures are managed in accordance with corporate policies and procedures. GM established the Risk Management Committee to develop and monitor the Corporation's financial risk strategies, policies, and procedures. The Committee reviews and approves all new risk management strategies, establishes approval authority guidelines for approved programs, monitors compliance and performance of existing risk management programs. GM does not enter into derivative transactions for trading purposes. As part of the hedging program approval process, GM's management is required to identify the specific financial risk which the derivative transaction will minimize, the appropriate hedging instrument to be used to reduce the risk, and the correlation between the financial risk and the hedging instrument. Purchase orders, letters of intent, vehicle production forecasts, capital planning forecasts, and historical data are used as the basis for determining the anticipated values of the transactions to be hedged. Generally, GM does not enter into derivative transactions that do not have a high correlation with the underlying financial risk. In the infrequent instances in which a derivative transaction is entered into that does not have a high correlation with the underlying exposure, the derivative is marked to market and included in net income on a current basis. The hedge positions, as well as the correlation between the transaction risks and the hedging instruments, are reviewed by management on an ongoing basis. Foreign exchange forward and option contracts are accounted for as hedges to the extent they are designated, and are effective, as hedges of firm foreign currency commitments. Additionally, certain foreign exchange option contracts receive hedge accounting treatment to the extent such contracts hedge certain anticipated foreign currency transactions. Other such foreign exchange contracts and options are marked to market and included in net income on a current basis. Interest rate swaps and options that are designated, and are effective, as hedges of underlying debt obligations are not marked to market and included in net income, but are used to adjust interest expense recognized over the lives of the underlying debt agreements. Gains and losses from terminated hedge contracts are deferred and amortized over the remaining period of the original swap or the remaining term of the underlying exposure, whichever is shorter. Open interest rate contracts are reviewed regularly to ensure that they remain effective as hedges of interest rate exposure. Written options (including swaptions, interest rate caps and collars, and swaps with embedded swaptions) and other swaps that do not qualify for hedge accounting are marked to market and included in net income on a current basis. GM also enters into commodity forward and option contracts. Since GM has the discretion to settle these transactions either in cash or by taking physical delivery, these contracts are not considered financial instruments for accounting purposes. Commodity forward contracts and options are accounted for as hedges to the extent they are designated, and are effective, as hedges of firm or anticipated commodity purchase contracts. Other commodity forward contracts and options are marked to market and included in net income on a current basis. Postemployment Benefits and Employee Termination Benefits GM's postemployment benefits primarily relate to GM's extended disability benefit program in the United States and employee job security and supplemental unemployment compensation benefits (mainly pursuant to union or other contractual agreements). Extended disability benefits are accrued on a service-driven basis and employee job security and supplemental unemployment compensation benefits are accrued on an event-driven basis. Accruals for postemployment benefits represent the discounted future cash expenditures expected during the period between the idling of affected employees and the time when such employees are redeployed, retire or otherwise terminate their employment. Voluntary termination benefits are accrued when the employees accept the offer. Involuntary termination benefits are accrued when management has committed to a termination plan and the benefit arrangement is communicated to affected employees. Environmental Liabilities GM recognizes environmental liabilities when a loss is probable and can be reasonably estimated. Such liabilities are generally not subject to insurance coverage. The cost of each environmental liability is estimated by engineering, financial, and legal specialists within GM based on current law. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that other potentially responsible parties (PRPs) will be able to fulfill their commitments at the sites where GM may be jointly and severally liable. At sites being addressed under the U.S. Comprehensive Environmental Response, Compensation and Liability Act or similar state laws (the Superfund Sites), GM typically recognizes a loss once it has been named as a PRP and has determined that some loss is probable and estimable. The Superfund Sites are primarily multi-PRP sites not owned or operated by - 11 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 1. Significant Accounting Policies (concluded) GM. For GM's operating plants, an estimated liability is typically recognized either upon completion of an environmental assessment or when GM proposes an agreement with the appropriate regulatory agency to take action at a site. For closed or closing plants owned by GM and properties being sold, an estimated liability is typically recognized at the time the closure decision is made or sale is recorded and is based on an environmental assessment of the plant property. GM's estimates for environmental obligations are dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, uncertainty as to what remedy and technology will be required, the outcome of discussions with regulatory agencies and other PRPs at multi-party sites, the number and financial viability of other PRPs, and the timing of expenditures; accordingly, such estimates could change materially as GM periodically evaluates and revises such estimates based on expenditures against established reserves and the availability of additional information. New Accounting Standards In the first quarter of 1998, the AICPA's Accounting Standards Executive Committee issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This SOP requires that entities capitalize certain internal-use software cost once specific criteria are met. Currently, GM generally expenses the costs of developing or obtaining internal-use software as incurred. GM will adopt SOP 98-1 on January 1, 1999, as required. GM expects that under the new SOP, approximately $300 million to $350 million in spending will be capitalized in 1999 that would have otherwise been expensed. In the second quarter of 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. GM plans to adopt SFAS No. 133 by January 1, 2000, as required. GM is currently assessing the impact of this Statement on GM's consolidated financial statements. Labor Force GM, on a worldwide basis, has a concentration of its labor supply in employees working under union collective bargaining agreements, a significant number of which will expire in 1999. Hughes Transactions On December 17, 1997, GM and former Hughes completed a series of related transactions (Hughes Transactions) that were designed to address strategic challenges facing the three principal businesses of former Hughes and unlock stockholder value in GM. The Hughes Transactions included the tax-free spin-off of the defense electronics business of former Hughes (Hughes Defense) to holders of $1-2/3 par value and Class H common stocks, which was then followed immediately by the merger of Hughes Defense with Raytheon Company (Raytheon). Concurrently, Delco Electronics Corporation (Delco), the automotive electronics subsidiary of former Hughes, was transferred from former Hughes to GM's Delphi Automotive Systems unit. Finally, Class H common stock was recapitalized into a GM tracking stock, Class H common stock, that is linked to the telecommunications and space businesses of Hughes. The spin-off of Hughes Defense and merger with Raytheon had a total value to GM and its stockholders of approximately $9.8 billion that consisted of approximately $4.0 billion cash retained by Hughes from debt proceeds incurred by Hughes Defense prior to its spin-off and $5.8 billion of Hughes Defense Class A common stock distributed to holders of $1-2/3 par value and Class H common stock. Substantially all of the proceeds from the debt obligation of Hughes Defense were made available to Hughes. The distribution of Hughes Defense to the $1-2/3 par value and Class H common stockholders was recorded by GM at fair value and resulted in the recognition of a $4.3 billion gain that was included in other income. In addition, GM's total stockholders' equity was reduced by approximately $1.5 billion as a result of the Hughes Transactions. GM distributed a total of 102,630,503 shares of Class A common stock of Hughes Defense, 44,308,316 shares or 43.2% to $1-2/3 par value stockholders and 58,322,187 shares or 56.8% to Class H stockholders, which represented approximately 30% of the total equity of the newly combined Hughes Defense/Raytheon Company. The distribution to Class H common stockholders, which had a total value of approximately $3.3 billion, accounted for their tracking stock interest in Hughes Defense valued at approximately $1.5 billion, plus an additional amount to compensate them for the elimination of their tracking stock interest in Delco and other factors valued at approximately $1.8 billion. - 12 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 2. Competitiveness Studies GM periodically evaluates the carrying value of long-lived assets to be held and used, when events and circumstances warrant such review. These evaluations and reviews are generally done in conjunction with the annual business planning cycle. Based on the results of these reviews, GM recorded pre-tax charges against income totaling $224 million ($228 million after-tax, or $0.35 per share of $1-2/3 par value common stock) in 1998 and $5.0 billion ($3.1 billion after-tax, or $4.34 per share of $1-2/3 par value common stock) in 1997. Following are the pre-tax components of the charges: 1998 1997 ---- ---- Underperforming assets, including both vehicle and component-manufacturing assets $122 million $2.9 billion Capacity reductions and employee separation programs $102 million $1.3 billion Other - $0.8 billion In 1998, the pre-tax charges were comprised of $105 million ($80 million after-tax) for GMNA, $82 million ($51 million after-tax) for GMLAAM, and $37 million ($97 million after-tax) for GMAP. Overall, these charges had the effect of increasing 1998 cost of sales, depreciation and amortization and other expenses by $92 million, $67 million and $65 million, respectively. In 1997, the pre-tax charges were comprised of $3.8 billion ($2.4 billion after-tax) for GMNA, $848 million ($488 million after-tax) for GME, $174 million ($170 million after-tax) for GMAP and $205 million ($128 million after-tax) for GM Automotive, Electronics and Other Operations' Other segment. These charges reduced 1997 net sales and revenues by $548 million and increased cost of sales, depreciation and amortization and other expenses by $1.4 billion, $3.0 billion and $72 million, respectively. Amounts related to capacity reduction and other expenses that were recorded in 1997 that still remain as of December 31, 1998 total $1.1 billion. Going forward, GM's future cash requirements relating to the 1998 and 1997 charges are expected to total approximately $1.3 billion over the next five years, with over 70% evenly expended over the first three years. In 1998, the amount included for underperforming assets represents charges recorded pursuant to GM's policy for the valuation of long-lived assets. GM re-evaluated the carrying values of its long-lived assets during its annual business planning cycle. This re-evaluation was performed using product specific cash flow information. As a result, the carrying values of certain tooling and other property, plant and equipment was determined to be impaired as the separately identifiable, anticipated, undiscounted future cash flows from such assets were less than their respective carrying values. The resulting pre-tax impairment charges represented the amount by which the carrying values of such assets exceeded their respective fair market values. The amount included for employee separation programs represents voluntary early retirement and other separation programs affecting approximately 3,300 and 1,150, for GMLAAM and employees involved in the restructuring of the U.S. sales and service field organizations, respectively. In 1997, the amount included for underperforming assets, principally tooling, property, plant and equipment and investments in joint ventures, represents charges recorded pursuant to GM's policy for the valuation of long-lived assets. The amount included for capacity reductions represents post-employment benefits payable to employees, pursuant to contractual agreements and costs associated with the disposal of assets at facilities subject to capacity reductions. This affects approximately 10,000 employees at GMNA's Buick City Assembly and V-6 Powertrain plants in Flint, Michigan; Detroit Truck Assembly in Detroit, Michigan; and certain GME facilities. Pursuant to some of these actions, additional charges of $74 million ($44 million after-tax) related to work schedule modifications at Opel Belgium were recorded during the second quarter of 1998. The amount included as other primarily represents losses on contracts associated with pricing pressures on used vehicles and the related effect on GM's retail-lease commitments. These pricing pressures are primarily a result of increased industry sales incentives on new vehicles. In connection with the 1997 evaluation of long-lived assets, GM reviewed its remaining previously recorded reserve for plant closings and reclassified the reserve to the consolidated balance sheet accounts that reflected the nature of the specific reserve components. At December 31, 1998 and 1997, the remaining balance of this previously recorded reserve represents primarily accrued expenses for post-employment benefits affecting approximately 3,100 employees (mainly pursuant to union or other contractual arrangements) of approximately $900 million and $1.0 billion, respectively. In 1996, favorable adjustments to the previously recorded plant closings reserve totaled $789 million. Of this amount, $409 million reflected GM's ability to utilize its Wilmington, Delaware facility for the assembly of a new generation Saturn vehicle, and $380 million was primarily due to revised estimates of postemployment benefit costs to be incurred in connection with plant closings. Separately, GM recorded a pre-tax plant closing charge of $62 million in 1996. - 13 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 3. Marketable and Other Securities Marketable securities held by GM are classified as available-for-sale, except for certain mortgage-related securities of GMAC, which are classified as trading securities. The aggregate excess of fair value over cost, net of related income taxes, for available-for-sale securities is included as a separate component of stockholders' equity. The excess of fair value over cost for trading securities is included in income on a current basis. GM determines cost on the specific identification basis. Automotive, Electronics and Other Operations - -------------------------------------------- Investments in marketable securities were as follows (in millions): December 31, 1998 ----------------- Fair Unrealized Unrealized Cost Value Gains Losses ---- ----- ----- ------ Type of Security Bonds, notes, and other securities United States government and governmental agencies and authorities $286 $286 $ - $ - States, municipalities, and political subdivisions 11 11 - - Corporate debt securities and other 98 105 7 - --- --- - -- Total marketable securities $395 $402 $7 $ - === === = == December 31, 1997 ----------------- Fair Unrealized Unrealized Cost Value Gains Losses ---- ----- ----- ------ Type of Security Bonds, notes, and other securities United States government and governmental agencies and authorities $610 $612 $2 $ - Corporate debt securities and other 3,188 3,203 15 - ----- ----- -- -- Total marketable securities $3,798 $3,815 $17 $ - ===== ===== == == Debt securities totaling $136 million mature within one year and $266 million mature after one through five years. Proceeds from sales of marketable securities totaled $4.4 billion in 1998, $10.9 billion in 1997 and $3.4 billion in 1996. The gross gains related to sales of marketable securities were $17 million, $121 million and $106 million in 1998, 1997 and 1996, respectively. The gross losses related to sales of marketable securities were $11 million, $51 million and $4 million in 1998, 1997 and 1996, respectively. Other securities classified as cash equivalents, which consisted primarily of commercial paper, repurchase agreements and certificates of deposit, were $9.2 billion and $10.0 billion at December 31, 1998 and 