S-3
1
FORM S-3
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GENERAL MOTORS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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STATE OF DELAWARE 38-0572515
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
767 FIFTH AVENUE, NEW YORK, NEW YORK 10153-0075; (212) 418-6100
3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202-3091; (313) 556-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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J. MICHAEL LOSH
EXECUTIVE VICE PRESIDENT
GENERAL MOTORS CORPORATION
3044 WEST GRAND BOULEVARD
DETROIT, MICHIGAN 48202-3091
(313) 556-3549
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
WARREN G. ANDERSEN ROBERT S. OSBORNE, P.C.
GENERAL MOTORS CORPORATION KIRKLAND & ELLIS
3031 WEST GRAND BOULEVARD 200 EAST RANDOLPH DRIVE
DETROIT, MICHIGAN 48202-3091 CHICAGO, ILLINOIS 60601-6636
FRANCIS J. MORISON PETER ALLAN ATKINS
DAVIS POLK & WARDWELL SKADDEN, ARPS, SLATE, MEAGHER & FLOM
450 LEXINGTON AVENUE 919 THIRD AVENUE
NEW YORK, NEW YORK 10071 NEW YORK, NEW YORK 10022
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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Class H Common Stock............. 15,000,000 $39.375(1) $590,625,000(1) $203,665
shares
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(1) Estimated in accordance with Rule 457(c) solely for the purpose of
determining the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 (A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8 (A), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 24, 1995
15,000,000 SHARES
GENERAL MOTORS CORPORATION
CLASS H COMMON STOCK
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The shares offered hereby are 15,000,000 shares of Class H Common Stock,
$0.10 par value per share ("Class H Common Stock"), of General Motors
Corporation, a Delaware corporation ("General Motors" or "GM"). Class H Common
Stock is one of three classes of General Motors common stock. Under the General
Motors Restated Certificate of Incorporation, as amended, dividends on Class H
Common Stock may be declared and paid out of the assets of General Motors only
to the extent of the sum of (i) the paid in surplus of General Motors
attributable to the Class H Common Stock plus (ii) an allocated portion of the
earnings, determined as described herein, of General Motors' wholly-owned
subsidiary
HUGHES ELECTRONICS CORPORATION
(FORMERLY KNOWN AS GM HUGHES ELECTRONICS CORPORATION)
GENERAL MOTORS, NOT HUGHES ELECTRONICS CORPORATION, IS THE ISSUER OF CLASS H
COMMON STOCK. FOR A DESCRIPTION OF DIVIDENDS, VOTING RIGHTS, LIQUIDATION RIGHTS
AND RECAPITALIZATION PROVISIONS, SEE "CLASS H COMMON STOCK" AND "APPENDIX A--
COMMON STOCK."
All of the 15,000,000 shares of Class H Common Stock offered hereby are being
sold by the Howard Hughes Medical Institute ("HHMI" or the "Selling
Stockholder"). HHMI has agreed to pay to General Motors the net proceeds of
this offering (after reduction for expenses, including underwriting discounts
and commissions) in excess of $37.50 per share. See "Selling Stockholder."
The last reported price of the Class H Common Stock, which is listed under
the symbol "GMH", on the New York Stock Exchange on March 23, 1995 was $39 3/4
share. See "Class H Common Stock."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) STOCKHOLDER(2)(3)
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Per Share....................... $ $ $
Total........................... $ $ $
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(1) General Motors and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Selling Stockholder estimated at
$ .
(3) Pursuant to an agreement described herein, this offering will result in a
payment (after providing for the expenses of this offering) from HHMI to
General Motors of the net proceeds to HHMI in excess of $37.50 per share.
See "Selling Stockholder."
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The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about April , 1995.
GOLDMAN, SACHS & CO. SALOMON BROTHERS INC
COWEN & COMPANY MORGAN STANLEY & CO.
INCORPORATED
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The date of this Prospectus is April , 1995.
AVAILABLE INFORMATION
General Motors is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information (including
certain information relating to Hughes Electronics Corporation) with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by General Motors with the Commission
can be inspected, and copies may be obtained, at the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates, as well as the following Regional Offices of the Commission:
Seven World Trade Center, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Reports, proxy
statements and other information concerning General Motors can also be
inspected at the offices of the New York Stock Exchange, Inc., 11 Wall Street,
New York, New York 10005, where the Class H Common Stock, Class E Common Stock
and $1 2/3 Par Value Common Stock of General Motors are listed and at the
offices of the following other stock exchanges where the $1 2/3 Par Value
Common Stock is listed in the United States: the Chicago Stock Exchange, Inc.,
One Financial Place, 440 S. LaSalle Street, Chicago, Illinois 60605; the
Pacific Stock Exchange, Inc., 233 South Beaudry Avenue, Los Angeles, California
90012 and 301 Pine Street, San Francisco, California 94104; and the
Philadelphia Stock Exchange, Inc., 1900 Market Street, Philadelphia,
Pennsylvania 19103.
General Motors has filed with the Commission a Registration Statement on Form
S-3 (as amended, including exhibits, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), covering the shares
described herein. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by General Motors with the
Commission, are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1994, as
amended on Forms 10-K/A dated March 17 and 24, 1995 (as amended, the "GM
1994 Form 10-K");
2. Current Reports on Form 8-K dated March 3 and 13, 1995; and
3. The description of the Class H Common Stock set forth in Article
Fourth of General Motors' Restated Certificate of Incorporation, as amended
to May 26, 1994 (the "General Motors Certificate of Incorporation"), filed
as Exhibit 3(i) to the Current Report on Form 8-K dated May 26, 1994.
All documents filed by General Motors with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the shares offered
hereby shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
GENERAL MOTORS WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR
ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS WHICH HAVE
BEEN OR MAY BE INCORPORATED BY REFERENCE IN THIS PROSPECTUS, OTHER THAN
EXHIBITS TO SUCH DOCUMENTS NOT SPECIFICALLY DESCRIBED ABOVE. REQUESTS SHOULD BE
DIRECTED TO GENERAL MOTORS CORPORATION, ROOM 11-243, GENERAL MOTORS BUILDING,
3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202-3091 (TELEPHONE NUMBER (313)
556-2044).