1997, respectively. Financing and Insurance Operations - ---------------------------------- Investments in securities were as follows (in millions): December 31, 1998 ----------------- Fair Unrealized Unrealized Cost Value Gains Losses ---- ----- ----- ------ Type of Security Bonds, notes, and other securities United States government and governmental agencies and authorities $445 $456 $12 $1 States, municipalities, and political subdivisions 1,495 1,600 117 12 Mortgage-backed securities 415 383 6 38 Corporate debt securities and other 1,895 1,926 66 35 ----- ----- ---- -- Total debt securities available-for-sale 4,250 4,365 201 86 Mortgage-backed securities held for trading purposes 3,173 3,173 - - ----- ----- ----- -- Total debt securities 7,423 7,538 201 86 Equity securities 779 1,210 534 103 ----- ----- --- --- Total investment in securities $8,202 $8,748 $735 $189 ===== ===== === === - 14 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 3. Marketable and Other Securities (concluded) December 31, 1997 ----------------- Fair Unrealized Unrealized Cost Value Gains Losses ---- ----- ----- ------ Type of Security Bonds, notes, and other securities United States government and governmental agencies and authorities $687 $694 $7 $- States, municipalities, and political subdivisions 1,576 1,686 121 11 Mortgage-backed securities 110 113 3 - Corporate debt securities and other 2,401 2,441 50 10 ----- ----- --- -- Total debt securities available-for-sale 4,774 4,934 181 21 Mortgage-backed securities held for trading purposes 2,063 2,063 - - ----- ----- ----- --- Total debt securities 6,837 6,997 181 21 Equity securities 523 899 416 40 ------ ------ --- -- Total investment in securities $7,360 $7,896 $597 $61 ===== ===== === == Debt securities totaling $317 million mature within one year, $1.3 billion mature after one through five years, $1.5 billion mature after five years through 10 years and $4.5 billion mature after 10 years. Proceeds from sales of marketable securities totaled $3.6 billion in 1998, $2.7 billion in 1997 and $2.3 billion in 1996. The gross gains related to sales of marketable securities were $218 million, $176 million and $130 million in 1998, 1997 and 1996, respectively. The gross losses related to sales of marketable securities were $49 million, $45 million and $29 million in 1998, 1997 and 1996, respectively. Other securities classified as cash equivalents, which consisted primarily of commercial paper, repurchase agreements and certificates of deposit, were $155 million and $293 million at December 31, 1998 and 1997, respectively. NOTE 4. Finance Receivables - Net Finance receivables - net included the following (in millions): December 31, ------------ 1998 1997 ---- ---- U.S. Retail $33,321 $26,570 Wholesale 17,722 15,213 Leasing and lease financing 632 716 Term loans to dealers and others 4,924 3,118 ------- ------- Total U.S. 56,599 45,617 ------ ------ Canada, Mexico and International Retail 9,337 8,059 Wholesale 6,668 6,475 Leasing and lease financing 2,023 2,069 Term loans to dealers and others 857 488 ------- ------- Total Canada, Mexico and International 18,885 17,091 ------ ------ Total finance receivables 75,484 62,708 Less- Unearned income (4,027) (3,516) Allowance for financing losses (1,021) (903) ------- -------- Total finance receivables - net $70,436 $58,289 ======= ====== The aggregate amount of total finance receivables maturing in each of the five years following December 31, 1998 is as follows: 1999-$42.1 billion; 2000-$13.7 billion; 2001-$10.7 billion; 2002-$5.6 billion; 2003-$2.5 billion; and 2004 and thereafter-$900 million. - 15 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 4. Finance Receivables - Net (concluded) GMAC participates in various sales of receivables programs and sold retail finance receivables through special purpose subsidiaries with principal aggregating $1.6 billion in 1998 and $5.4 billion in 1997. These subsidiaries generally retain a subordinated investment of no greater than 7.0% of the total receivables pool and market the remaining portion. These subordinated investments absorb losses related to sold receivables to the extent that such losses are greater than the excess cash flows from those receivables and cash reserves related to the sale transaction. Subordinated interests in trusts are recorded in investments in securities. Pre-tax gains relating to such sales (excluding limited recourse loss provisions which generally have been provided at the time the contracts were originally acquired) amounted to $31.0 million in 1998 and $84.8 million in 1997. GMAC continues to service these receivables for a fee that is considered to be adequate compensation and earns other related ongoing income. GMAC's sold retail finance receivables servicing portfolio amounted to $4.0 billion and $6.0 billion at December 31, 1998 and 1997, respectively. GMAC also sold wholesale receivables that it continues to service for a fee that is considered to be adequate compensation. The sold wholesale receivables servicing portfolio totaled $3.3 billion and $6.3 billion at December 31, 1998 and 1997, respectively. Additionally, GMAC is committed to sell eligible wholesale receivables, on a revolving basis, arising in certain dealer accounts. NOTE 5. Inventories Automotive, Electronics and Other Operations' inventories included the following (in millions): December 31, ------------ 1998 1997 ---- ---- Productive material, work in process, and supplies $5,377 $4,988 Finished product, service parts, etc. 6,962 7,083 ------ ------ Total inventories at FIFO 12,339 12,071 Less LIFO allowance 1,902 1,837 ------- ------- Total inventories (less allowances) $10,437 $10,234 ====== ====== Inventories are stated generally at cost, which is not in excess of market. The cost of substantially all U.S. inventories other than the inventories of Saturn Corporation (Saturn) and Hughes is determined by the last-in, first-out (LIFO) method. The cost of non-U.S., Saturn and Hughes inventories is determined generally by either the first-in, first-out (FIFO) or average cost methods. NOTE 6. Income Taxes Income from continuing operations before income taxes and minority interests included the following (in millions): Years Ended December 31, ------------------------ 1998 1997 1996 ---- ---- ---- U.S. income $1,729 $3,512 $1,119 Foreign income 3,149 4,021 4,261 ----- ----- ----- Total $4,878 $7,533 $5,380 ===== ===== ===== The provision for income taxes was estimated as follows (in millions): Income taxes estimated to be payable (refundable) currently U.S. federal $83 $458 $(250) Foreign 1,952 1,590 1,499 U.S. state and local 295 166 147 ------ ------ ----- Total payable currently 2,330 2,214 1,396 ----- ----- ----- Deferred income tax (credit) expense - net U.S. federal 373 (552) 233 Foreign (852) (349) (144) U.S. state and local (196) (261) 11 ------ ------ ----- Total deferred (675) (1,162) 100 ------ ----- ----- Investment tax credits (19) (27) (32) ------- -------- ------ Total income taxes $1,636 $1,025 $1,464 ===== ===== ===== - 16 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 6. Income Taxes (continued) Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ materially from the amount accrued. Provisions are made for estimated U.S. and foreign income taxes, less available tax credits and deductions, which may be incurred on the remittance of the Corporation's share of subsidiaries' undistributed earnings not deemed to be permanently invested. Taxes have not been provided on foreign subsidiaries' earnings, which are deemed essentially permanently reinvested, of approximately $9.8 billion at December 31, 1998 and $8.8 billion at December 31, 1997. Quantification of the deferred tax liability, if any, associated with permanently reinvested earnings is not practicable. A reconciliation of the provision for income taxes compared with the amounts at the U.S. federal statutory rate was as follows (in millions): Years Ended December 31, ------------------------ 1998 1997 1996 ---- ---- ---- Tax at U.S. federal statutory income tax rate $1,707 $2,636 $1,883 Hughes Defense spin-off - (1,494) - Foreign rates other than 35% 1 (154) (205) Taxes on unremitted earnings of subsidiaries 92 73 32 Tax effect of the 1995 contribution of Class E common stock to the U.S. hourly pension plan - - (245) Research and experimentation credits (179) (261) (116) Subsidiary settlement of affirmative claim with IRS (92) - - Other adjustments 107 225 115 ------ ----- ------- Total income tax $1,636 $1,025 $1,464 ===== ===== ===== Deferred income tax assets and liabilities for 1998 and 1997 reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. The net deferred tax asset in the U.S. was $15.0 billion at December 31, 1998 and 1997, respectively. Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities included the following (in millions): December 31, ------------ 1998 1997 ---- ---- Deferred Tax Deferred Tax ------------ ------------ Assets Liabilities Assets Liabilities ------ ----------- ------ ----------- Postretirement benefits other than pension $14,560 $ - $14,006 $ - Minimum pension liability adjustment 3,054 - 2,423 - Employee benefit plans 1,063 5,816 1,170 6,047 Policy and warranty reserves 2,534 - 2,445 - Sales and product reserves 2,176 - 1,977 8 Profits on long-term contracts 146 156 156 143 Alternative minimum tax credit carryforwards 690 - 673 - Depreciation and amortization expense 594 3,263 900 3,101 Capitalized research and experimentation 82 - 285 - U.S. state net operating loss carryforwards 559 - 559 - Financing losses 407 - 361 - Tax credit carryforwards 879 - 467 - Lease transactions - 3,624 - 3,075 Tax on unremitted profits - 330 - 303 Other U.S. 5,461 2,850 6,319 2,959 Miscellaneous foreign 2,763 922 1,805 607 ------- ------- ------- ------- Subtotal 34,968 16,961 33,546 16,243 Valuation allowances (607) - (677) - ------- ------- ------- ------- Total deferred taxes $34,361 $16,961 $32,869 $16,243 ====== ====== ====== ====== - 17 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 6. Income Taxes (concluded) Realization of the net deferred tax assets is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards. Although realization is not assured, management believes that it is more likely than not that the net deferred tax assets will be realized. The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term if actual future taxable income is lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable temporary differences. The alternative minimum tax credit can be carried forward indefinitely. The U.S. state net operating loss carryforwards will expire in the years 1999 - 2013 and 2018 if not utilized; however, a substantial portion will not expire until after the year 2004. The tax credit carryforwards will expire in the years 2000 - - 2013 and 2018 if not utilized. NOTE 7. Equipment on Operating Leases The Corporation has significant investments in the residual values of its leasing portfolios. The residual values represent the estimate of the values of the assets at the end of the lease contracts and are initially recorded based on appraisals and estimates. Realization of the residual values is dependent on the Corporation's future ability to market the vehicles under then prevailing market conditions. Management reviews residual values periodically to determine that recorded amounts are appropriate. Included in equipment on operating leases and other assets for Automotive, Electronics and Other Operations was the following (in millions): December 31, ------------ 1998 1997 ---- ---- Equipment on operating leases $9,064 $8,312 Less accumulated depreciation (935) (992) ------ ------ Net book value $8,129 $7,320 ===== ===== Equipment on operating leases included in investment in leases and other receivables for Financing and Insurance Operations was as follows (in millions): December 31, ------------ 1998 1997 ---- ---- Equipment on operating leases $35,804 $33,364 Less accumulated depreciation (6,817) (6,994) ----- ------ Net book value $28,987 $26,370 ====== ====== The lease payments to be received related to equipment on operating leases maturing in each of the five years following December 31, 1998 are as follows: Automotive, Electronics and Other Operations -1999-$5.5 billion; 2000-$490 million; 2001-$478 million; 2002-$463 million; and 2003-$441 million; Financing and Insurance Operations - 1999-$6.1 billion; 2000-$4.1 billion; 2001-$1.6 billion; 2002-$161 million; and 2003-$8 million. - 18 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 8. Property - Net Property - net included the following for Automotive, Electronics and Other Operations (in millions): Estimated Useful December 31, Lives (Years) 1998 1997 ------------- ---- ---- Land - $714 $637 Land improvements 10-30 1,709 1,575 Leasehold improvements - less amortization 3-10 207 190 Buildings 29-45 11,425 10,619 Machinery and equipment 3-30 39,914 37,196 Furniture and office equipment 3-20 925 819 Capitalized leases 5-40 1,026 886 Construction in progress - 3,645 3,911 ------ ------ Real estate, plants, and equipment 59,565 55,833 Less accumulated depreciation (34,641) (32,819) ------ ------ Real estate, plants, and equipment - net 24,924 23,014 Special tools - net 7,298 6,301 ------- ------- Total property - net $32,222 $29,315 ====== ====== Financing and Insurance Operations had net property of $386 million and $265 million recorded in other assets at December 31, 1998 and 1997, respectively. NOTE 9. Intangible Assets - Net Intangible assets - net included the following for Automotive, Electronics and Other Operations (in millions): December 31, ------------ 1998 1997 ---- ---- Pensions $6,434 $7,683 Intangible assets relating to acquisition of HAC 427 448 Goodwill relating to all other acquisitions 3,133 2,524 ------ ------ Total intangible assets - net $9,994 $10,655 ===== ====== Intangible assets relating to the acquisition of Hughes Aircraft Company (HAC) as of December 31, 1998 are applicable to Hughes. Such intangible assets relate to patents and related technology and other intangible assets that were originally recorded in 1985 and are being amortized over 40 years. Goodwill resulting from other acquisitions is amortized over periods not exceeding 40 years. Such goodwill includes $3.1 billion associated with Hughes' 1997 merger with, and additional 1998 investment in, PanAmSat Corporation (PAS). Financing and Insurance Operations had net intangible assets of $855 million and $717 million recorded in other assets at December 31, 1998 and 1997, respectively. - 19 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 10. Long-Term Debt and Loans Payable Automotive, Electronics and Other Operations Long-term debt and loans payable were as follows (in millions): Weighted-Average December 31, Interest Rate(1) 1998 1997 ---------------- ---- ---- Long-term debt and loans payable Payable within one year Current portion of long-term debt 7.4% $256 $614 Commercial paper (2) 5.7% 381 29 All other 8.2% 567 48 Payable beyond one year 1999 - - 789 2000 9.6% 759 737 2001 9.8% 419 453 2002 14.3% 36 13 2003 7.5% 595 422 2004 and after 7.5% 5,326 3,275 Unamortized discount (17) (20) ----- ------ Total long-term debt and loans payable $8,322 $6,360 ===== ====== (1) The 1998 weighted-average interest rate for commercial paper includes the impact of interest rate swap agreements. (2) The 1997 weighted-average interest rate for commercial paper was 5.7%. Amounts payable beyond one year after consideration of foreign currency swaps at December 31, 1998 included $309 million in currencies other than the U.S. Dollar, primarily the Brazilian Real ($231 million), the Canadian Dollar ($52 million), the Swiss Franc ($12 million) and the German Mark ($5 million). At December 31, 1998 and 1997, long-term debt and loans payable for automotive, electronics and other operations included $7.2 billion and $4.4 billion, respectively, of obligations with fixed interest rates and $1.1 billion and $2.0 billion, respectively, of obligations with variable interest rates (predominantly based on the London Interbank Offering Rate - i.e., LIBOR), after considering the impact of interest rate swap agreements. To achieve its desired balance, between fixed and variable rate debt, within prescribed limits, GM has entered into interest rate swap, cap and floor agreements. The notional amounts of such agreements as of December 31, 1998 for automotive, electronics and other operations were approximately $1.8 billion ($600 million pay variable and $1.2 billion pay fixed), $100 million and $nil, respectively. The notional amounts of such agreements as of December 31, 1997 were approximately $2.4 billion ($1.2 billion pay variable and $1.2 billion pay fixed), $200 million and $50 million, respectively. GM and its subsidiaries maintain substantial bank lines of credit with various banks that totaled $14.5 billion at December 31, 1998, of which $6.7 billion represented short-term credit facilities and $7.8 billion represented long-term credit facilities. At December 31, 1997, bank lines of credit totaled $9.3 billion, of which $3.9 billion represented short-term credit facilities and $5.4 billion represented long-term credit facilities. The unused short-term and long-term portions of the credit lines totaled $6.2 billion and $7.2 billion at December 31, 1998, compared with $2.5 billion and $4.8 billion at December 31, 1997. Certain bank lines of credit contain covenants with which the Corporation and applicable subsidiaries were in compliance during the year ended December 31, 1998. - 20 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 10. Long-Term Debt and Loans Payable (concluded) Financing and Insurance Operations Debt was as follows (in millions): Weighted-Average December 31, Interest Rate(1) 1998 1997 ---------------- ---- ---- Debt Payable within one year Current portion of debt 6.2% $12,701 $10,851 Commercial paper (2) 5.3% 34,487 27,687 All other (2) 7.5% 15,208 12,087 Payable beyond one year 1999 - - 11,347 2000 6.2% 13,154 6,165 2001 6.0% 10,322 5,932 2002 5.9% 8,561 7,017 2003 5.8% 7,919 2,603 2004 and after 6.8% 6,072 3,907 Unamortized discount (671) (694) --------- -------- Total debt $107,753 $86,902 ======= ====== (1) The 1998 weighted-average interest rate for commercial paper includes the impact of interest rate swap agreements. (2) The 1997 weighted-average interest rate for commercial paper and other short-term borrowings was 5.6% and 5.2%, respectively. Amounts payable beyond one year after consideration of foreign currency swaps at December 31, 1998 included $8.3 billion in currencies other than the U.S. Dollar, primarily the Canadian Dollar ($4.3 billion), the German Mark ($1.6 billion), the U.K. Pound Sterling ($898 million) and the Australian Dollar ($783 million). At December 31, 1998 and 1997, debt for financing and insurance operations included $72.8 billion and $67.9 billion, respectively, of obligations with fixed interest rates and $35.0 billion and $19.0 billion, respectively, of obligations with variable interest rates (predominantly based on the London Interbank Offering Rate - i.e., LIBOR), after considering the impact of interest rate swap agreements. To achieve its desired balance, between fixed and variable rate debt, within prescribed limits, GM has entered into interest rate swap, cap, floor and option agreements. The notional amounts of such agreements as of December 31, 1998 for financing and insurance operations were approximately $13.2 billion ($9.5 billion pay variable and $3.7 billion pay fixed), $400 million, $1.0 billion and $1.0 billion, respectively. The notional amounts for interest rate swap, cap and option agreements as of December 31, 1997 were approximately $9.7 billion ($5.9 billion pay variable and $3.8 billion pay fixed), $1.1 billion and $6.5 billion, respectively. GM's financing and insurance subsidiaries maintain substantial bank lines of credit with various banks that totaled $44.3 billion at December 31, 1998, of which $17.3 billion represented short-term credit facilities and $27.0 billion represented long-term credit facilities. At December 31, 1997, bank lines of credit totaled $41.0 billion, of which $25.8 billion represented short-term credit facilities and $15.2 billion represented long-term credit facilities. The unused short-term and long-term portions of the credit lines totaled $7.5 billion and $25.7 billion at December 31, 1998, compared with $17.7 billion and $13.9 billion at December 31, 1997. Certain bank lines of credit contain covenants with which the Corporation and applicable subsidiaries were in compliance during the year ended December 31, 1998. - 21 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 11. Derivative Financial Instruments and Risk Management GM is a party to financial instruments with off-balance-sheet risk. These financial instruments are used in the normal course of business to manage exposure to fluctuations in interest rates and foreign exchange rates, and to meet the financing needs of its customers. The primary classes of derivatives used by GM are foreign exchange forward contracts and options, interest rate swaps and options and forward contracts to purchase or sell mortgages or mortgage-backed securities. Those instruments involve, to varying degrees, market risk, as the instruments are subject to rate and price fluctuations, and elements of credit risk in the event a counterparty should default. Credit risk is managed through the approval and periodic monitoring of financially sound counterparties. Derivative transactions are used to hedge underlying business exposures. Market risk in these instruments is offset by opposite movements in the underlying exposure. Cash receipts or payments on these contracts normally occur at maturity, or for interest rate swap agreements, at periodic contractually defined intervals. Foreign Exchange Forward Contracts and Options GM is an international corporation with operations in over 50 countries and has foreign currency exposures at these operations related to buying, selling and financing in currencies other than the local currency. GM's most significant foreign currency exposures relate to Canada, Mexico, Western European countries (primarily Germany, United Kingdom, Spain, Italy, Belgium and France), Australia, Japan and Brazil. The magnitude of these exposures significantly varies over time depending upon the strength of local automotive markets and sourcing decisions. GM enters into agreements by which it seeks to manage certain of its foreign exchange exposures in accordance with established policy guidelines, primarily through foreign exchange forward contracts and purchased and written foreign exchange options. These agreements primarily hedge cash flows such as debt, firm commitments and anticipated transactions involving vehicles, components, fixed assets, and subsidiary dividends. As a general practice, GM has not hedged the foreign exchange exposure related to either the translation of overseas earnings into U.S. dollars, or the translation of overseas equity positions back to U.S. dollars. At December 31, 1998 and 1997, the Automotive, Electronics and Other Operations held foreign exchange forward contracts of $6.3 billion and $3.9 billion (including cross-currency swaps of $70 million), respectively. At December 31, 1998 and 1997, the Automotive, Electronics and Other Operations had entered into foreign exchange options of $2.8 billion and $2.9 billion, respectively. At December 31, 1998 and 1997, the Financing and Insurance Operations held foreign exchange forward contracts of $8.0 billion and $6.2 billion (including cross-currency swaps of $3.4 billion and $2.0 billion), respectively. The Automotive, Electronics and Other Operations had deferred hedging losses on outstanding foreign exchange forward contracts hedging firm commitments to purchase inventory or fixed assets totaling $3 million and $17 million at December 31, 1998 and 1997, respectively. Deferred hedging losses on outstanding purchased foreign exchange option contracts hedging firm and anticipated transactions to purchase inventory or fixed assets totaled $2 million and $20 million at December 31, 1998 and 1997, respectively. The Financing and Insurance Operations had deferred hedging gains on outstanding foreign exchange forward contracts hedging firm commitments to purchase assets totaling $13 million and $9 million at December 31, 1998 and 1997, respectively. Such deferred amounts on outstanding foreign exchange forward and option contracts will be included in the cost of such assets when purchased, and subsequently recognized in operations as part of the basis of these assets. In the event the contract is terminated early or the anticipated transaction is no longer likely to occur, the derivative is then marked to market. Foreign exchange forward contracts, which hedge foreign exchange exposures of anticipated inventory, fixed assets and sales transactions, are marked to market and recognized with other gains or losses on foreign exchange transactions in the consolidated statement of income. GM's firm commitments are typically up to one year and may extend for periods of up to three years. Interest Rate Swaps and Options GM's financing and cash management activities subject it to market risk from exposure to changes in interest rates. GM has entered into various financial instrument transactions to maintain the desired level of exposure to the risk of interest rate fluctuations and to minimize interest expense. To achieve this objective, GM will at times use written options in the management of these exposures. In a limited number of cases, interest rate swaps are matched to the anticipated roll-over of investments, wholesale assets or debt, and are executed over terms of up to five years on a portfolio basis to achieve specific interest rate management objectives. Swaps are also matched to operating lease payments where interest rate exposure exists. The differential paid or received on such swaps is recorded as an adjustment to expense or income over the term of the underlying agreement or matched portfolio. - 22 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 11. Derivative Financial Instruments and Risk Management (concluded) Interest rate swaps are contractual agreements between GM and another party to exchange fixed and floating interest rate payments periodically over the life of the agreements without the exchange of underlying principal amounts. Interest rate options, including swaptions and interest rate caps and floors, may result in the future exchange of interest payments if market interest rates reach certain levels. At December 31, 1998 and 1997, the total notional amount of such agreements with off-balance-sheet risk was $2.1 billion and $3.1 billion, respectively, for the Automotive, Electronics and Other Operations. At December 31, 1998 and 1997, the Financing and Insurance Operations held such agreements with off-balance-sheet risk with notional amount totaling $20.0 billion and $26.4 billion, respectively. Interest rate swaps used to hedge an underlying debt obligation are not marked to market, but are used to adjust interest expense recognized over the life of the underlying debt agreement. Gains and losses on terminated interest rate swaps are deferred and recognized as yield adjustments on the underlying debt. The Automotive, Electronics and Other Operations' unamortized net gains on interest rate swaps totaled approximately $6 million and $7 million at December 31, 1998 and 1997, respectively. Unamortized net gains on interest rate swaps for the Financing and Insurance Operations totaled approximately $37 million and $33 million at December 31, 1998 and 1997, respectively. Written options, including those embedded in interest rate swaps, written interest rate caps, interest rate collars, written swaptions and interest rate swaps that do not meet settlement accounting criteria are marked to market with related gains and losses recognized in income on a current basis. Mortgage Contracts GMAC has also entered into contracts to purchase and sell mortgages at specific future dates and has entered into certain exchange traded futures and option contracts to reduce exposure to interest rate risk. At December 31, 1998 and 1997, commitments to sell mortgage loans and securities totaled $6.2 billion and $3.9 billion, respectively, and commitments to purchase or originate mortgage loans totaled $5.2 billion and $4.1 billion, respectively. GMAC's exchange traded futures and option contracts, which are used to hedge mortgage loans held for sale, had notional values of $5.0 billion and $2.2 billion at December 31, 1998 and 1997, respectively. Gains and losses on derivatives, including exchange traded futures and option contracts, used to hedge interest rate risk associated with rate locked funding commitments and mortgage loans held for sale, are deferred and considered in the reporting of the underlying mortgages on a lower of cost or market basis. The notional values of derivatives used to hedge price and interest rate risk associated with mortgage related securities totaled $9.7 billion and $1.4 billion at December 31, 1998 and 1997, respectively. Gains and losses associated with these instruments are recognized in the current period on a marked to market basis. Derivatives used to hedge mortgage servicing rights had notional values of $65.1 billion and $8 billion at December 31, 1998 and 1997, respectively. Gains and losses on such contracts are recorded as an adjustment to amortization expense. GMAC has also entered into interest rate swaps in an effort to stabilize short-term borrowing costs and to maintain a minimum return on certain mortgage loans held for investment. Amounts received or paid under such interest rate swaps are recorded as an adjustment to interest expense. At December 31, 1998 and 1997, the notional values of such instruments totaled $100 million and $264 million, respectively. Credit Risk The forward contracts, swaps, options and lines of credit previously discussed contain an element of risk that the counterparties may be unable to meet the terms of the agreements. However, GM minimizes such risk exposure for forward contracts, swaps and options by limiting the counterparties to major international banks and financial institutions that meet established credit guidelines and by limiting the amount of its risk exposure with any one bank or financial institution. Management also reduces its credit risk for unused lines of credit by applying the same credit policies in making commitments as it does for extending loans. Management does not expect to incur any losses as a result of counterparty default. GM generally does not require or place collateral for these financial instruments, except for the lines of credit it extends. GM has business activities with customers, dealers and associates around the world. The Corporation's receivables from, and guarantees to, such parties are well diversified, and when warranted, are secured by collateral. Consequently, in management's opinion, no significant concentration of credit risk exists for GM. - 23 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 12. Fair Value of Financial Instruments The estimated fair value of financial instruments has been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. Fair value information presented herein is based on information available at December 31, 1998 and 1997. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been updated since those dates and, therefore, the current estimates of fair value at dates subsequent to December 31, 1998 and 1997 may differ significantly from these amounts. Book and estimated fair values of financial instruments, for which it is practicable to estimate fair value, were as follows (in millions): December 31, ------------ 1998 1997 ---- ---- Book Fair Book Fair Value Value Value Value ----- ----- ----- ----- Automotive, Electronics and Other Operations - -------------------------------------------- Assets Cash and marketable securities $10,130 $10,130 $13,511 $13,511 Accounts and notes receivable (less allowances) $4,501 $4,501 $4,370 $4,370 Other assets $1,644 $1,659 $1,234 $1,226 Liabilities Accounts payable $13,542 $13,542 $12,400 $12,400 Long-term debt and loans payable Payable within one year $1,204 $1,204 $691 $691 Payable beyond one year $7,118 $7,531 $5,669 $6,119 Other liabilities $524 $585 $526 $559 Preferred securities of subsidiary trusts (Note 16) $220 $226 $222 $233 Financing and Insurance Operations - ---------------------------------- Assets Cash and investments in securities $8,894 $8,894 $8,473 $8,473 Finance receivables - net $70,258 $70,457 $58,219 $58,667 Accounts and notes receivable (less allowances) $3,797 $3,797 $2,042 $2,042 Other assets $11,441 $11,465 $8,746 $8,762 Liabilities Accounts payable $4,148 $4,148 $3,095 $3,095 Debt Payable within one year $62,396 $62,442 $50,625 $50,666 Payable beyond one year $45,357 $46,600 $36,277 $37,049 The prior tables exclude the book values and estimated fair values of financial instrument derivatives which were as follows (in millions): Fair Value of Open Contracts at December 31, ------------ 1998 1997 ---- ---- Asset Liability Asset Liability Position Position Position Position -------- -------- -------- -------- Automotive, Electronics and Other Operations (1) - ------------------------------------------------ Foreign exchange forward contracts (2) $126 $107 $78 $83 Foreign exchange options $71 $10 $46 $7 Interest rate swaps $34 $38 $27 $50 Interest rate options $- $1 $- $2 - 24 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 12. Fair Value of Financial Instruments (continued) Financing and Insurance Operations (3) - -------------------------------------- Foreign exchange forward contracts (4) $499 $161 $149 $326 Interest rate swaps $180 $93 $93 $49 Interest rate options $- $- $2 $- Mortgage contracts $344 $55 $53 $30 (1)The related asset (liability) recorded on the balance sheet for foreign exchange forward contracts, foreign exchange options, interest rate swaps and interest rate options totaled $22 million, $62 million, $(7) million and $(1) million, respectively, at December 31, 1998 and $33 million, $43 million, $(17) million and $(2) million, respectively, at December 31, 1997. (2)Foreign exchange forward contracts included certain derivatives with both foreign exchange and interest rate exposures which had a fair value of $54 million and $17 million at December 31, 1998 and 1997, respectively. (3)The related asset recorded on the balance sheet for foreign exchange forward contracts and interest rate swaps totaled $233 million and $14 million, respectively, at