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS H COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere or incorporated by reference in this
Prospectus. The share numbers in this Prospectus reflect all stock dividends
and subdivisions or combinations of General Motors capital stock prior to the
date hereof.
INTRODUCTION
This Prospectus relates to the offering by HHMI of 15,000,000 shares of Class
H Common Stock that is being made pursuant to an agreement between General
Motors and HHMI. Pursuant to such agreement, HHMI has agreed to pay to General
Motors the net proceeds of this offering (after reduction for expenses) in
excess of $37.50 per share. HHMI acquired its shares of Class H Common Stock in
1985 in connection with GM's acquisition from HHMI of Hughes Aircraft Company
("HAC"). See "Selling Stockholder."
Class H Common Stock is one of three classes of General Motors common stock.
Dividends on Class H Common Stock may be declared and paid out of the assets of
General Motors only to the extent of the sum of (i) the paid in surplus of
General Motors attributable to the Class H Common Stock plus (ii) an allocated
portion of the earnings, determined as described below, of General Motors'
wholly-owned subsidiary, Hughes Electronics Corporation (together with its
subsidiaries, "Hughes"). 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 General Motors (which includes 100% of the stock of Hughes). See
"Class H Common Stock--Considerations Relating to Multi-Class Common Stock
Capital Structure." Hughes was organized in 1985 in connection with GM's
acquisition of HAC from HHMI. See "Selling Stockholder."
GENERAL MOTORS
The major portion of General Motors' operations is derived from the
automotive products industry, consisting of the design, manufacture, assembly
and sale of automobiles, trucks and related parts and accessories. Primarily
through its wholly-owned subsidiaries, Hughes, General Motors Acceptance
Corporation ("GMAC") and Electronic Data Systems Corporation ("EDS"), General
Motors also manufactures products and provides services in other industry
segments. See "General Motors and Hughes--General Motors."
HUGHES
Hughes (formerly known as GM Hughes Electronics Corporation), a wholly-owned
subsidiary of General Motors, develops, manufactures and markets automotive
electronics components, aerospace and defense electronics products and systems,
and satellites and satellite-based communications systems, and provides related
services. Based on the most recently available Fortune 500 survey, Hughes on an
independent basis would have ranked among the 40 largest industrial
corporations in the United States. Hughes is one of the world's leading
suppliers of automotive electronics, a leading supplier of aerospace and
defense electronics systems, and a world leader in the manufacture and private
ownership and operation of communications satellites. Hughes provides a broad
range of satellite-related services and is a leader in the U.S. direct
broadcast satellite market with its programming distribution service known as
DIRECTV(R), which was introduced in 1994 and is the first high-powered, all
digital direct-to-home television distribution service in North America.
Hughes currently conducts its operations in three primary business segments:
Automotive Electronics; Aerospace and Defense Systems; and Telecommunications
and Space. In 1994, these segments represented, respectively, 37%, 43% and 18%
of Hughes' revenues and 49%, 41%
3
and 17% of Hughes' operating profit (excluding purchase accounting adjustments
related to GM's acquisition of HAC) and operations reported as Corporate and
Other represented approximately 2% of revenues and reported an operating loss
of $99.0 million. See "Corporate and Other."
Automotive Electronics
Through its wholly-owned subsidiary, Delco Electronics Corporation (together
with its subsidiaries, "Delco Electronics"), Hughes supplies the substantial
majority of the requirements for automotive electronics of General Motors'
North American Operations unit ("GM NAO") and an increasing amount of such
products for other customers. Products supplied by Hughes include engine
management controllers, air bag control modules and sensors, anti-lock brake
controllers, audio systems, instrument panel clusters and air controls. Hughes'
strategy in its Automotive Electronics segment is to maintain its position as a
principal supplier to GM NAO while continuing to expand sales to international
and other customers. Hughes' sales of automotive electronics are heavily
dependent on General Motors' production of vehicles in North America, the level
of Hughes-supplied electronic content per vehicle and the price of such
electronics. Since 1992, pursuant to its global sourcing initiative, GM NAO has
aggressively pursued price reductions from its suppliers and has provided
suppliers worldwide with the opportunity to bid for business customarily
sourced with Hughes. Hughes believes that it has been and will continue to be
able to compete effectively for GM NAO business because of the quality of its
products, its on-going cost reduction efforts and its product and technological
innovations. In 1993 and 1994, Hughes won approximately 93% of all globally
sourced, competitive bids for GM NAO automotive electronics business for which
Hughes competed (based on the dollar value of all bids submitted by Hughes).
Hughes expects that the number and sophistication of electronic functions in
vehicles will continue to increase, but that its prices to GM NAO will continue
to decrease as a result of GM NAO's global sourcing initiative and increasing
electronic sophistication at lower prices. As a result, Hughes expects that its
revenues per GM North American vehicle will remain constant or decrease after
1995, unless Hughes is able to achieve its goal of mitigating the effect of
continuing price reductions for current products by developing, producing and
expanding sales of enhanced products. Moreover, Hughes believes that it will be
able to mitigate the effect of GM NAO price reductions on operating profit
through its demonstrated ability to reduce costs. Hughes also anticipates
increased sales to customers other than GM NAO. See "Automotive Electronics."
Aerospace and Defense Systems
Hughes develops and manufactures a wide variety of electronics-based
aerospace and defense products and systems for the U.S. and other governments.
Hughes has positioned itself as a leading developer and producer of a variety
of tactical programs and as a subcontractor for certain types of subsystems for
strategic purposes rather than seeking to become a prime contractor for major
strategic weapons platforms such as tanks and aircraft. This permits Hughes to
participate in major segments of the defense market while reducing the impact
of specific program cancellations. Hughes is a leading supplier of defense
electronics products and services to the U.S. government, participating in
approximately half of the current U.S. tactical missile programs, and Hughes'
airborne radar units are deployed on four of the five U.S. military front-line
fighter aircraft. Hughes' business strategy is to strengthen its leadership
position in aerospace and defense electronics systems and services through
continued emphasis on technological advances, operational efficiencies, cost
reduction and competitiveness. Due to its technological capabilities and the
volume of its products and systems in operation around the world, Hughes
believes it can capitalize on the opportunities presented by the continuing
trend toward upgrading and retrofitting electronic systems as a cost effective
alternative to developing new strategic weapons platforms. Hughes also intends
to continue its strategy of reducing its vulnerability to reductions in U.S.
defense spending by diversifying its customer base and product
4
line, with emphasis on international markets and non-defense government
agencies. In support of these strategies, Hughes intends, where appropriate, to
enter into strategic alliances and partnership arrangements and to make
strategic acquisitions and divestitures. Hughes also believes that its
reorganization of its Aerospace and Defense Systems segment effective for 1995
will further enhance its ability to compete in a more cost efficient manner.