December 31, 1998. The related asset (liability) recorded on the balance sheet for foreign exchange forward contracts, interest rate swaps and interest rate options totaled $(111) million, $3 million and $1 million, respectively, at December 31, 1997. The related asset recorded on the balance sheet for mortgage contracts was $284 million and $20 million at December 31, 1998 and 1997, respectively. (4)Foreign exchange forward contracts included certain derivatives with both foreign exchange and interest rate exposures which had a fair value of $154 million and $(194) million at December 31, 1998 and 1997, respectively. The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Cash and Marketable Securities The fair value of cash equivalents and marketable securities was determined principally based on quoted market prices. Finance Receivables The fair value was estimated by discounting the future cash flows using applicable spreads to approximate current rates applicable to each category of finance receivables. The carrying value of wholesale receivables and other receivables whose interest rates adjust on a short-term basis with applicable market indices (generally the prime rate) were assumed to approximate fair value either due to their short maturities or due to the interest rate adjustment feature. Accounts and Notes Receivable and Accounts Payable For receivables and payables with short maturities the book values approximate fair values. Other Assets and Accrued Expenses and Other Liabilities Other assets reported at December 31, 1998 and 1997 include various financial instruments (e.g., long-term receivables and certain investments) that have fair values based on discounted cash flows, market quotations, and other appropriate valuation techniques. The fair values of retained subordinated interests in trusts and excess servicing assets (net of deferred costs) were derived by discounting expected cash flows using current market rates. Estimated values of Industrial Development Bonds, included in accrued expenses and other liabilities, were based on quoted market prices for the same or similar issues. Debt and Loans Payable The fair value of the debt payable within one year was determined by using quoted market prices, if available, or by calculating the estimated value of each bank loan, note, or debenture in the portfolio at the applicable rate in effect. Commercial paper, master notes and demand notes have an original term of less than 90 days and; therefore, the carrying amounts of these liabilities were considered their fair values. Debt payable beyond one year has an estimated fair value based on quoted market prices for the same or similar issues or based on the current rates offered to GM for debt of similar remaining maturities. Foreign Exchange Forward Contracts and Options The fair value of foreign exchange forward contracts was determined by using current exchange rates. The fair value of foreign exchange options was estimated using pricing models with indicative quotes obtained for the market variables. - 25 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 12. Fair Value of Financial Instruments (concluded) Preferred Securities of Subsidiary Trusts The fair value of the GM-obligated mandatorily redeemable preferred securities of subsidiary trusts (Note 16) was determined based on quoted market prices. Interest Rate Swaps and Options The fair value of interest rate swaps, including contracts with optionality, was estimated using pricing models based upon current market interest rates. Exchange traded options are valued at quoted market prices. Mortgage Contracts The fair value of mortgage contracts was estimated based upon the amount that would be received or paid to terminate the contracts based on market prices of similar financial instruments and current rates for mortgage loans. Unused Lines of Credit Because loans extended under these commitments are at market interest rates, there is no significant fair value position related to the outstanding commitments. NOTE 13. Pensions and Other Postretirement Benefits GM has a number of defined benefit pension plans covering substantially all employees. Plans covering U.S. and Canadian represented employees generally provide benefits of negotiated, stated amounts for each year of service as well as significant supplemental benefits for employees who retire with 30 years of service before normal retirement age. The benefits provided by the plans covering U.S. and Canadian salaried employees and employees in certain foreign locations are generally based on years of service and salary history. GM also has certain nonqualified pension plans covering executives that are based on targeted wage replacement percentages and are unfunded. The measurement dates used for the principal U.S. pension plans of the Corporation and Hughes were December 31 and December 1, respectively. For non-U.S. pension plans, the measurement dates were December 1 for Canadian plans and October 1 for other foreign plans. Pension plan assets are primarily invested in U.S. Government obligations, equity and fixed income securities, commingled pension trust funds, insurance contracts, the Corporation's $1-2/3 par value common stock (valued as of the 1998 measurement date at $56 million) and EDS common stock (valued as of the 1998 measurement date at $5.3 billion). In March 1995, under the terms of an agreement between the Corporation and the Pension Benefit Guarantee Corporation (PBGC), the Corporation contributed to the GM Hourly-Rate Employees Pension Plan (Hourly Plan) 173.2 million shares of Class E common stock valued at $6.3 billion on such date. Subsequent to the split-off of EDS, the Class E stock held by the Hourly Plan was exchanged for EDS common stock. The trustees for the Hourly Plan have, from time-to-time, sold shares of former Class E common stock and EDS common stock, with the effect of reducing the number of shares of EDS common stock held by the Hourly Plan. GM's funding policy with respect to its qualified pension plans is to contribute annually not less than the minimum required by applicable law and regulations. GM made pension contributions to the U.S. plans of $1.2 billion in 1998, $1.5 billion in 1997 and $800 million in 1996. Additionally, GM maintains hourly and salaried benefit plans that provide postretirement medical, dental, vision and life insurance to most U.S. retirees and eligible dependents. The cost of such benefits is recognized in the consolidated financial statements during the period employees provide service to GM. Postretirement plan assets in GM's VEBA trust are invested primarily in fixed income securities. Certain of the Corporation's non-U.S. subsidiaries have postretirement plans, although most participants are covered by government-sponsored or administered programs. The cost of such programs generally is not significant to GM. - 26 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 13. Pensions and Other Postretirement Benefits (continued) U.S. Plans Non-U. S. Plans Pension Benefits Pension Benefits Other Benefits ---------------- ---------------- -------------- 1998 1997 1998 1997 1998 1997 ---- ---- ---- ---- ---- ---- Change in benefit obligations (in millions) Benefit obligation at beginning of year $73,570 $72,501 $9,824 $9,526 $44,294 $41,387 Service cost 1,270 1,332 214 191 663 639 Interest cost 4,974 5,261 643 633 3,113 3,128 Plan participants' contributions 43 69 28 25 31 31 Amendments 208 25 81 - - - Actuarial losses 1,973 4,443 92 710 1,622 1,819 Benefits paid (5,196) (5,408) (349) (331) (2,287) (2,174) Curtailment charges and other 121 (4,653) (250) (930) (90) (536) ------ ------ ------ ----- ------ ------ Benefit obligation at end of year 76,963 73,570 10,283 9,824 47,346 44,294 ------ ------ ------ ----- ------ ------ Change in plan assets Fair value of plan assets at beginning of year 72,280 71,295 6,075 5,915 3,000 - Actual return on plan assets 6,438 10,882 328 756 249 - Employer contributions 1,151 1,535 206 71 1,700 3,000 Plan participants' contributions 43 69 28 25 - - Benefits paid (5,196) (5,408) (349) (331) (375) - Settlement charges and other 291 (6,093) (312) (361) - - ------ ----- ----- ----- ------ ----- Fair value of plan assets at end of year 75,007 72,280 5,976 6,075 4,574 3,000 ------ ------ ----- ----- ----- ----- Funded status (1,956) (1,290) (4,307) (3,749)(42,772) (41,294) Unrecognized actuarial loss 10,368 8,632 1,880 1,773 2,209 689 Unrecognized prior service cost 7,064 8,103 764 824 (448) (563) Unrecognized transition (asset) obligation (64) (105) 48 10 - - ----- ----- ----- ----- ----- ----- Net amount recognized including discontinued operations 15,412 15,340 (1,615) (1,142) (41,011) (41,168) Discontinued operations (Note 23) 1,635 1,354 - - 4,573 4,788 ----- ------- ------- ------- ------- ------- Net amount recognized $17,047 $16,694 $(1,615) $(1,142)$(36,438)$(36,380) ======= ======= ======= ======= ======== ======== Amounts recognized in the consolidated balance sheets consist of: Prepaid benefit cost $5,903 $5,757 $898 $868 $ - $ - Accrued benefit liability (2,181) (1,796) (3,814) (3,463)(36,438) (36,380) Intangible asset 5,961 7,071 504 602 - - Accumulated other comprehensive income 7,364 5,662 797 851 - - ------ ------ ------ ----- ----- ----- Net amount recognized $17,047 $16,694 $(1,615) $(1,142)$(36,438)$(36,380) ====== ====== ===== ===== ======= ====== The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $56.7 billion, $56.0 billion and $47.8 billion, respectively, as of December 31, 1998 and $54.4 billion, $53.7 billion and $46.7 billion, respectively, as of December 31, 1997.
U.S. Plans Non-U. S. Plans Pension Benefits Pension Benefits Other Benefits ------------------- -------------------- ------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- ---- ---- ---- Components of expense (in millions) Service cost $1,270 $1,332 $1,208 $214 $191 $185 $663 $639 $668 Interest cost 4,974 5,261 4,777 643 633 653 3,113 3,128 2,980 Expected return on plan assets (6,815) (6,630) (6,283) (516) (524) (487) (286) - - Amortization of prior service cost 1,173 1,170 824 99 99 100 (116) (116) (116) Amortization of transition asset (44) (85) (63) (17) (20) (18) - - - Recognized net actuarial loss 331 308 675 75 60 57 97 72 43 Discontinued operations (Note 23) (279) (422) (364) - - - (966) (1,047) (1,015) Curtailments, settlements and other 207 53 69 48 2 158 - (2) (3) Discontinued operations (Note 23) (130) (18) (18) - - - - - - --- --- --- --- --- --- ----- ----- ----- Net expense $687 $969 $825 $546 $441 $648 $2,505 $2,674 $2,557 === === === === === === ===== ===== ===== Weighted-average assumptions Discount rate 6.8% 7.0% 7.5% 6.4 6.8% 7.3% 6.7% 7.2% 7.8% Expected return on plan assets 10.0% 10.0% 10.0% 9.2% 9.2% 9.8% 10.0% - - Rate of compensation increase 5.0% 5.0% 5.0% 3.5% 4.1% 4.2% 4.4% 4.4% 4.4% - 27 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 13. Pensions and Other Postretirement Benefits (concluded) For measurement purposes, a 6 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999. The rate was assumed to decrease on a linear basis to 5 percent through 2004 and remain at that level thereafter. A one percentage point increase in the assumed health care trend rate would have increased the Accumulated Projected Benefit Obligation (APBO) by $5.5 billion at December 31, 1998 and increased the aggregate service and interest cost components of non-pension postretirement benefit expense for 1998 by $484 million. A one percentage point decrease would have decreased the APBO by $4.6 billion and decreased the aggregate service and interest cost components of non-pension postretirement benefit expense for 1998 by $377 million. A one percentage point increase in the weighted-average discount rate would have resulted in a $4.8 billion decrease in the APBO at December 31, 1998. 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 14. Accrued Expenses, Other Liabilities and Deferred Income Taxes Automotive, Electronics and Other Operations - -------------------------------------------- Accrued expenses, other liabilities and deferred income taxes included the following (in millions): December 31, ------------ 1998 1997 ---- ---- Warranties, dealer and customer allowances, claims, and discounts $14,473 $13,954 Deferred revenue 8,548 7,799 Payrolls and employee benefits (excludes postemployment) 6,436 7,198 Unpaid losses under self-insurance programs 1,774 1,631 Taxes, other than income taxes 929 862 Interest 1,545 1,235 Income taxes 368 352 Deferred income taxes 2,635 2,694 Postemployment benefits 3,084 3,649 Other 8,563 9,104 ----- ------ Total accrued expenses, other liabilities and deferred income taxes $48,355 $48,478 ======= ======= Financing and Insurance Operations - ---------------------------------- Deferred income taxes and other liabilities included the following (in millions): December 31, ------------ 1998 1997 ---- ---- Unpaid insurance losses, loss adjustment expenses and unearned insurance premiums $3,918 $3,929 Postemployment benefits 704 672 Income taxes 552 321 Deferred income taxes 2,910 2,578 Interest 1,276 1,118 Other 301 344 ----- ----- Total deferred income taxes and other liabilities $9,661 $8,962 ===== ===== NOTE 15. Commitments and Contingent Matters Commitments GM had the following minimum commitments under noncancelable operating leases having terms in excess of one year primarily for real property: 1999-$625 million; 2000-$611 million; 2001-$589 million; 2002-$573 million; 2003-$428 million; and $690 million in 2004 and thereafter. Certain of the leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases were $826 million in 1998 and 1997, and $755 million in 1996. GM sponsors a credit card program, entitled the GM Card program, that offers rebates that can be applied against the purchase or lease of GM vehicles. The amount of rebates available to qualified cardholders at December 31, 1998 and 1997 was $3.7 billion and $3.5 billion, respectively. Provisions for GM Card rebates are recorded as reductions in revenues at the time of vehicle sale. - 28 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 15. Commitments and Contingent Matters (continued) The 1996 Restructuring Agreement between GM and Saab's other owners (Investor A.B.) includes certain provisions and options which may impact the relative ownership interests of the parties involved. The agreement gives GM and Adam Opel the right to purchase up to 100% of Investor A.B.'s interest in Saab during 1999 and 2000. Investor A.B. has the right to sell up to 50% of its present holding in Saab to GM and Adam Opel in 2000. GM currently maintains a 50% ownership in Saab. In December 1998, Hughes agreed to acquire all of the outstanding capital stock of United States Satellite Broadcasting Company, Inc. (USSB). USSB provides direct-to-home premium satellite programming in conjunction with DIRECTV's basic programming service. USSB launched its service in June 1994 and, as of December 31, 1998, had more than two million subscribers nationwide. The acquisition will be accounted for using the purchase method of accounting. The purchase price, consisting of cash and GM Class H common stock, will be determined at closing based upon an agreed-upon formula and will not exceed $1.6 billion in the aggregate. Subject to certain limitations in the merger agreement, USSB shareholders will be entitled to elect to receive cash or shares of GM Class H common stock. The amount of cash to be paid in the merger cannot be less than 30% or greater than 50% of the aggregate purchase price with the remaining consideration consisting of GM Class H common stock. The merger, which is subject to USSB shareholder approval and the receipt of appropriate regulatory approval, is expected to close in early to mid-1999. Contingent Matters As part of the 1997 spin-off of Hughes' defense business and the subsequent merger of that business with Raytheon, the terms of the agreements entered into in connection with the merger provide processes for resolving certain disputes that might arise in connection with, among other things, post-closing financial adjustments. Such adjustments might call for a cash payment between Hughes and Raytheon. Various disputes currently exist regarding the post-closing adjustments that Hughes and Raytheon have proposed to one another and related issues regarding the completeness and accuracy of disclosures made to Raytheon in the period prior to consummation of the merger. In an attempt to resolve the post-closing adjustment dispute, Hughes gave notice to Raytheon to commence the arbitration process specified in the merger agreements. It is possible that the ultimate resolution of the post-closing financial adjustment and of the related disclosure issues may result in Hughes making a payment to Raytheon that would be material to Hughes. However, the amount of any payment that either party might be required to make to the other can not be determined at this time. Hughes intends to vigorously pursue resolution of the disputes through the arbitration process, opposing the adjustments proposed by Raytheon, and seeking the payment from Raytheon that Hughes has proposed. GM is subject to potential liability under government regulations and various claims and legal actions which are pending or may be asserted against them. Some of the pending actions purport to be class actions. The aggregate ultimate liability of GM under these government regulations and under these claims and actions, was not determinable at December 31, 1998. 