See "Aerospace and Defense Systems."
Telecommunications and Space
Hughes is a leading worldwide manufacturer of communications satellites and
provider of satellite-based services. Hughes has one of the world's largest
private fleets of communications satellites and is the world's leading supplier
of satellite-based private business networks. Hughes also provides a broad
range of satellite-related services and is a leader in the U.S. direct
broadcast satellite market with its programming distribution service known as
DIRECTV, which was introduced in 1994 and is the first high-powered, all
digital direct-to-home television distribution service in North America. Hughes
seeks to capture more of the value-added benefits of the satellite-based
services market by capitalizing on its technological capabilities, the size and
desirable orbital locations of its satellite fleet and its management expertise
in satellite operations. Hughes' strategy also includes building on its
technology and experience to develop new applications for its satellite-based
services for governments, businesses and consumers and expanding international
sales. Hughes believes significant opportunities exist for it in mobile
wireless communications systems and, in areas with deficient communications
infrastructures (such as developing nations), fixed wireless telecommunications
networks for local and international telecommunications, and direct-to-home
satellite-based programming distribution services. Hughes' strategy also
includes developing new satellite-based technologies for opportunities such as
satellite-based data communications for personal computers and new systems for
telephone, video and data communications. In addition, Hughes seeks to maintain
its strong position in satellite manufacturing and to continue to increase the
profitability of its manufacturing operations through more efficient production
processes. See "Telecommunications and Space."
CLASS H COMMON STOCK
Class H Common Stock is one of three classes of General Motors common stock.
See "Appendix A--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 General Motors (which includes 100% of the stock of Hughes).
Class H Common Stock is designed to provide holders with financial returns
based on the performance of Hughes. The intent of this design objective is
achieved through (i) allocations under the General Motors Certificate of
Incorporation of the earnings of Hughes between amounts available for the
payment of dividends on Class H Common Stock and amounts available for the
payment of dividends on General Motors' $1 2/3 Par Value Common Stock and (ii)
the announced current dividend practices and policies of the General Motors
Board of Directors, all as more fully described herein. The General Motors
Board of Directors is free to change dividend practices and policies with
respect to Class H Common Stock, or any other class of General Motors common
stock, at any time. See "Class H Common Stock--Dividend Policy."
Under the General Motors Certificate of Incorporation, dividends on Class H
Common Stock may be declared by the General Motors Board of Directors and paid
out of the assets of General Motors only to the extent of the sum of (i) the
paid in surplus of General Motors attributable to the Class H Common Stock plus
(ii) an allocated portion of the earnings, determined as described herein, of
Hughes. The amortization of intangible assets arising from the purchase
accounting adjustments related to GM's acquisition of HAC is charged against
earnings attributable to $1 2/3 Par Value Common Stock and not against earnings
attributable to Class H Common Stock. The portion of Hughes' earnings that is
included in the amount available for the payment of dividends on Class H Common
Stock (which
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amount is also used to calculate earnings per share of Class H Common Stock) is
determined by a fraction, the numerator of which is a number equal to the
weighted average number of shares of Class H Common Stock outstanding and the
denominator of which was 399.9 million for the fourth quarter of 1994;
provided, that such fraction shall never be greater than one. Application of
this fraction, utilizing shares outstanding as of February 28, 1995 only, would
have resulted in an allocation of Hughes earnings (excluding purchase
accounting adjustments) to Class H Common Stock for dividend purposes of 24%.
This amount is referred to in the General Motors Certificate of Incorporation
as the "Available Separate Consolidated Net Income" of Hughes. See also Note 7
in the Hughes Consolidated Financial Statements in Appendix B. The sale of the
shares offered hereby by HHMI will not have any effect on this fraction.
For purposes of determining the approximate earnings per share attributable
to Class H Common Stock for financial reporting purposes, an investor may
divide the quarterly Hughes earnings allocated to Class H Common Stock (the
"Available Separate Consolidated Net Income of Hughes") by the weighted average
number of shares of Class H Common Stock outstanding during such quarter, which
is the numerator of the fraction described above. The same mathematical result
may be obtained by dividing the quarterly Hughes earnings used for computation
of Available Separate Consolidated Net Income (i.e., net income excluding
purchase accounting adjustments) by the denominator of the fraction described
above, which was 399.9 million for the fourth quarter of 1994. The denominator
is sometimes referred to herein as the "Class H Dividend Base."
The current dividend policy of the General Motors Board of Directors is to
pay quarterly dividends on Class H Common Stock at an annual rate equal to
approximately 35% of the Available Separate Consolidated Net Income of Hughes
for the prior year. The General Motors Board of Directors declared a dividend
on the Class H Common Stock of $0.20 per share in each quarter of 1994 and
$0.18 per share in each quarter of 1993 and 1992, which in each case was based
on an annual rate higher than 35% of the Available Separate Consolidated Net
Income of Hughes for the preceding year (excluding the effect of a $749.4
million after-tax special Hughes restructuring charge recorded in 1992). In
February 1995, the Board of Directors of General Motors increased the quarterly
dividend on Class H Common Stock from $0.20 per share to $0.23 per share (which
is based on an annual rate of approximately 35% of the Available Separate
Consolidated Net Income of Hughes for 1994). Under Delaware law and the General
Motors Certificate of Incorporation, the General Motors Board of Directors is
not required to declare dividends on any class of General Motors common stock,
including Class H Common Stock. The General Motors Board of Directors reserves
the right to reconsider from time to time its practices and policies regarding
dividends on all classes of GM common stock and to increase or decrease the
dividends paid on GM common stocks on the basis of General Motors' consolidated
financial position, including liquidity, and other factors, including, with
regard to Class H Common Stock, the earnings and consolidated financial
position of Hughes. Under the current dividend practices and policies of the
General Motors Board of Directors, dividends on Class H Common Stock are not
materially affected by developments involving the performance (operations,
liquidity or financial condition) of General Motors (excluding Hughes). See
"Class H Common Stock--Dividend Policy" and "--Considerations Relating to
Multi-Class Common Stock Capital Structure" and "Appendix A--Common Stock--
Dividends."