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 financial statements. On January 22, 1999, Hughes agreed to acquire Primestar, Inc.'s (Primestar) 2.3 million-subscriber, medium-power direct-to-home business. In a related transaction, Hughes also agreed to acquire the high-power satellite assets and direct broadcast satellite (DBS) orbital frequencies of Tempo, a wholly-owned subsidiary of TCI Satellite Entertainment, Inc. The acquisitions will be accounted for using the purchase method of accounting. The purchase price for the direct-to-home business will be comprised of $1.1 billion in cash and 4,871,448 shares of GM Class H common stock, for a total purchase price of $1.3 billion. The direct-to-home transaction, pending Primestar lender approval is expected to close in the second quarter of 1999. The purchase price for the Tempo assets consists of $500 million in cash, $150 million of which was paid in the first quarter of 1999 and $350 million which is payable upon Federal Communications Commission approval of the transfer of the DBS orbital frequencies, which is expected in mid to late-1999. Hughes entered into a contract with Asia-Pacific Mobile Telecommunications Satellite Pte. Ltd. (APMT) effective May 15, 1998, whereby Hughes was to provide to APMT a satellite-based mobile telecommunications system consisting of two satellites, a ground segment, user terminals and associated equipment and software. As part of the contract, Hughes was required to obtain all necessary U.S. Government export licenses for the APMT system by February 15, 1999. On February 24, 1999, the Department of Commerce notified Hughes that it intended to deny the export licenses required by Hughes to fulfill its contractual obligation to APMT. As a result, APMT and Hughes terminated the contract on April 9, 1999. As a result of the termination of the contract, Hughes is - 29 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 15. Commitments and Contingent Matters (continued) required to refund $45 million to APMT and has recorded a pre-tax charge to earnings of $92 million in the first quarter of 1999. 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 April 7, 1998, the U.S. Court of Appeals for the Federal Circuit (CAFC) reaffirmed earlier decisions in the Williams case including the award of $114 million in damages, plus interest. In March of 1999, Hughes received a $154 million payment from the U.S. Government as final settlement of the suit. This amount was recorded as other income in the Hughes first quarter 1999 financial statements. On March 2, 1999, GM purchased an additional equity interest in Isuzu Motors, Ltd. (Isuzu) that increased GM's equity interest from 37.5% to 49%. The additional equity interest was purchased for approximately 52.5 billion yen or approximately $440 million. Note 16. Preferred Securities of Subsidiary Trusts General Motors - Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts In July 1997, the General Motors Capital Trust D (Series D Trust) issued approximately $79 million of its 8.67% Trust Originated Preferred Securitiessm (TOPrSsm) Series D, (Series D Preferred Securities), in a one-for-one exchange for 3,055,255 of the outstanding GM Series D 7.92% Depositary Shares, each representing one-fourth of a share of GM Series D Preference Stock, $0.10 par value per share. In addition, the General Motors Capital Trust G (Series G Trust) issued approximately $143 million of its 9.87% TOPrS, Series G (Series G Preferred Securities), in a one-for-one exchange for 5,064,489 of the outstanding GM Series G 9.12% Depositary Shares, each representing one-fourth of a share of GM Series G Preference Stock, $0.10 par value per share. Concurrently with the exchanges and the related purchases by GM from the Series D and Series G Trusts (Trusts) of the common securities of such Trusts, which represent approximately 3 percent of the total assets of such Trusts, GM issued to the wholly-owned Trusts, as the Series D Trust's sole assets its 8.67% Junior Subordinated Deferrable Interest Debentures, Series D, due July 1, 2012 and as the Series G Trust's sole assets, its 9.87% Junior Subordinated Deferrable Interest Debentures, Series G, due July 1, 2012 (the "Series D Debentures" and "Series G Debentures" or collectively the "Debentures"), having aggregate principal amounts equal to the aggregate stated liquidation amounts of the Series D and Series G Preferred Securities and the related common securities, respectively ($79 million with respect to the Series D Debentures and $131 million with respect to the Series G Debentures). The Series D Debentures are redeemable, in whole or in part, at GM's option on or after August 1, 1999, at a redemption price equal to 100% of the outstanding principal amount of the Series D Debentures plus accrued and unpaid interest, or, under certain circumstances, prior to August 1, 1999, at a redemption price equal to 105% of the outstanding principal of the Series D Debentures from the Series D expiration date through July 31, 1998, declining ratably on each August 1 thereafter to 100% on August 1, 1999, plus accrued and unpaid interest. The Series D Preferred Securities will be redeemed upon the maturity or earlier redemption of the Series D Debentures. The Series G Debentures are redeemable, in whole or in part, at GM's option on or after January 1, 2001, at a redemption price equal to 100% of the outstanding principal amount of the Series G Debentures plus accrued and unpaid interest, or, under certain circumstances, prior to January 1, 2001, at a redemption price equal to 114% of the outstanding principal of the Series G Debentures from the Series G expiration date through December 31, 1997, declining ratably on each January 1 thereafter to 100% on January 1, 2001, plus accrued and unpaid interest. The Series G Preferred Securities will be redeemed upon the maturity or earlier redemption of the Series G Debentures. GM has guaranteed the payment in full to the holders of the Series D and Series G Preferred Securities (collectively the "Preferred Securities") of all distributions and other payments on the Preferred Securities to the extent not paid by the Trusts only if and to the extent that the Trusts have assets therefore, GM has made payments of interest or principal on the related Debentures. These guarantees, when taken together with GM's obligations under the Preferred Securities Guarantees, the Debentures, and the Indentures relating thereto and the obligations under the Declaration of Trust of the Trusts, including the obligations to pay certain costs and expenses of the Trusts, constitute full and unconditional guarantees by GM of each Trust's obligations under its Preferred Securities. sm "Trust Originated Preferred Securities" and "TOPrS" are service trademarks of Merrill Lynch & Co. - 30 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 17. Stockholders' Equity The following table presents changes in capital stock for the period from January 1, 1996 to December 31, 1998 (in millions):
Common Stocks ------------------------------------------ Total Preference $1-2/3 Capital Stocks(a) par value Class H(b) Class E Class H(c) Stock ---------- --------- ---------- ------- --------- ------- Balance at January 1, 1996 $ 1 $1,255 $ - $44 $10 $1,310 Shares reacquired - (8) - - - (8) Shares issued - 14 - - - 14 Series C conversion - - - 5 - 5 EDS split-off - - - (49) - (49) ---- ------ --- -- ---- ------ Balance at December 31, 1996 1 1,261 - - 10 1,272 Shares reacquired - (122) - - - (122) Shares issued - 17 - - - 17 Recapitalization of Class H Common Stock - - 10 - (10) - ---- ------ --- -- ---- ------ Balance at December 31, 1997 1 1,156 10 - - 1,167 Shares reacquired - (75) - - - (75) Shares issued - 11 1 - - 12 --- ------- --- -- -- ------ Balance at December 31, 1998 $ 1 $1,092 $11 $ - $ - $1,104 == ===== == == == =====
(a) The following describes the Corporation's preference stocks (in millions except par value, stated value, and per share amounts): Preference Stock, $0.10 par value (authorized 100 shares): - Series B 9-1/8% Depositary Shares, stated value $25 per share, redeemable at Corporation option on or after January 1, 1999; issued at December 31, 1998, 20 shares equivalent to 5 shares of nonconvertible Series B 9-1/8% Preference Stock, stated value $100 per share. - Series C Depositary Shares, liquidation preference $50 per share. - Series D 7.92% Depositary Shares, stated value $25 per share, redeemable at Corporation option on or after August 1, 1999; outstanding at December 31, 1998, 3 shares equivalent to .75 shares of Series D 7.92% Preference Stock (see Note 16). - Series G 9.12% Depositary Shares, stated value $25 per share, redeemable at Corporation option on or after January 1, 2001; outstanding at December 31, 1998, 5 shares, equivalent to 1.25 shares of Series G 9.12% Preference Stock (see Note 16). (b) Subsequent to its recapitalization on December 17, 1997. (c) Prior to its recapitalization on December 17, 1997. - 31 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 17. Stockholders' Equity (concluded) Common Stocks The voting and liquidation rights of $1-2/3 par value common stock are one vote per share and one liquidation unit per share. The voting and liquidation rights of the recapitalized Class H common stock are 0.6 votes per share and 0.6 liquidation units per share. The liquidation rights of the $1-2/3 par value and Class H common stocks are subject to certain adjustments if outstanding common stock is subdivided, by stock split or otherwise, or if shares of one class of common stock are issued as a dividend to holders of another class of common stock. Holders of Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). The outstanding shares of Class H common stock may be recapitalized as shares of $1-2/3 par value common stock at any time after December 31, 2002, at the sole discretion of the GM Board of Directors (GM Board), or automatically, if at any time the Corporation should sell, liquidate, or otherwise dispose of 80% or more of the business of Hughes, based on fair market value of the assets, both tangible and intangible, of Hughes as of the date that such proposed transaction is approved by the GM Board. In the event of any recapitalization, all outstanding shares of Class H common stock will automatically be converted into the Corporation's $1-2/3 par value common stock at an exchange rate that would provide Class H common stockholders with that number of shares of $1-2/3 par value common stock that would have a value equal to 120% of the value of their Class H common stock, on such date. A recapitalization of the type described in the prior sentence would occur if any of the triggering events took place unless the holders of GM common stock (including the holders of $1-2/3 par value common stock and holders of the Class H common stock voting separately as individual classes) vote to approve an alternative proposal from the GM Board. Common Stock Repurchases During 1998, GM used $2.6 billion to acquire 38 million shares of $1-2/3 par value common stock, which completed the second $2.5 billion stock repurchase program announced in August of 1997 and represented 33 percent of the $4.0 billion stock repurchase program announced in February 1998. Due to work stoppages at various GM components plants, stock repurchases were suspended as part of GM's cash conservation initiatives. GM also used approximately $427 million to repurchase shares of $1-2/3 par value common stock for certain employee benefit plans. Preference Stocks During 1996, approximately 45 million shares of Class E common stock were issued upon conversion of approximately 3 million shares of Series C Preference Stock (represented by depositary shares). The remaining 6,784 shares of Series C Preference Stock were redeemed on February 22, 1996. On April 5, 1999, GM redeemed its Series B 9-1/8% Preference Stock. The approximately 20 million outstanding depositary shares had a face value of approximately $500 million. Other Comprehensive Income The changes in the components of other comprehensive income (loss) are reported net of income taxes, as follows (in millions):
Years Ended December 31, ------------------------ 1998 1997 1996 ---- ---- ---- Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net Amount (Credit) Amount Amount Credit) Amount Amount (Credit) Amount ------ -------- ------ ------ ------- ------ ------ -------- ------ Foreign currency translation adjustments $(278) $1 $(279) $(1,140) $(448) $(692) $(564) $(259) $(305) Unrealized gain (loss) on securities: Unrealized holding gain (loss) 38 (14) 52 272 114 158 (15) (8) (7) Reclassification adjustment (115) (40) (75) (118) (41) (77) (96) (33) (63) ---- --- --- ---- --- --- --- --- --- Net unrealized (loss) gain (77) (54) (23) 154 73 81 (111) (41) (70) ---- --- --- ---- --- --- --- --- --- Minimum pension liability adjustment (1,657) (630) (1,027) (906) (334) (572) 2,013 767 1,246 ----- --- ----- --- --- --- ----- --- ----- Other comprehensive (loss) income from continuing operations $(2,012) $(683) $(1,329) $(1,892) $(709)$(1,183) $1,338 $467 $871 ------ ----- ------- ----- ----- ----- ----- ---- ----
- 32 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 18. 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. Diluted earnings per share attributable to each class of GM common stock considers the impact of potential common shares, unless the inclusion of the potential common shares would have an antidilutive effect. The assumed exercise of stock options has no effect on Class H common stock earnings per share, because to the extent that shares of Class H common stock deemed to be outstanding would increase, such increased shares would also increase the numerator of the fraction used to determine Available Separate Consolidated Net Income (ASCNI). The attribution of earnings to each class of common stock was as follows (in millions): Years Ended December 31, ------------------------ 1998 1997 1996 ---- ---- ---- Earnings attributable to common stocks $1-2/3 par value Continuing operations $2,914 $6,149 $3,840 Discontinued operations (93) 127 744 ------- ----- ------ Earnings attributable to $1-2/3 par value $2,821 $6,276 $4,584 Income from discontinued operations attributable to Class E $ - $ - $15 Class H (prior to its recapitalization on December 17, 1997 Continuing operations $ - $234 $179 Discontinued operations - 88 104 --- --- --- Earnings attributable to Class H (prior to its recapitalization on December 17, 1997) $ - $322 $283 === === === Earnings attributable to Class H (subsequent to its recapitalization on December 17, 1997) $72 $2 $ - -- - --- 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 ASCNI of EDS (Note 1), former Hughes, and Hughes for the period. During the period that EDS was an indirect wholly-owned subsidiary of the Corporation, the earnings attributable to Class E common stock for the period represented the ASCNI of EDS for the period. The ASCNI of EDS was determined quarterly in amounts equal to the separate consolidated net income of EDS for each respective quarter, excluding the effects of purchase accounting adjustments relating to the Corporation's acquisition of EDS for each such period, multiplied by a fraction, the numerator of which represented the weighted-average number of shares of Class E common stock outstanding during the period. The weighted-average number of shares of Class E common stock outstanding for 1996 reflects shares outstanding through June 30, 1996. Earnings attributable to Class H common stock represented the ASCNI of Hughes and former Hughes. The ASCNI of Hughes and former Hughes was determined quarterly in amounts equal to the separate consolidated net income of Hughes and former Hughes for each respective quarter, excluding the effects of purchase accounting adjustments arising at the time of the Corporation's acquisition of Hughes Aircraft Company (HAC), calculated for such period and multiplied by a fraction, the numerator of which was a number equal to the weighted-average number of shares of Class H common stock outstanding during the quarter (106 million, 103 million, and 99 million in the fourth quarters of 1998, 1997 and 1996, respectively) and the denominator of which was 400 million during the fourth quarters of 1998, 1997, and 1996. Earnings attributable to Class H common stock for the period subsequent to the recapitalization of Class H common stock for 1997 represent the ASCNI of Hughes for the period December 18, 1997 through December 31, 1997, excluding the effects of purchase accounting adjustments arising at the time of the Corporation's acquisition of HAC, calculated for such period and multiplied by a fraction, the numerator of which was a number equal to the weighted-average number of shares of Class H common stock outstanding during the period (104 million) and the denominator of which was 400 million. The denominators used in determining the ASCNI of EDS and former Hughes were adjusted from time-to-time as deemed appropriate by the GM Board to reflect subdivisions or combinations of the Class E common stock and Class H common stock, respectively, and to reflect certain transfers of capital to or from EDS and former Hughes, respectively. The denominator used in determining the ASCNI of Hughes may be adjusted from time-to-time as deemed appropriate by the GM Board to reflect subdivisions or combinations of the Class H common stock and to reflect certain transfers of capital to or from Hughes. The GM Board's discretion to make such adjustments is limited by criteria set forth in the Corporation's Restated Certificate of Incorporation. - 33 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 18. Earnings Per Share Attributable to Common Stocks (concluded) The reconciliation of the amounts used in the basic and diluted earnings per share computations for income from continuing operations was as follows (in millions except per share amounts):