Holders of Class H Common Stock may cast one-half of a vote per share on all
matters submitted to General Motors stockholders for a vote, while holders of
$1 2/3 Par Value Common Stock may cast one vote per share and holders of
General Motors' Class E Common Stock may cast one-eighth of a vote per share.
Holders of all three classes of common stock vote together on all matters
except that separate class votes are required for certain amendments to the
General Motors Certificate of Incorporation. See "Class H Common Stock--Voting
Rights."
6
In the event of the liquidation, dissolution or winding up of the business of
General Motors, whether voluntary or involuntary, the General Motors
Certificate of Incorporation provides that, after the holders of General Motors
Preferred Stock (if any) and Preference Stock receive the full preferential
amounts to which they are entitled, holders of Class H Common Stock and the
other two classes of General Motors common stock will receive the assets
remaining for distribution to the General Motors stockholders on a per share
basis in proportion to the respective per share liquidation units of such
classes and will have no direct claim against any particular assets of General
Motors or any of its subsidiaries. Subject to adjustment, each share of Class H
Common Stock, $1 2/3 Par Value Common Stock and Class E Common Stock would
currently be entitled to liquidation units of approximately one-half (0.50),
one (1.0) and one-eighth (0.125), respectively. 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 General Motors (which includes 100% of the stock of
Hughes). See "Class H Common Stock--Liquidation Rights."
All outstanding shares of Class H Common Stock may be recapitalized as shares
of $1 2/3 Par Value Common Stock (i) at any time after December 31, 1995, in
the sole discretion of the General Motors Board of Directors, subject to
certain conditions, or (ii) automatically, if at any time General Motors
disposes of substantially all of the business of HAC (or its successors) or
Delco Electronics. In the event of such a recapitalization, each holder of
Class H Common Stock would receive shares of $1 2/3 Par Value Common Stock
having a market value, as of the valuation date provided for in the General
Motors Certificate of Incorporation, equal to 120% of the market value of such
holder's Class H Common Stock on such valuation date. See "Class H Common
Stock--Recapitalization."
THE OFFERING
Class H Common Stock offered hereby...................... 15,000,000 shares
Class H Common Stock outstanding before and after the
offering (a)............................................ 94,528,112 shares (b)
Class H Dividend Base (c)................................ 399.9 million
NYSE Symbol.............................................. GMH
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(a) Used in calculating the weighted average number of shares of Class H Common
Stock outstanding, which is the numerator of the fraction used to allocate
a portion of Hughes' earnings to the Class H Common Stock for dividend
purposes.
(b) Based on the number of shares outstanding on February 28, 1995. The
consummation of this offering will not change the number of shares of Class
H Common Stock outstanding.
(c) The denominator of the fraction used to allocate a portion of Hughes'
earnings to the Class H Common Stock for dividend purposes. Neither the
Class H Dividend Base nor the numerator of such fraction will be affected
by the sale by HHMI of the shares offered hereby.
7
SUMMARY FINANCIAL DATA
GENERAL MOTORS
The following summary General Motors financial data have been derived from
General Motors' consolidated financial statements and General Motors' financial
data presenting GMAC on an equity basis set forth in, and should be read in
conjunction with, General Motors' consolidated financial statements (including
the notes thereto) and Management's Discussion and Analysis in the GM 1994 Form
10-K, which is incorporated herein by reference. The GM consolidated financial
data for the years ended December 31, 1994, 1993, 1992, 1991 and 1990 are
derived from audited financial statements. The GM financial data presenting
GMAC on an equity basis are unaudited.
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
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1994(A) 1993 1992(B) 1991(C) 1990
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN MILLIONS)
CONSOLIDATED GM
OPERATIONS
OPERATING RESULTS
Total net sales and
revenues.............. $154,951.2 $138,219.5 $132,242.2 $123,108.8 $124,705.1
---------- ---------- ---------- ---------- ----------
Costs and expenses..... 146,597.9 134,694.2 134,338.3 126,180.3 123,608.2
Special provision for
scheduled plant
closings and other
restructurings........ -- 950.0 1,237.0 2,820.8 3,314.0
---------- ---------- ---------- ---------- ----------
Total costs and
expenses.......... 146,597.9 135,644.2 135,575.3 129,001.1 126,922.2
---------- ---------- ---------- ---------- ----------
Income (Loss) before
cumulative effect of
accounting changes.... 5,658.7 2,465.8 (2,620.6) (4,992.0) (1,985.7)
---------- ---------- ---------- ---------- ----------
Net income (loss)...... $ 4,900.6 $ 2,465.8 $(23,498.3) $ (4,452.8) $ (1,985.7)
========== ========== ========== ========== ==========
BALANCE SHEET DATA
Cash and marketable
securities............ $ 16,075.6 $ 17,962.7 $ 15,107.7 $ 10,192.4 $ 7,821.4
Total assets........... 198,598.7 188,200.9 190,196.0 184,074.6 180,236.5
Notes and loans
payable............... 73,730.2 70,441.2 82,592.3 94,022.1 95,633.5
Stockholders' equity... 12,823.8 5,597.5 6,225.6 27,327.6 30,047.4
GM OPERATIONS WITH GMAC
ON AN EQUITY BASIS
(UNAUDITED)
OPERATING RESULTS
Total net sales and
revenues.............. $141,576.0 $125,252.7 $118,571.6 $109,156.9 $110,797.3
---------- ---------- ---------- ---------- ----------
Costs and expenses. 134,815.3 122,812.1 121,420.0 112,719.3 110,893.3
Special provision for
scheduled plant
closings and other
restructurings........ -- 950.0 1,237.0 2,820.8 3,314.0
---------- ---------- ---------- ---------- ----------
Total costs and
expenses.......... 134,815.3 123,762.1 122,657.0 115,540.1 114,207.3
---------- ---------- ---------- ---------- ----------
Income (Loss) before
cumulative effect of
accounting changes.... 5,651.3 2,465.8 (2,903.2) (4,660.5) (1,985.7)
---------- ---------- ---------- ---------- ----------
Net income (loss)...... $ 4,900.6 $ 2,465.8 $(23,498.3) $ (4,452.8) $ (1,985.7)
========== ========== ========== ========== ==========
BALANCE SHEET DATA
Cash and marketable
securities............ $ 10,976.4 $ 10,485.0 $ 7,960.8 $ 4,419.4 $ 4,606.5
Total assets........... 126,334.9 120,980.5 121,356.2 104,797.5 102,878.8
Long-term debt and
capitalized leases.... 6,218.7 6,383.6 7,055.4 6,699.1 4,923.8
Stockholders' equity... 12,823.8 5,597.5 6,225.6 27,327.6 30,047.4
Cumulative Amount
Available for Payment
of Dividends(d)
Class H Common Stock. $ 2,169.3 $ 1,886.7 $ 1,582.9 $ 1,218.5 $ 1,106.6
Class E Common Stock. 3,752.1 3,243.8 2,546.4 1,753.0 1,449.0
$1 2/3 Par Value
Common Stock........ 9,013.8 4,870.0 3,487.7 23,264.1 26,801.2
---------- ---------- ---------- ---------- ----------
Total.............. $ 14,935.2 $ 10,000.5 $ 7,617.0 $ 26,235.6 $ 29,356.8
========== ========== ========== ========== ==========
8
(a) Effective January 1, 1994, GM adopted Statement of Financial Accounting
Standards ("SFAS") No. 112. The effect of this change on 1994 results was
an unfavorable cumulative effect on GMAC earnings of $7.4 million, an
unfavorable consolidated effect on GM operations with GMAC on an equity
basis of $750.7 million and an unfavorable cumulative effect on
consolidated GM operations of $758.1 million.
(b) Effective January 1, 1992, GM adopted SFAS No. 106. The effect of this
change on 1992 earnings was an unfavorable cumulative effect on GMAC
earnings of $282.6 million, an unfavorable cumulative effect on GM
operations with GMAC on an equity basis of $20,555.1 million and an
unfavorable cumulative effect on consolidated GM operations of $20,837.7
million. Additionally, effective January 1, 1992, Hughes changed its
revenue recognition policy for certain commercial businesses. The effect of
this change on 1992 results was an unfavorable adjustment of $40.0 million.
(c) Effective January 1, 1991, accounting procedures were changed to include in
inventory general purpose spare parts previously charged directly to
expense. The effect of this change on 1991 earnings was a favorable
adjustment of $306.5 million. GM adopted SFAS No. 109, effective January 1,
1991. The effect of this change on 1991 results was a favorable cumulative
effect on GMAC earnings of $331.5 million, an unfavorable cumulative effect
on GM operations with GMAC on an equity basis of $98.8 million and a
favorable cumulative effect on consolidated GM operations of $232.7
million.
(d) Amount of funds legally available as of such date for the payment of
dividends on each class of GM common stock under the General Motors
Certificate of Incorporation. See "Appendix A--Common Stock--Dividends."
HUGHES
Audited consolidated financial statements for Hughes (including the notes
thereto) may be found in Appendix B and in the GM 1994 Form 10-K, which is
incorporated herein by reference. Certain information with respect to Hughes is
also set forth in the consolidated financial statements of GM (including the
notes thereto), which are included in the GM 1994 Form 10-K and incorporated
herein by reference.
The following summary Hughes consolidated financial data have been derived
from, and should be read in conjunction with, Appendix B and the GM and Hughes
consolidated financial statements (including the notes thereto) set forth in
the GM 1994 Form 10-K and incorporated herein by reference. These data should
also be read in conjunction with "Financial Review of Hughes and Its Business
Segments" below.
As specified in the General Motors Certificate of Incorporation, the earnings
upon which dividends for the Class H Common Stock are based exclude the effects
of the amortization of intangible assets arising from purchase accounting
adjustments related to the acquisition of HAC by GM. In order to assist the
reader in analyzing the Class H Common Stock, the Hughes unaudited summary
consolidated pro forma financial data set forth below do not give effect to
such purchase accounting adjustments. Included in such summary pro forma
financial data are certain financial ratios that provide measures of financial
returns excluding the impact of such purchase accounting adjustments. Such pro
forma data are not presented as a measure of GM's total return on its
investment in Hughes. 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 General Motors (which includes 100% of the stock of Hughes). Following the
Hughes unaudited summary consolidated pro forma financial data are Hughes
summary consolidated financial data that include the purchase accounting
adjustments related to GM's acquisition of HAC.
9
HUGHES UNAUDITED SUMMARY CONSOLIDATED PRO FORMA FINANCIAL DATA
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
------------------------------
1994 1993 1992
--------- -------- ---------
(AMOUNTS IN MILLIONS EXCEPT
PER SHARE DATA AND
PERCENTAGES)
INCOME STATEMENT DATA
Net Sales
Outside Customers.......................... $ 9,108.7 $9,062.8 $ 8,267.6
General Motors and Affiliates.............. 4,953.6 4,387.4 3,901.4
Other Income--net............................ 37.1 67.3 128.1
--------- -------- ---------
Total Revenues........................... 14,099.4 13,517.5 12,297.1
Restructuring Charge......................... -- -- 1,237.0
Operating Profit (Loss) (a).................. 1,630.4 1,460.1 (194.2)
Interest Expense............................. 15.1 33.2 60.6
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Changes..... $ 1,652.4 $1,494.2 $ (126.7)
Effective Income Tax Rate.................... 34.7% 38.3% 37.0%
Earnings (Loss) Used for Computation of
Available Separate
Consolidated Net Income (Loss)*............. $ 1,049.2 $ 921.6 $ (921.6)
========= ======== =========
Average Number of Shares of Class H Common
Stock Outstanding (Numerator)............... 92.1 88.6 75.3
Class H Dividend Base (Denominator).......... 399.9 399.9 399.9
Available Separate Consolidated Net Income
(Loss) *.................................... $ 241.6 $ 204.5 $ (142.3)
Earnings (Loss) Attributable to Class H
Common Stock on a Per Share Basis *......... 2.62 2.30 (2.29)
Dividends Per Share of Class H Common Stock.. 0.80 0.72 0.72
SELECTED FINANCIAL STATEMENT DATA
Cash and Marketable Securities............... $ 1,501.8 $1,008.7 $ 702.7
Total Assets (b)............................. 11,845.2 10,988.0 10,956.3
Long-Term Debt and Capitalized Leases........ 353.5 416.8 711.0
Stockholder's Equity (b) (c)................. 4,970.5 4,199.0 3,562.1
Depreciation and Amortization (d)............ 470.2 503.5 487.1
Capital Expenditures (e)..................... 746.3 580.0 558.5
SELECTED FINANCIAL RATIOS
Operating Profit (Loss) Margin (f)........... 11.6% 10.9% (1.6)%
Pre-Tax Profit (Loss) Margin (g)............. 11.8 11.1 (1.0)
Net Profit (Loss) Margin (h)*................ 7.5 6.9 (7.6)
Return on Equity (b) (i)*.................... 22.9 23.7 (21.9)
Pre-Tax Return on Total Assets (b) (j)....... 14.5 13.6 (1.2)
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) 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
General Motors (which includes 100% of the stock of Hughes).