Class H Common Stock - Class H Common Stock - Prior to its recapitalization Subsequent to its recapitalization $1-2/3 Par Value Common Stock on December 17,1997 on December 17, 1997 ----------------------------- ------------------- -------------------- Per Share Per Share Per Share Income Shares Amount ASCNI Shares Amount ASCNI Shares Amount ------ ------ ------ ----- ------ ------ ----- ------ ------ Year ended December 31, 1998 Income from continuing operations $2,977 $72 Less:Dividends on preference stocks 63 - ------ --- Basic EPS Income from continuing operations available to common stockholders 2,914 663 $4.40 72 105 $0.68 Effect of Dilutive Securities Assumed exercise of dilutive stock options (3) 11 3 4 ----- ---- --- --- Diluted EPS Adjusted income from continuing operations available to common stockholders $2,911 674 $4.32 $75 109 $0.68 ===== === ==== === === ==== Year ended December 31, 1997 Income from continuing operations $6,247 $234 $2 Less:Premium on exchange of preference stocks 26 - - Dividends on preference stocks 72 - - ----- --- --- Basic EPS Income from continuing operations available to common stockholders 6,149 721 $8.52 234 101 $2.30 2 104 $0.02 ==== ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options (8) 6 8 4 - 3 ----- --- --- --- --- --- Diluted EPS Adjusted income from continuing operations available to common stockholders $6,141 727 $8.45 $242 105 $2.30 $2 107 $0.02 ===== === ==== === === ==== === === ==== Year ended December 31, 1996 Income from continuing operations $3,921 $179 Less: Dividends on preference stocks 81 - ------- ------ Basic EPS Income from continuing operations available to common stockholders 3,840 756 $5.08 179 98 $1.83 ===== === ==== ==== === ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options (6) 4 6 3 ----- --- ---- --- Diluted EPS Adjusted income from continuing operations available to common stockholders $3,834 760 $5.04 $185 101 $1.83 ===== === ==== === === ====
- 34 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 19. Dividends on Common Stock In connection with the consummation of the Hughes Transactions, the GM Board determined that the amount available for the payment of dividends on outstanding shares of $1-2/3 par value common stock would be the cumulative amount available for the payment of dividends on $1-2/3 par value common stock immediately prior to the closing of the Hughes Transactions, reduced by a pro rata portion of the net reduction in GM's total stockholders' equity resulting from the Hughes Transactions. In addition, the GM Board determined that the amount initially available for the payment of dividends on shares of Class H common stock would be the cumulative amount available for the payment of dividends on Class H common stock immediately prior to the closing of the Hughes Transactions, reduced by a pro rata portion of the net reduction in GM's total stockholders' equity resulting from the Hughes Transactions. The pro rata allocation of the net reduction in GM's total stockholders' equity resulting from the Hughes Transactions was based on the fraction used in determining the ASCNI of former Hughes immediately prior to the consummation of the Hughes Transactions. Dividends may be paid on $1-2/3 par value common stock to the extent of the amount determined to be available for the payment of dividends on $1-2/3 par value common stock in connection with the consummation of the Hughes Transactions, plus all of the earnings of GM after the consummation of the Hughes Transactions, other than the earnings attributed to the Class H common stock. Dividends may be paid on Class H common stock to the extent of the amount initially determined to be available for the payment of dividends on Class H common stock, plus the portion of earnings of GM after the closing of the Hughes Transactions attributed to Class H common stock. The amount available for the payment of dividends on each class of common stock will be reduced from time-to-time by dividends paid on that class and will be adjusted from time-to-time for changes to the amount of surplus attributed to the class resulting from the repurchase or issuance of shares of that class. As of December 31, 1998, the amount available for the payment of dividends on $1-2/3 par value and Class H common stock was $15.9 billion and $3.8 billion, respectively. Dividends may be paid on common stocks only when, and if declared by the GM Board in its sole discretion. The GM Board's policy with respect to $1-2/3 par value common stock is to distribute dividends based on the outlook and the indicated capital needs of the business. The GM Board does not currently intend to pay cash dividends on the Class H common stock, which was recapitalized on December 17, 1997 as part of the Hughes Transactions. Cash dividends per share of $1-2/3 par value common stock were $2.00, $2.00 and $1.60 for 1998, 1997, and 1996, respectively. Cash dividends per share for Class H common stock, prior to its recapitalization on December 17, 1997, were $1.00 and $0.96 in 1997 and 1996, respectively. Cash dividends per share of Class E common stock were $0.30 in 1996. NOTE 20. Stock Incentive Plans Stock-Based Compensation GM previously adopted SFAS No. 123, Accounting for Stock-Based Compensation, and as permitted by this standard, will continue to apply the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25 to its stock options and other stock-based employee compensation awards. If compensation cost for stock options and other stock-based employee compensation awards had been determined based on the fair value at the grant date, consistent with the method prescribed by SFAS No. 123, GM's pro forma net income, earnings attributable to common stocks, and basic and diluted earnings per share attributable to common stocks would have been as follows (in millions except per share amounts): 1998 1997 1996 ---- ---- ---- Net income - as reported $2,956 $6,698 $4,963 - Pro forma $2,797 $6,558 $4,904 Earnings attributable to common stocks $1-2/3 - as reported $2,821 $6,276 $4,584 - Pro forma $2,673 $6,147 $4,528 Class H (prior to recapitalization) - as reported $ - $322 $283 - Pro forma $ - $315 $280 Class H (subsequent to recapitalization) - as reported $72 $2 $ - - Pro forma $61 $(2) $ - - 35 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 20. Stock Incentive Plans (continued) 1998 1997 1996 ---- ---- ---- Basic earnings per share attributable to common stocks $1-2/3 - as reported $4.26 $8.70 $6.06 - Pro forma $4.04 $8.52 $5.98 Class H (prior to recapitalization) - as reported $ - $3.17 $2.88 - Pro forma $ - $3.10 $2.85 Class H (subsequent to recapitalization) - as reported $0.68 $0.02 $ - - Pro forma $0.57 $(0.02) $ - Diluted earnings per share attributable to common stocks $1-2/3 - as reported $4.18 $8.62 $6.02 - Pro forma $3.96 $8.44 $5.94 Class H (prior to recapitalization) - as reported $ - $3.17 $2.88 - Pro forma $ - $3.10 $2.85 Class H (subsequent to recapitalization) - as reported $0.68 $0.02 $ - - Pro forma $0.57 $(0.02) $ - The fair value of each option grant is estimated on the date of grant using the Black-Scholes option- pricing model with the following weighted-average assumptions: 1998 1997 1996 ---------------------- ---------------- --------------- Hughes Hughes Hughes GMSIP Plan GMSSOP GMSIP Plan GMSIP Plan Interest rate 5.2% 5.6% 5.2% 6.2% 6.8% 5.3% 6.6% Expected life (years) 5.0 6.2 5.0 5.0 7.0 5.8 7.0 Expected volatility 26.2% 32.8% 26.2% 26.3% 20.7% 27.3% 20.6% Dividend yield 3.6% - 3.6% 3.4% 2.1% 3.1% 1.6% The effect of the Hughes Transactions adjustment on the number of options and related exercise prices, as described below, is considered, under SFAS No. 123, a modification of the terms of the outstanding options. Accordingly, the 1997 pro forma disclosure includes compensation cost for the incremental fair value, under SFAS No. 123, resulting from such modification. The pro forma amounts for compensation cost are not indicative of the effects on operating results for future periods. GM's stock incentive plans consist of the General Motors 1997 Stock Incentive Plan, formerly the General Motors Amended Stock Incentive Plan, (the "GMSIP"), the Hughes Electronics Corporation Incentive Plan (the "Hughes Plan") and the General Motors 1998 Salaried Stock Option Plan (the "GMSSOP"). The GMSIP and GMSSOP are administered by the Executive Compensation Committee of the GM Board. The Hughes Plan is administered by the Executive Compensation Committee of the Board of Directors of Hughes. Under the GMSIP, 60 million shares of $1-2/3 par value and 2.5 million shares of Class H common stocks may be granted from June 1, 1997 through May 31, 2002, of which 50 million and 2.4 million were available for grants at December 31, 1998. Options granted prior to 1998 under the GMSIP generally are exercisable one-half after one year and one-half after two years from the dates of grant. Stock option grants awarded during 1998 vest ratably over three years following the grant date. Option prices are 100% of fair market value on the dates of grant and the options generally expire 10 years from the dates of grant, subject to earlier termination under certain conditions. Under the Hughes Plan, Hughes may grant shares, rights, or options to acquire up to 35.6 million shares of Class H common stock through December 31, 1998, of which 5.4 million were available for grants at December 31, 1998. Option prices are 100% of fair market value on the dates of grant and the options generally vest over two to four years and expire 10 years from the dates of grant, subject to earlier termination under certain conditions. Under the GMSSOP, 50 million shares of $1-2/3 par value may be granted from January 1, 1998 through December 31, 2007, of which 45.7 million were available for grants at December 31, 1998. Stock options are exercisable two years from the date of grant and vest one year following the date of grant, subject to earlier termination under certain conditions. Option prices are 100% of fair market value on the dates of grant and the options generally expire 10 years and two days from the dates of grant. - 36 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 20. Stock Incentive Plans (concluded) In connection with the Hughes Transactions, the number of options and related exercise prices for outstanding options under the GMSIP and the Hughes Plan were adjusted to reflect the change in the fair market value of $1-2/3 par value and Class H common stocks that resulted from the Hughes Defense Class A common stock distribution. The number of shares under option and the exercise price were adjusted such that the aggregate intrinsic value of the options immediately before and immediately after the transaction remained unchanged. Changes in the status of outstanding options were as follows: GMSIP and GMSIP Hughes Plan GMSSOP $1-2/3 Par Value Common Class H Common $1-2/3 Par Value Common -------------------------------------------------------------- Weighted- Weighted- Weighted Shares Average Shares Average Share Average under Exercise under Exercise under Exercise Option Price Option Price Option Price - -------------------------------------------------------------------------------- Options outstanding at January 1, 1996 29,280,126 $44.03 8,190,867 $30.16 - $ - Granted 7,087,590 $52.27 1,501,900 $61.31 - $ - Exercised 6,207,072 $39.16 864,889 $28.58 - $ - Terminated 202,697 $51.75 128,075 $42.94 - $ - - ------------------------------------------------------------------------------- Options outstanding at December 31, 1996 29,957,947 $46.94 8,699,803 $35.51 - $ - - ------------------------------------------------------------------------------- Granted 8,989,460 $58.81 5,750,600 $54.90 - $ - Exercised 9,273,674 $42.95 2,158,728 $30.21 - $ - Terminated 330,727 $57.05 2,694,982 $42.56 - $ - Hughes Transactions adjustment 3,023,651 $ - 5,897,936 $ - - $ - - ------------------------------------------------------------------------------- Options outstanding at December 31, 1997 32,366,657 $51.40 15,494,629 $28.70 - $ - - ------------------------------------------------------------------------------- Granted 9,854,805 $56.14 4,234,620 $50.78 4,332,305 $56.00 Exercised 8,242,624 $44.08 2,055,168 $22.71 - $ - Terminated 454,558 $54.45 980,464 $31.95 328,630 $56.00 - ------------------------------------------------------------------------------- Options outstanding at December 31, 1998 33,524,280 $50.72 16,693,617 $34.85 4,003,675 $56.00 - ------------------------------------------------------------------------------- Options exercisable at December 31, 1998 17,475,607 $46.71 6,089,532 $27.48 - $ - - ------------------------------------------------------------------------------- The following table summarizes information about GM's stock option plans at December 31, 1998: --------------------------------------------------------------------------- Weighted-Average Range of Options Remaining Weighted-Avg.Options Weighted-Average Exercise Outstanding Contractual Exercise Exercisable Exercise Prices Life (yrs.) Price Price --------------------------------------------------------------------------- GMSIP $1-2/3 Par Value Common $15.00 to $39.99 5,739,004 4.8 $36.81 5,737,377 $36.81 40.00 to 49.99 5,200,940 6.7 $47.86 4,921,723 $47.85 50.00 to 70.00 22,584,336 7.9 $54.91 6,816,507 $54.21 --------------------------------------------------------------------------- $15.00 to $70.00 33,524,280 7.2 $50.72 17,475,607 $46.71 --------------------------------------------------------------------------- GMSIP and Hughes Plan Class H Common $9.86 to $20.00 940,516 3.7 $14.80 940,516 $14.80 20.01 to 30.00 1,489,096 5.9 $22.25 1,489,096 $22.25 30.01 to 40.00 10,255,230 8.2 $32.20 3,659,920 $32.86 40.01 to 50.00 1,372,700 9.6 $43.71 - $ - 50.01 to 54.79 2,636,075 9.3 $54.79 - $ - --------------------------------------------------------------------------- $9.86 to $54.79 16,693,617 8.1 $34.85 6,089,532 $27.48 --------------------------------------------------------------------------- GMSSOP $1-2/3 Par Value Common --------------------------------------------------------------------------- $56.00 4,003,675 9.0 $56.00 - $ - --------------------------------------------------------------------------- - 37 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 21. Other Income and Other Expenses Other income and other expenses included the following (in millions): Years Ended December 31, ------------------------ 1998 1997 1996 ---- ---- ---- Other income Interest income $2,105 $2,127 $1,638 Insurance premiums 1,426 1,161 947 Mortgage operations investment income and servicing fees 1,836 1,525 921 Rental car lease revenue 1,229 1,137 958 Gain on Hughes Defense spin-off - 4,269 - Other 988 1,456 1,086 ------ ------- ----- Total other income $7,584 $11,675 $5,550 ===== ====== ===== Other expenses Insurance losses and loss adjustment expenses$1,061 747 622 Provision for financing losses 463 523 669 Other 792 210 519 ----- ----- ----- Total other expenses $2,316 $1,480 $1,810 ===== ===== ===== NOTE 22: Segment Reporting SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, established standards for reporting information about operating segments in financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. GM's chief operating decision maker is the Chairman and Chief Executive Officer. The operating segments are managed separately because each operating segment represents a strategic business unit that offers different products and serves different markets. GM's reportable operating segments within its Automotive, Electronics and Other Operations business consist of General Motors Automotive (GMA), which is comprised of four regions: GM North America (GMNA), GM Europe (GME), GM Asia/Pacific (GMAP), and GM Latin America/Africa/Mid-East (GMLAAM), Hughes, and Other. GMNA designs, manufactures, and markets vehicles primarily in North America under the following nameplates: Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, and Saturn. GME, GMAP and GMLAAM meet the demands of customers outside North America with vehicles designed, manufactured and marketed under the following nameplates: Opel, Vauxhall, Holden, Isuzu, Saab, Chevrolet, GMC, and Cadillac. Hughes includes activities relating to designing, manufacturing, and marketing advanced technology electronic systems, products, and services for the telecommunications and space industries . The Other segment includes the design, manufacturing and marketing of locomotives and heavy-duty transmissions and the elimination of intersegment transactions, as well as former Hughes' defense business prior to the Hughes Transactions. GM's reportable operating segments within its Financing and Insurance Operations business consist of GMAC and Other. GMAC provides a broad range of financial services, including consumer vehicle financing, full-service leasing and fleet leasing, dealer financing, car and truck extended service contracts, residential and commercial mortgage services, and vehicle and homeowners insurance. The Financing and Insurance Operations' Other segment includes financing entities operating in Canada, Germany and Brazil, as well as eliminations of intersegment transactions. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies except that the disaggregated financial results 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. GM evaluates performance based on stand alone operating segment net income and generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. Revenues are attributed to geographic areas based on the location of the assets producing the revenues. - 38 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 22. Segment Reporting (continued)