(c) General Motors' equity in its wholly-owned subsidiary, Hughes.
(d) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $123.8 million in 1994, 1993 and
1992. See Note 7 to the Hughes Consolidated Financial Statements in
Appendix B.
(e) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million and $101.6 million in 1994,
1993 and 1992, respectively.
(f) Operating Profit (Loss) as a percentage of Net Sales.
(g) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of Net Sales.
(h) Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss) as a percentage of Net Sales.
(i) Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss) as a percentage of average Stockholder's Equity (General
Motors' equity in its wholly-owned subsidiary, Hughes).
(j) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of average Total Assets.
* Includes impact of unfavorable cumulative effect of accounting changes of
$30.4 million, or $0.08 per share, in 1994 and $872.1 million, or $2.18 per
share, in 1992.
10
HUGHES SUMMARY CONSOLIDATED FINANCIAL DATA
(INCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
-------- -------- ---------
(AMOUNTS IN MILLIONS EXCEPT
PER SHARE DATA AND
PERCENTAGES)
INCOME STATEMENT DATA
Net Sales
Outside Customers.......................... $9,108.7 $9,062.8 $ 8,267.6
General Motors and Affiliates.............. 4,953.6 4,387.4 3,901.4
Other Income--net............................ 37.1 67.3 128.1
-------- -------- ---------
Total Revenues........................... 14,099.4 13,517.5 12,297.1
Restructuring Charge......................... -- -- 1,237.0
Operating Profit (Loss) (a).................. 1,506.6 1,336.3 (318.0)
Interest Expense............................. 15.1 33.2 60.6
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Changes..... $1,528.6 $1,370.4 $ (250.5)
Effective Income Tax Rate.................... 37.5% 41.8% 41.6%
Net Income (Loss)*........................... $ 925.4 $ 797.8 $(1,045.4)
Adjustments to exclude the effect of GM
purchase accounting adjustments related to
Hughes...................................... 123.8 123.8 123.8
Earnings (Loss) Used for Computation of
Available Separate Consolidated Net Income
(Loss)*..................................... $1,049.2 $ 921.6 $ (921.6)
======== ======== =========
Average Number of Shares of Class H Common
Stock Outstanding (Numerator)............... 92.1 88.6 75.3
Class H Dividend Base (Denominator).......... 399.9 399.9 399.9
Available Separate Consolidated Net Income
(Loss)*..................................... $ 241.6 $ 204.5 $ (142.3)
Earnings (Loss) Attributable to Class H
Common Stock on a Per Share Basis*.......... 2.62 2.30 (2.29)
Dividends Per Share of Class H Common Stock.. 0.80 0.72 0.72
SELECTED FINANCIAL STATEMENT DATA
Cash and Marketable Securities............... $1,501.8 $1,008.7 $ 702.7
Total Assets (b)............................. 14,850.5 14,117.1 14,209.2
Long-Term Debt and Capitalized Leases........ 353.5 416.8 711.0
Stockholder's Equity (b) (c)................. 7,975.8 7,328.1 6,815.0
Depreciation and Amortization................ 594.0 627.3 610.9
Capital Expenditures (d)..................... 746.3 580.0 558.5
SELECTED FINANCIAL RATIOS
Operating Profit (Loss) Margin (e)........... 10.7% 9.9% (2.6)%
Pre-Tax Profit (Loss) Margin (f)............. 10.9 10.2 (2.1)
Net Profit (Loss) Margin (g)*................ 6.6 5.9 (8.6)
Return on Equity (b) (h)*.................... 12.1 11.3 (13.9)
Pre-Tax Return on Total Assets (b) (i)....... 10.6 9.7 (1.8)
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) 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
General Motors (which includes 100% of the stock of Hughes).
(c) General Motors' equity in its wholly-owned subsidiary, Hughes.
(d) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million and $101.6 million in 1994,
1993 and 1992, respectively.
(e) Operating Profit (Loss) as a percentage of Net Sales.
(f) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of Net Sales.
(g) Net Income (Loss) as a percentage of Net Sales.
(h) Net Income (Loss) as a percentage of average Stockholder's Equity (General
Motors' equity in its wholly-owned subsidiary, Hughes).
(i) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of average Total Assets.
* Includes impact of unfavorable cumulative effect of accounting changes of
$30.4 million, or $0.08 per share, in 1994, and $872.1 million, or $2.18 per
share, in 1992.
11
HUGHES UNAUDITED SUMMARY CONSOLIDATED PRO FORMA SEGMENT DATA
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
Hughes has historically reported its operations in four business segments:
Automotive Electronics, Defense Electronics, Telecommunications and Space, and
Commercial Technologies. See Note 16 to the Hughes Consolidated Financial
Statements included in Appendix B and the GM 1994 Form 10-K. In connection with
organizational changes, commencing January 1, 1995, Hughes will report its
operations in three segments: Automotive Electronics, Aerospace and Defense
Systems and Telecommunications and Space. Hughes believes that the new segment
presentation better reflects its strategic direction and the manner in which
its businesses are now managed.