Elimin- Total Other Total GMNA GME GMLAAM GMAP ations GMA Hughes Other(b) Automotive GMAC Financing Financing ---- --- ------ ---- ------ --- ------ ------- ---------- ---- --------- --------- (in millions) 1998(a) Manufactured products sales & revenues: External customers $91,771 $23,948 $7,150 $2,814 $ - $125,683 $5,924 $2,669 $134,276 $ - $ - $ - Intersegment 2,430 1,088 253 109 (3,880) - 40 (40) - - - - ------- ------- ------ ------ ----- -------- ----- ----- -------- ---- ---- ---- Total manufactured products 94,201 25,036 7,403 2,923 (3,880) 125,683 5,964 2,629 134,276 - - - Financing revenue - - - - - - - - - 12,731 854 13,585 Other income 2,296 804 150 121 - 3,371 131 (617) 2,885 5,183 (484) 4,699 ------- ------- ------ ------ ----- -------- ----- ----- -------- ---- ---- ---- Total net sales and revenues $96,497 $25,840 $7,553 $3,044$(3,880)$129,054 $6,095 $2,012 $137,161$17,914 $370 $18,284 ====== ====== ===== ===== ===== ======= ===== ===== ======= ====== ==== ===== Depreciation and amortization (c) $4,138 $1,102 $366 $95 $ - $5,701 $434 $92 $6,227 $4,812 $108 $4,920 Interest income $537 $544 $116 $9 $ - $1,206 $112 $(592) $726 $1,524 $(145) $1,379 Interest expense $939 $433 $92 $7 $ - $1,471 $18 $(703) $786 $5,787 $56 $5,843 Income tax expense (benefit) $787 $319 $(213) $9 $ - $902 $(45) $161 $1,018 $612 $6 $618 Earnings (losses) of nonconsolidated associates $14 $(14) $102 $(152) $ - $(50) $(128) $(61) $(239) $ - $ - $ - Net income (loss) (c) $1,635 $419 $(175) $(243) $(2) $1,634 $272 $(372) $1,534 $1,325 $97 $1,422 Investments in nonconsolidated affiliates $675 $262 $445 $395 $(261) $1,516 $41 $(607) $950 $557 $(557) $ - Segment assets $68,026 $18,440 $5,548 $1,557$(2,261) $91,310 $13,008$10,276 $114,594$131,417 $334 $131,751 Expenditures for property (d) $5,464 $1,205 $534 $197 $ - $7,400 $344 $208 $7,952 $278 $ - $278 1997(a) Manufactured products sales & revenues: External customers $99,435 $23,269 $8,437 $2,980 $ - $134,121 $5,083 $8,939 $148,143 $ - $ - $ - Intersegment 821 837 135 - (1,793) - 45 (45) - - - - ------- ------- ------ ------ ----- -------- ----- ----- -------- ---- ---- ---- Total manufactured products 100,256 24,106 8,572 2,980 (1,793) 134,121 5,128 8,894 148,143 - - - Financing revenue - - - - - - - - - 12,577 185 12,762 Other income 2,372 812 212 158 - 3,554 496 3,902 7,952 4,018 (295) 3,723 ------- ------- ------ ------ ----- -------- ----- ----- -------- ---- ---- ---- Total net sales and revenues $102,628 $24,918 $8,784 $3,138$(1,793)$137,675 $5,624$12,796 $156,095$16,595 $(110) $16,485 ======= ====== ===== ===== ===== ======= ===== ===== ======= ====== ==== ====== Depreciation and amortization (c) $7,116 $1,563 $248 $294 $ - $9,221 $296 $316 $9,833 $4,746 $67 $4,813 Interest income $839 $549 $167 $10 $ - $1,565 $33 $(489) $1,109 $1,127 $(109) $1,018 Interest expense $643 $395 $118 $23 $(1) $1,178 $91 $(636) $633 $5,256 $(6) $5,250 Income tax (benefit) expense $(272) $121 $43 $(29) $(12) $(149) $237 $23 $111 $913 $1 $914 (Losses) earnings of nonconsolidated associates $(35) $(171) $173 $11 $ - $(22) $(72) $(11) $(105) $ - $ - $ - Net (loss) income (c) $(12) $(17) $667 $(172) $(17) $449 $471 $4,460 $5,380 $1,301 $17 $1,318 Investments in nonconsolidated affiliates $552 $229 $414 $427 $1 $1,623 $75 $(638) $1,060 $213 $(213) $ - Segment assets $68,361 $17,582 $5,651 $1,567 $(874) $92,287 $12,283 $8,746 $113,316$109,319 $(1,235)$108,084 Expenditures for property (d) $5,387 $1,687 $435 $327 $ - $7,836 $251 $322 $8,409 $238 $ - $238
See notes on next page - 39 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 22. Segment Reporting (continued)
Elimin- Total Other Total GMNA GME GMLAAM GMAP ations GMA Hughes Other(b) Automotive GMAC Financing Financing ---- --- ------ ---- ------ --- ------ ------- ---------- ---- --------- --------- (in millions) 1996(a) Manufactured products sales & revenues: External customer $92,659 $25,239 $6,691 $3,001 $ - $127,590 $3,958 $8,509 $140,057 $ - $ - $ - Intersegment 723 289 32 - (1,044) - 51 (51) - - - - ------- ------- ------ ------ ----- -------- ----- ----- -------- ---- ---- ---- Total manufactured products 93,382 25,528 6,723 3,001 (1,044) 127,590 4,009 8,458 140,057 - - - Financing revenue - - - - - - - - - 12,644 30 12,674 Other income 1,960 775 173 133 - 3,041 118 (630) 2,529 3,330 (309) 3,021 ------- ------- ------ ------ ----- -------- ----- ----- -------- ---- ---- ---- Total net sales and revenues $95,342 $26,303 $6,896 $3,134$(1,044)$130,631 $4,127 $7,828 $142,586$15,974 $(279) $15,695 ====== ====== ===== ===== ===== ======= ===== ===== ====== ===== ==== ====== Depreciation and amortization (c) $4,348 $1,213 $202 $71 $ - $5,834 $195 $273 $6,302 $4,676 $19 $4,695 Interest income $569 $581 $169 $26 $ - $1,345 $7 $(369) $983 $743 $(88) $655 Interest expense $500 $430 $107 $29 $ - $1,066 $43 $(606) $503 $4,938 $(14) $4,924 Income tax (benefit) expense $54 $168 $106 $32 $(7) $353 $105 $168 $626 $837 $1 $838 Earnings (losses) of nonconsolidated associates $37 $(97) $79 $70 $ - $89 $(42) $24 $71 $ - $ - $ - Net income (loss) (c) $819 $778 $642 $110 $(12) $2,337 $184 $1,201 $3,722 $1,240 $1 $1,241 Investments in nonconsolidated affiliates $472 $597 $242 $379 $ - $1,690 $95 $(523) $1,262 $158 $(158) $ - Segment assets $67,528 $18,575 $4,941 $2,087 $(616) $92,515 $3,904$21,396 $117,815$98,578 $(703) $97,875 Expenditures for property (d) $5,177 $1,652 $628 $389 $ - $7,846 $262 $321 $8,429 $121 $ - $121
(a)The operating results for 1997 and 1996 and assets as of December 31, 1996 are presented to reflect the changes to GM's organizational structure resulting from the Hughes Transactions which occurred in December 1997. As such, Hughes excludes Hughes Defense and Other includes Hughes Defense. (b)Other includes the $4.3 billion gain resulting from the Hughes Transactions for the year ended December 31, 1997 and (loss) income from discontinued operations of $(93) million, $215 million, and $863 million for the years ended December 31, 1998, 1997, and 1996, respectively. (c)The amount reported for Hughes excludes amortization of GM purchase accounting adjustments of approximately $21 million for 1998, 1997 and 1996 related to GM's acquisition of Hughes Aircraft Company. Such amortization was allocated to GM's Other segment which is consistent with the basis upon which the segments are evaluated. (d)Excludes expenditures related to telecommunications and other equipment amounting to $726 million, $606 million and $259 million in 1998, 1997 and 1996, respectively. - 40 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued Note 22. Segment Reporting (concluded) Information concerning principal geographic areas was as follows (in millions): 1998 1997 1996 ---- ---- ---- Net Sales Net Sales Net Sales & Net & Net & Net Revenues Property Revenues Property Revenues Property ----------------- -------- -------- -------- -------- North America United States $105,672 $19,454 $131,076 $17,592 $116,250 $19,044 Canada and Mexico 11,009 2,358 7,953 2,506 6,228 3,113 ------- ------ ------ ------ ------- ------- Total North America 116,681 21,812 139,029 20,098 122,478 22,157 Europe France 2,042 186 1,327 157 1,967 106 Germany 10,567 3,349 9,358 2,902 10,861 3,610 Spain 1,966 422 1,185 480 1,093 660 United Kingdom 5,379 1,192 5,085 1,176 4,714 1,056 Other 9,679 1,748 7,854 1,566 7,263 1,536 ------- ----- ------- ----- ------- ----- Total Europe 29,633 6,897 24,809 6,281 25,898 6,968 Latin America Brazil 4,773 1,879 4,719 1,873 4,664 1,819 Other Latin America 2,909 409 2,914 440 2,194 315 ----- ----- ----- ------ ----- ------ Total Latin America 7,682 2,288 7,633 2,313 6,858 2,134 All Other 1,449 1,611 1,109 888 3,047 808 -------- ------- -------- ----- -------- ------- Total $155,445 $32,608 $172,580 $29,580 $158,281 $32,067 ======= ====== ======= ====== ======= ====== Note 23. Discontinued Operations Delphi Delphi is a diverse supplier of automotive systems and components. Delphi offers products and services in the areas of electronics and mobile communication; safety, thermal and electrical architecture; and dynamics and propulsion. On February 5, 1999, Delphi completed an initial public offering of 100 million shares of its common stock, which represented 17.7% of its outstanding common shares. On April 12, 1999, the GM Board of Directors approved the complete separation of Delphi from GM by means of a tax-free spin-off in which 80.1 percent of the ownership of Delphi, 452.6 million shares of Delphi common stock now owned by GM, will be distributed on a pro-rata basis to owners of GM $1-2/3 par value common stock, and if GM receives a favorable ruling from the Internal Revenue Service prior to May, 1999, GM will contribute the other 2.2% of Delphi shares it owns, 12.4 million shares, to a Voluntary Employee Beneficiary Association (VEBA) trust used to fund benefits to hourly retirees. If such a ruling is not received, the additional 2.2 percent of Delphi shares held by GM also will be distributed to GM stockholders, in which case the same record date and payment dates will be used. The financial data related to GM's investment in Delphi prior to the approved May, 1999 spin-off is classified as discontinued operations for all periods presented. The financial data of Delphi reflect the historical results of operations and cash flows of the businesses that were considered part of the Delphi business segment of GM during each respective period; they do not reflect many significant changes that will occur in the operations and funding of Delphi as a result of the separation from GM and the IPO. The Delphi financial data classified as discontinued operations reflect the assets and liabilities transferred to Delphi in accordance with the terms of a master separation agreement to which Delphi and GM are parties (the "Separation Agreement"). Delphi and Delco Electronics Corporation ("Delco Electronics"), the electronics and mobile communication business that was transferred to Delphi in December 1997, were under the common control of GM during such periods; therefore, the financial data include amounts relating to Delco Electronics for all periods presented, although Delco Electronics was not integrated with Delphi until December 1997. The following significant factors are reflected in Delphi's financial data classified as discontinued operations: - 41 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued Note 23. Discontinued Operations (continued) Capital Arrangements o Delphi operated under a cash and debt management agreement with GM (the "Cash and Debt Management Agreement"), and an intracompany note payable to GM. The Cash and Debt Management Agreement established Delphi's combined cash and marketable securities balance at $1.0 billion. Delphi's total debt was $3.5 billion, reflecting a $3.1 billion intracompany note payable to GM and outstanding debt at Delphi's international subsidiaries. The $3.1 billion intracompany note payable to GM reflects the portion of GM's outstanding debt that was specifically related to Delphi's operations. The financial data give effect to the terms of the Cash and Debt Management Agreement and the intracompany note payable, and accordingly, reflect cash and marketable securities and the combined short-term and long-term debt capitalization totaling $1.0 billion and $3.5 billion, respectively, at December 31, 1998 and 1997. o Delphi's interest expense reflects interest associated with the historical debt capitalization discussed above, primarily using a blend of prevailing short-term and long-term weighted-average interest rates commensurate with the overall credit risk of the Delphi business segment. Employee Benefits Arrangements o The Separation Agreement provides generally that pension plan assets and liabilities related to Delphi's U.S. salaried active and inactive employees retiring after January 1, 1999 will be assumed by Delphi. Delphi has established defined benefit pension plans for its salaried employees under the same terms that existed for the GM plans as of January 1, 1999. Delphi's financial data classified as discontinued operations reflect the assets and liabilities related to U.S. salaried employees that Delphi will assume pursuant to the Separation Agreement, and exclude employee benefit obligations and assets related to salaried employees retired on or before January 1, 1999. Generally, Delphi's U.S. hourly employees will continue to participate in the defined benefit pension plan for hourly workers administered by GM until full separation from GM. Generally, Delphi will assume the pension obligations for U.S. hourly employees who retire after October 1, 1999 and GM will retain pension obligations for U.S. hourly employees who retire on or before October 1, 1999. The amount of such obligations varies depending on factors such as discount rates, asset returns, contribution levels and other factors. The obligation attributable to Delphi classified as discontinued operations was $2.1 billion and $1.7 billion at December 31, 1998 and 1997, respectively. o The Separation Agreement provides in general that GM will retain other postretirement benefit liabilities related to Delphi's U.S. salaried employees retiring on or prior to January 1, 1999. The liabilities related to Delphi's U.S. salaried active and inactive employees retiring after January 1, 1999 will be assumed by Delphi. Delphi's U.S. hourly employees will continue to participate in the postretirement plans administered by GM until full separation from GM, and GM generally will retain postretirement benefit obligations for U.S. hourly employees retired on or before October 1, 1999. o The liabilities set forth in Delphi's balance sheet data classified as discontinued operations include employee benefit obligations related to its active and inactive employees only; however, the statements of operations data include benefit costs for Delphi's active, inactive and retired employees. Such accrued obligations and employee benefit costs are based upon actuarial methods and assumptions. The allocation of pension and other postretirement benefit obligations between Delphi and GM assumes certain levels of employee retirements prior to October 1, 1999, based on historical experience and conditions surrounding the separation. Delphi and GM have agreed to recalculate the allocation of those liabilities based on the actual level of retirements on or before October 1, 1999. Accordingly, if and to the extent that greater than the assumed number of employees retire on or before October 1, 1999, Delphi would be required to make a payment to GM. Depending on the amount of such a payment, if any, it could have a material adverse effect on Delphi's short-term liquidity. If and to the extent that less than the assumed number of employees retire on or before October 1, 1999, GM would be required to make a payment to Delphi. - 42 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued Note 23. Discontinued Operations (concluded) Operating Costs o Delphi's operating costs and expenses include allocations of general corporate overhead expenses related to GM's corporate headquarters and common support activities, including payroll administration, employee medical coverage and property and casualty insurance, financial, legal, tax and human resources. These allocated costs amounted to $135 million, $130 million and $124 million in 1998, 1997 and 1996, respectively, and have been allocated to Delphi based on usage or allocation methodologies primarily based on total net sales, certain tangible assets and payroll expenses. Although the Corporation believes the allocations and charges for such services to be reasonable, the costs of these services charged to Delphi may not be indicative of the costs that would have been incurred if Delphi had been a stand-alone entity. Income Taxes o Delphi's income taxes were determined in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Once Delphi is a stand-alone entity and is no longer included in GM's consolidated income tax return, it will no longer benefit from its position within GM's consolidated income tax environment. Delphi net sales (including sales to GM) included in discontinued operations totaled $28.5 billion, $31.4 billion, and $31.0 billion for the years