As part of the reorganization, the business units formerly included in the
Commercial Technologies segment are now included in one of the three remaining
segments or are reported as part of "Corporate and Other." The new Aerospace
and Defense Systems segment includes all major business units previously
included in the Defense Electronics segment as well as Hughes' air traffic
control business, National Aeronautics and Space Administration ("NASA")
business (including the Earth Observing System Data Information System
("EOSDIS") program) and industrial training and simulation business. The
composition of the Automotive Electronics segment and the Telecommunications
and Space segment was not changed significantly. Other business units formerly
reported as part of the Commercial Technologies segment will now primarily be
reported as part of Corporate and Other. The most significant of these are
Hughes-Avicom International, Inc. ("Avicom"), which supplies cabin management,
interactive passenger communications and entertainment systems and related
services for the commercial airline market and certain portions of the former
Hughes Industrial Electronics Company ("HIEC"). Corporate and Other also
includes other minor business activities and, through 1993, Hughes Rediffusion
Simulation Limited ("Rediffusion"), a supplier of commercial flight simulators
and related systems and services, which Hughes sold in 1993. The revenues of
the businesses included in Corporate and Other are not, in the aggregate,
material to Hughes. The operating loss of $99 million attributed to Corporate
and Other in 1994 includes an $83 million operating loss reported by Avicom.
See "Financial Review of Hughes and Its Business Segments."
Unaudited summary consolidated pro forma financial data for the four business
segments as reported through the end of 1994 are shown on the next page.
Immediately following such data are unaudited summary consolidated pro forma
financial data for the three business segments as reported commencing in 1995.
All such data should be read in conjunction with Appendix B and GM's and
Hughes' audited consolidated financial statements (including the notes
thereto), which are set forth in the GM 1994 Form 10-K and incorporated herein
by reference. These data exclude purchase accounting adjustments related to
GM's acquisition of HAC. These data should also be read in conjunction with
"Financial Review of Hughes and Its Business Segments" below, which is
presented on the basis of the three business segments effective for 1995 and
which includes a discussion of the operations reported as part of Corporate and
Other. Except as presented below under the caption "Four Business Segment Data"
and in the Hughes Consolidated Financial Statements included in Appendix B, all
financial data in this Prospectus are presented to reflect the new three
business segment presentation.
12
HUGHES UNAUDITED SUMMARY CONSOLIDATED PRO FORMA SEGMENT DATA
FOUR BUSINESS SEGMENT DATA
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT PERCENTAGES)
AUTOMOTIVE ELECTRONICS
Revenues...................................... $5,267.5 $4,491.6 $3,985.8
Revenues as a percentage of Hughes Revenues... 37.4% 33.2% 32.4%
Net Sales..................................... $5,216.5 $4,488.9 $3,977.2
Operating Profit (a).......................... 793.6 626.1 462.4
Operating Profit Margin (b)................... 15.2% 13.9% 11.6%
Depreciation and Amortization................. $ 143.4 $ 153.2 $ 124.1
Capital Expenditures.......................... 171.9 149.2 266.1
DEFENSE ELECTRONICS
Revenues...................................... $5.590.7 $6,112.1 $5,547.0
Revenues as a percentage of Hughes Revenues... 39.6% 45.2% 45.1%
Net Sales..................................... $5,569.1 $6,085.0 $5,498.0
Restructuring Charge.......................... -- -- 911.8
Operating Profit (Loss) (a)................... 686.4 640.7 (493.9)
Operating Profit (Loss) Margin (b)............ 12.3% 10.5% (9.0)%
Depreciation and Amortization (c)............. $ 158.1 $ 195.4 $ 204.6
Capital Expenditures.......................... 152.5 132.9 99.4
TELECOMMUNICATIONS AND SPACE
Revenues...................................... $2,528.7 $2,178.0 $1,927.9
Revenues as a percentage of Hughes Revenues... 17.9% 16.1% 15.7%
Net Sales..................................... $2,565.1 $2,075.0 $1,918.4
Restructuring Charge.......................... -- -- 195.3
Operating Profit (a).......................... 277.3 206.7 44.2
Operating Profit Margin (b)................... 10.8% 10.0% 2.3%
Depreciation and Amortization (c)............. $ 133.7 $ 108.0 $ 118.0
Capital Expenditures (d)...................... 395.0 264.9 174.4
COMMERCIAL TECHNOLOGIES
Revenues...................................... $ 712.5 $ 735.8 $ 836.4
Revenues as a percent of Hughes Revenues...... 5.1% 5.5% 6.8%
Net Sales..................................... $ 711.6 $ 801.3 $ 775.4
Restructuring Charge.......................... -- -- 129.9
Operating Profit (Loss) (a)................... (114.2) 9.9 (184.8)
Operating Profit (Loss) Margin (b)............ (16.0)% 1.2% (23.8)%
Depreciation and Amortization (c)............. $ 35.0 $ 46.9 $ 40.4
Capital Expenditures.......................... 26.9 33.0 18.6
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit (Loss) as a percentage of Net Sales.
(c) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $102.8 million, $102.7 million and
$102.7 million, respectively, for the Defense Electronics segment; $10.7
million, $10.8 million and $10.8 million, respectively, for the
Telecommunications and Space segment; and $10.3 million, $10.3 million and
$10.3 million, respectively, for the Commercial Technologies segment. See
Note 7 to Hughes Consolidated Financial Statements in Appendix B.
(d) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million and $101.6 million in 1994,
1993 and 1992, respectively.