ended December 31, 1998, 1997 and 1996, respectively. (Loss) income from Delphi discontinued operations of $(93) million, $215 million, and $853 million for the years ended December 31, 1998, 1997 and 1996 is reported net of income tax (benefit) expense of $(173) million, $44 million, and $259 million, respectively. The net assets (liabilities) of Delphi were as follows (in millions): December 31, 1998 1997 ---- ---- Current assets $6,405 $6,378 Property and equipment - net 4,965 4,600 Deferred income taxes and other assets 4,136 4,048 Current liabilities (4,061) (4,066) Long-term debt (3,137) (3,341) Other liabilities (8,299) (8,032) Accumulated translation adjustments 68 78 ------- ----- Net assets (liabilities) of discontinued operations $77 $(335) == === For financial reporting purposes, Delphi's initial public offering and the complete separation of Delphi from GM will be reflected as equity transactions. EDS On June 7, 1996, GM split-off Electronic Data Systems Corporation (EDS) to GM Class E stockholders on a tax-free basis for U.S. federal income tax purposes. Under the terms of the split-off, each share of GM former Class E common stock was exchanged for one share of EDS common stock. In addition, GM and EDS entered into a new 10-year agreement, under which EDS will continue to be GM's principal provider of information technology services and EDS made a special inter-company payment of $500 million to GM. The financial data related to EDS prior to the June 7, 1996 split-off from GM are classified as discontinued operations. The financial results of EDS, including assets and liabilities, subsequent to the split-off are not included in GM's consolidated financial statements. EDS systems and other contracts revenues from outside customers included in income from discontinued operations totaled $4.3 billion for the year ended December 31, 1996. Income from discontinued operations of $10 million for the year ended December 31, 1996, is reported net of income tax expense of $14 million. Income from discontinued operations for 1996 also includes split-off expenses attributable to $1-2/3 par value common stock of $15 million after-tax or $0.02 per share of $1-2/3 par value common stock. * * * * * * * * - 43 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION Selected Quarterly Data (Unaudited) 1998 Quarters ------------- 1st 2nd(1)(2) 3rd(2) 4th(3) --- --------- ------ ------ (Dollars in Millions Except Per Share Amounts) Total net sales and revenues $40,024 $37,272 $33,525 $44,624 ------ ------ ------ ------ Income (loss) from continuing operations before income taxes and minority interests 2,083 511 (419) 2,769 Income tax expense (credit) 695 159 (144) 926 Minority interests (10) - (1) (9) Losses of nonconsolidated associates (10) (46) (33) (150) ------ ---- ---- ----- Income (loss) from continuing operations 1,368 306 (309) 1,684 Income (loss) from discontinued operations 236 83 (500) 88 ----- ----- --- ------ Net income (loss) 1,604 389 (809) 1,772 Dividends on preference stocks 16 16 16 15 ------ ---- ---- ------ Earnings (loss) on common stocks $1,588 $373 $(825) $1,757 ===== === === ===== Earnings (loss) attributable to common stocks $1-2/3 par value from continuing operations $1,338 $275 $(336) $1,637 Income (loss) from discontinued operations 236 83 (500) 88 ----- ----- --- ------ Earnings attributable to $1-2/3 par value $1,574 $358 $(836) $1,725 ===== === === ===== Earnings attributable to Class H $14 $15 $11 $32 == == == == Basic earnings (loss) per share attributable to common stocks $1-2/3 par value from continuing operations $1.96 $0.41 $(0.52) $2.51 Income (loss) from discontinued operations 0.35 0.13 (0.76) 0.13 ---- ---- ---- ---- Earnings attributable to $1-2/3 par value $2.31 $0.54 $(1.28) $2.64 ==== ==== ==== ==== Earnings attributable to Class H $0.13 $0.14 $0.11 $0.30 ==== ==== ==== ==== Average number of shares of common stocks outstanding - basic (in millions) $1-2/3 par value 682 661 654 654 Class H 104 105 106 106 Diluted earnings (loss) per share attributable to common stocks $1-2/3 par value from continuing operations $1.93 $0.40 $(0.52) $2.48 Income (loss) from discontinued operations 0.34 0.12 (0.76) 0.13 ---- ---- ---- ---- Earnings attributable to $1-2/3 par value $2.27 $0.52 $(1.28) $2.61 ==== ==== ==== ==== Earnings attributable to Class H $0.13 $0.14 $0.11 $0.30 ==== ==== ==== ==== Average number of shares of common stocks outstanding - diluted (in millions) $1-2/3 par value 693 672 654 665 Class H 109 111 110 109 - 44 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION - Continued Selected Quarterly Data (Unaudited) - Continued (1)Second-quarter 1998 results included a pre-tax charge of $74 million ($44 million after-tax, or $0.07 basic loss per share of $1-2/3 par value common stock), related to work schedule modifications at Opel Belgium. (2)Work stoppages in the United States during the second and third quarter of 1998 reduced calendar year income from continuing operations by approximately $1.5 billion or $2.26 basic loss per share of $1-2/3 par value common stock, after considering partial recovery of production losses from the work stoppages. (3)Fourth quarter 1998 results included charges against income from continuing operations totaling $228 million or $0.35 basic loss per share of $1-2/3 par value common stock, resulting from GM's competitiveness studies. - 45 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION - Continued Selected Quarterly Data (Unaudited) - Continued 1997 Quarters ------------- 1st(1) 2nd(2)(3)(4) 3rd 4th(5)(6) ------ ---------- --- --------- (Dollars in Millions Except Per Share Amounts) Total net sales and revenues $40,846 $43,683 $40,590 $47,459 ------ ------ ------ ------ Income from continuing operations before income taxes and minority interests 2,333 2,666 1,545 1,025 Income tax expense (credit) 852 947 524 (1,298)(6) Minority interests 19 12 1 12 Earnings (losses) of nonconsolidated associates 9 (6) (31) (77) ------- ------- ------ ---- Income from continuing operations 1,509 1,725 991 2,258 Income (loss) from discontinued operations 287 373 76 (521) ----- ----- ------ ------ Net Income 1,796 2,098 1,067 1,737 Premium on exchange of preference stocks - - 26 - Dividends on preference stocks 20 20 16 16 ------ ------ ------ ----- Earnings on common stocks $1,776 $2,078 $1,025 $1,721 ===== ===== ===== ===== Earnings attributable to common stocks $1-2/3 par value from continuing operations $1,451 $1,593 $905 $2,200 Income (loss) from discontinued operations 266 348 59 (546) ----- ----- ---- ------ Earnings attributable to $1-2/3 par value $1,717 $1,941 $964 $1,654 ===== ===== === ===== Class H from continuing operations $38 $112 $44 $40 Income from discontinued operations 21 25 17 25 --- --- --- --- Earnings attributable to Class H (7) $59 $137 $61 $65 == === == == Earnings attributable to Class H (8) $ - $ - $ - $2 == == == = Basic earnings per share attributable to common stocks $1-2/3 par value from continuing operations $1.94 $2.20 $1.27 $3.14 Income (loss) from discontinued operations 0.36 0.48 0.08 (0.78) ---- ---- ---- ---- Earnings attributable to $1-2/3 par value $2.30 $2.68 $1.35 $2.36 ==== ==== ==== ==== Class H from continuing operations $0.38 $1.11 $0.43 $0.39 Income from discontinued operations 0.21 0.24 0.17 0.24 ---- ---- ---- ---- Earnings attributable to Class H (7) $0.59 $1.35 $0.60 $0.63 ==== ==== ==== ==== Earnings attributable to Class H (8) $ - $ - $ - $0.02 == == == ==== Average number of shares of common stocks outstanding - basic (in millions) $1-2/3 par value 747 724 713 702 Class H (7) 100 101 102 103 Class H (8) - - - 104 Diluted earnings per share attributable to common stocks $1-2/3 par value from continuing operations $1.93 $2.19 $1.26 $3.10 Income (loss) from discontinued operations 0.35 0.48 0.08 (0.77) ---- ---- ---- ---- Earnings attributable to $1-2/3 par value $2.28 $2.67 $1.34 $2.33 ==== ==== ==== ==== Class H from continuing operations $0.38 $1.11 $0.43 $0.39 Income from discontinued operations 0.21 0.24 0.17 0.24 Earnings attributable to Class H (7) $0.59 $1.35 $0.60 $0.63 ==== ==== ==== ==== Earnings attributable to Class H (8) $ - $ - $ - $0.02 == == == ==== Average number of shares of common stocks outstanding - diluted (in millions) $1-2/3 par value 752 729 720 709 Class H (7) 103 104 105 106 Class H (8) - - - 107 - 46 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION - Concluded Selected Quarterly Data (Unaudited) - Concluded (1)First quarter 1997 results included a pre-tax gain of $88 million, after deducting certain legal expenses ($55 million after-tax or $0.07 basic earnings per share of $1-2/3 par value common stock) that resulted from an agreement with Volkswagen A.G. (VW) settling a civil lawsuit which GM brought against VW. (2)Work stoppages in the United States during the second quarter of 1997 reduced calendar year income from continuing operations by approximately $240 million or $0.33 basic loss per share of $1-2/3 par value common stock, after considering partial recovery of production losses from the work stoppages. (3)Second quarter 1997 results included a pre-tax gain of $490 million ($318 million after-tax or $0.33 basic earnings per share of $1-2/3 par value common stock and $0.80 basic earnings per share of Class H common stock) related to the merger of the satellite service operations of Hughes and PanAmSat Corporation. (4)Second quarter 1997 results included a pre-tax gain of $128 million ($103 million after-tax or $0.14 basic earnings per share of $1-2/3 par value common stock) related to the sale of GM Europe's equity interest in Avis Europe. (5)Fourth quarter 1997 results included a tax-free gain of $4.3 billion ($6.08 basic earnings per share of $1-2/3 par value common stock) related to the December 17, 1997 completion of the strategic restructuring of GM's Hughes Electronics subsidiary (Hughes Transactions). The 1997 tax credit primarily resulted from the effect of the tax-free status of the gain. (6)Fourth quarter 1997 results included charges against income from continuing operations totaling $3.1 billion or $4.34 basic loss per share of $1-2/3 par value common stock, resulting from GM's competitiveness studies. (7)Represents information through December 17, 1997, the date on which GM recapitalized the Class H common stock (GM's Recapitalization Date). (8)Represents information for the period from December 18, 1997, through December 31, 1997, which is subsequent to GM's Recapitalization Date. - 47 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA (Unaudited) Years Ended December 31 ----------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (Dollars in Millions Except Per Share Amounts) Total net sales and revenues $155,445 $172,580 $158,281 $154,954 $143,740 Income from continuing operations before cumulative effect of accounting changes $3,049 $6,483 $4,100 $4,726 $3,633 Income from discontinued operations (93) 215 863 2,207 2,026 Cumulative effect of accounting changes - - - (52)(1) (758)(2) ----- ----- ----- ----- ----- Net income $2,956 $6,698 $4,963 $6,881 $4,901 ===== ===== ===== ===== ===== $1-2/3 par value common stock Basic earnings per share (EPS) from continuing operations $4.40 $8.52 $5.08 $5.57 $3.59 Basic (loss) earnings per share from discontinued operations $(0.14) $0.18 $0.98 $1.71 $1.63 Diluted EPS from continuing operations $4.32 $8.45 $5.04 $5.52 $3.54 Diluted (loss) earnings per share from discontinued operations $(0.14) $0.17 $0.98 $1.69 $1.61 Cash dividends declared per share $2.00 $2.00 $1.60 $1.10 $0.80 Class H common stock (prior to its recapitalization on December 17, 1997) Basic EPS from continuing operations $ - $2.30 $1.83 $1.39 $1.46 Basic EPS from discontinued operations $ - $0.87 $1.05 $1.38 $1.16 Diluted EPS from continuing operations $ - $2.30 $1.83 $1.39 $1.46 Diluted EPS from discontinued operations $ - $0.87 $1.05 $1.38 $1.16 Cash dividends declared per share $ - $1.00 $0.96 $0.92 $0.80 Class H common stock (subsequent to its recapitalization on December 17, 1997) Basic EPS from continuing operations $0.68 $0.02 $ - $ - $ - Diluted EPS from continuing operations $0.68 $0.02 $ - $ - $ - Cash dividends declared per share $ - $ - $ - $ - $ - Class E common stock Basic EPS from discontinued operations $ - $ - $0.04 $1.96 $1.71 Diluted EPS from discontinued operations $ - $ - $0.04 $1.96 $1.71 Cash dividends declared per share $ - $ - $0.30 $0.52 $0.48 Total assets $246,345 $221,400 $215,690 $208,898 $186,141 Long-term debt $7,118 $5,669 $5,352 $4,100 $5,047 GM-obligated mandatorily redeemable preferred securities of subsidiary trusts $220 $222 $ - $ - $ - Stockholders' equity $15,052 $17,584 $23,413 $23,310 $12,814 (1) GM adopted the provisions of the EITF consensus on Issue No. 95-1, effective January 1, 1995, which resulted in an unfavorable cumulative effect of $52 million after-tax or $0.07 basic loss per share of $1-2/3 par value common stock. (2)GM adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits, effective January 1, 1994. The unfavorable cumulative effect of adopting SFAS No. 112 was $751 million after-tax or $1.05 basic loss per share of $1-2/3 par value common stock and $7 million after-tax or $0.08 basic loss per share of Class H common stock. - 48 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES Additions Additions Balance at charged to charged to beginning costs and other Balance at Description of year expenses accounts Deductions end of year - ----------- ------- -------- -------- ---------- ----------- (Dollars in Millions) For the Year Ended December 31, 1998 Allowances Deducted from Assets Finance receivables (unearned income) $3,516 $ - $3,288 $2,777 $4,027 Allowance for credit losses 903 463 96(a) 441(b) 1,021 Accounts and notes receivable (for doubtful receivables) 161 208 19(a) 79(b) 309 Inventories (principally for obsolescence of service parts) 258 - - 1(c) 257 Other investments and miscellaneous assets (receivables and other) 13 - 1 - 14 Miscellaneous allowances (mortgage and other) 202 52 113 115 252 ------ ---- ------ ------ ------ Total Allowances Deducted from Assets $5,053 $723 $3,517 $3,413 $5,880 ===== === ===== ===== ===== For the Year Ended December 31, 1997 Allowances Deducted from Assets Finance receivables (unearned income) $3,642 $ - $3,161 $3,287 $3,516 Allowance for credit losses 922 523 62(a) 604(b) 903 Accounts and notes receivable (for doubtful receivables) 127 41 41(a) 48(b) 161 Inventories (principally for obsolescence of service parts) 302 - - 44(c) 258 Other investments and miscellaneous assets (receivables and other) 12 - 1 - 13 Miscellaneous allowances (mortgage) 138 106 6 48 202 ------ --- ------- ------ ----- Total Allowances Deducted from Assets $5,143 $670 $3,271 $4,031 $5,053 ===== === ===== ===== ===== For the Year Ended December 31, 1996 Allowances Deducted from Assets Finance receivables (unearned income) $3,922 $ - $3,044 $3,324 $3,642 Allowance for credit losses 808 669 116(a) 671(b) 922 Accounts and notes receivable (for doubtful receivables) 114 49 9(a) 45(b) 127 Inventories (principally for obsolescence of service parts) 228 74(c) - - 302 Other investments and miscellaneous assets (receivables and other) 33 1 - 22 12 Miscellaneous allowances (mortgage) 59 99 31 51 138 ------- ----- ------- ------ ------- Total Allowances Deducted from Assets $5,164 $892 $3,200 $4,113 $5,143 ===== === ===== ===== ===== Notes: (a) Primarily reflects the recovery of accounts previously written-off. (b) Accounts written off. (c) Represents net change of inventory allowances. Reference should be made to the notes to consolidated financial statements.
- 49 - EX-27 5 FDS -- FOR 1998
5 This schedule contains summary financial information extracted from General Motors Corporation December 31, 1998 Consolidated Financial Statements and is qualified in its entirely by reference to the current report on Form 8-K dated April 12, 1999. 0000040730 General Motors Corporation 1,000,000 U.S. Dollars 12-MOS Dec-31-1998 Jan-01-1998 Dec-31-1998 1 9,874 9,150 78,997 0 10,437 40,399 67,436 34,828 247,362 46,109 113,731 220 1 1,103 13,948 247,362 134,276 155,445 114,542 125,584 105 463 6,629 4,944 1,636 3,049 (93) 0 0 2,956 4.26 4.18
EX-27 6 FDS -- FOR 1997
5 This schedule contains summary financial information extracted from General Motors Corporation December 31, 1997 Consolidated Financial Statements and is qualified in its entirely by reference to the current report on Form 8-K dated April 12, 1999. 0000040730 General Motors Corporation 1,000,000 U.S. Dollars 12-MOS Dec-31-1997 Jan-01-1997 Dec-31-1997 1 10,273 11,711 64,993 0 10,234 39,326 62,531 34,773 222,417 44,681 93,036 222 1 1,166 16,417 222,417 148,143 172,580 128,225 142,643 228 523 5,883 7,569 1,025 6,483 215 0 0 6,698 8.70 8.62
EX-27 7 FDS -- FOR 1996
5 This schedule contains summary financial information extracted from General Motors Corporation December 31, 1996 Consolidated Financial Statements and is qualified in its entirely by reference to the current report on Form 8-K dated April 12, 1999. 0000040730 General Motors Corporation 1,000,000 U.S. Dollars 12-MOS Dec-31-1996 Jan-01-1996 Dec-31-1996 1 13,092 8,170 63,050 0 9,882 39,725 67,677 34,393 215,690 40,796 85,123 0 1 1,271 22,142 215,690 140,057 158,281 121,472 132,319 150 669 5,427 5,440 1,464 4,100 863 0 0 4,963 6.06 6.02
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