13
HUGHES UNAUDITED SUMMARY CONSOLIDATED PRO FORMA SEGMENT DATA
THREE BUSINESS SEGMENT DATA
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT
PERCENTAGES)
AUTOMOTIVE ELECTRONICS
Revenues....................................... $5,221.7 $4,453.4 $3,935.3
Revenues as a percentage of Hughes Revenues.... 37.0% 32.9% 32.0%
Net Sales...................................... $5,170.6 $4,451.0 $3,926.7
Operating Profit (a)........................... 794.8 624.3 463.2
Operating Profit Margin (b).................... 15.4% 14.0% 11.8%
Depreciation and Amortization.................. $ 142.2 $ 146.8 $ 121.4
Capital Expenditures........................... 166.4 148.2 263.9
AEROSPACE AND DEFENSE SYSTEMS
Revenues....................................... $6,023.6 $6,472.2 $5,827.0
Revenues as a percentage of Hughes Revenues.... 42.7% 47.9% 47.4%
Net Sales...................................... $6,007.3 $6,442.9 $5,781.8
Restructuring Charge........................... -- -- 911.8
Operating Profit (Loss) (a).................... 663.6 664.2 (466.6)
Operating Profit (Loss) Margin (b)............. 11.0% 10.3% (8.1)%
Depreciation and Amortization (c).............. $ 158.5 $ 201.2 $ 219.1
Capital Expenditures........................... 159.5 131.4 100.3
TELECOMMUNICATIONS AND SPACE
Revenues....................................... $2,596.2 $2,238.3 $1,982.4
Revenues as a percentage of Hughes Revenues.... 18.4% 16.6% 16.1%
Net Sales...................................... $2,633.8 $2,135.8 $1,972.9
Restructuring Charge........................... -- -- 195.3
Operating Profit (a)........................... 271.0 209.6 50.7
Operating Profit Margin (b).................... 10.3% 9.8% 2.6%
Depreciation and Amortization (c).............. $ 140.8 $ 114.0 $ 122.8
Capital Expenditures (d)....................... 399.3 271.8 182.7
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit (Loss) as a percentage of Net Sales.
(c) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $100.9 million for the Aerospace
and Defense Systems segment and $21.0 million for the Telecommunications
and Space segment in 1994, 1993 and 1992. See Note 7 to Hughes Consolidated
Financial Statements in Appendix B.
(d) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million and $101.6 million in 1994,
1993 and 1992, respectively.
14
GENERAL MOTORS AND HUGHES
GENERAL MOTORS
While the major portion of General Motors' operations is derived from the
automotive products industry segment, General Motors also has financing and
insurance operations and produces products and provides services in other
industry segments. The automotive products segment consists of the design,
manufacture, assembly, and sale of automobiles, trucks, and related parts and
accessories. General Motors financing and insurance operations assist in the
merchandising of General Motors' products as well as other products. GMAC and
its subsidiaries offer financial services and certain types of insurance to
dealers and customers. In addition, GMAC and its subsidiaries are engaged in
mortgage banking and investment services. General Motors' other product
segments consist of military vehicles, radar and weapon control systems, guided
missile systems and defense and commercial satellites; the design, installation
and operation of business information and telecommunications systems; as well
as the design, development, and manufacture of locomotives. For additional
information on General Motors, see the GM 1994 Form 10-K which is incorporated
herein by reference, and the other documents incorporated herein by reference.
General Motors' principal executive offices are located at 3044 West Grand
Boulevard, Detroit, Michigan 48202-3091 (Telephone Number (313) 556-5000), and
767 Fifth Avenue, New York, New York 10153-0075 (Telephone Number (212) 418-
6100).
HUGHES ELECTRONICS CORPORATION
Hughes, a wholly-owned subsidiary of General Motors, develops, manufactures
and markets automotive electronics components, aerospace and defense
electronics products and systems, and satellites and satellite-based
communications systems, and provides related services. Based on the most
recently available Fortune 500 survey, Hughes on an independent basis would
have ranked among the 40 largest industrial corporations in the United States.
Hughes is one of the world's leading suppliers of automotive electronics, a
leading supplier of aerospace and defense electronics systems and a world
leader in the manufacture and private ownership and operation of communications
satellites. Hughes provides a broad range of satellite-related services and is
a leader in the U.S. direct broadcast satellite market with its programming
distribution service known as DIRECTV, which was introduced in 1994 and is the
first high-powered, all digital direct-to-home television distribution service
in North America. Hughes was organized in 1985 in connection with GM's
acquisition of HAC from HHMI.
The principal executive offices of Hughes are located at 7200 Hughes Terrace,
Los Angeles, California 90045-0066 (Telephone Number (310) 568-7200).
RELATIONSHIP BETWEEN GENERAL MOTORS AND HUGHES
It is GM's policy that a standard of fair dealing govern the prices, terms
and conditions of commercial transactions between Hughes and General Motors.
The Capital Stock Committee of the General Motors Board of Directors is
responsible for reviewing under general principles of Delaware corporation law,
among other things, (i) the principal business and financial relationships and
transactions among General Motors, Hughes and EDS, (ii) the dividend policies
or practices of General Motors and (iii) such other matters as have the
potential to have differing effects on holders of the three classes of General
Motors common stock, all to the extent such Committee may deem appropriate. The
Capital Stock Committee is comprised entirely of independent directors of
General Motors. In addition, a majority of the General Motors Board of
Directors are independent directors. See "Class H Common Stock--Considerations
Relating to Multi-Class Common Stock Capital Structure."
15
Approximately 35% of Hughes' 1994 total revenues were attributable to sales
to General Motors and its affiliates. Hughes and General Motors periodically
provide research and technological services to each other pursuant to
contractual arrangements. See "Automotive Electronics."
General Motors' automotive operations in the United States and Canada,
including vehicle production and sales, are conducted through GM NAO. In 1994,
approximately 86% of Hughes' revenues in its Automotive Electronics business
segment were attributable to sales to GM NAO, with a portion of the remaining
14% attributable to sales to GM operations outside of North America and
affiliates of General Motors. In 1992, GM NAO announced its intention to begin
filling its procurement needs on a global basis. As part of this initiative,
suppliers worldwide have the opportunity to bid competitively for GM NAO
business customarily sourced with Hughes. GM's operations outside of North
America also source their procurement needs on a global basis. See "Automotive
Electronics--Sales to GM NAO" and "--International and Other Sales."
The Board of Directors of Hughes is comprised of three directors who are also
independent directors of General Motors (one of whom is also a member of the
Capital Stock Committee of the GM Board of Directors), three directors who are
executive officers of General Motors, and three directors who are executive
officers of Hughes. Those directors of Hughes who are also executive officers
of General Motors devote a substantial amount of their time to the business and
affairs of General Motors and its other subsidiaries or to the oversight
thereof. As the sole stockholder of Hughes, General Motors controls the Hughes
Board of Directors and, subject to Delaware law, is able to cause Hughes to pay
dividends and make advances to or otherwise enter into such transactions with
GM as GM deems desirable and appropriate. General Motors reserves the right to
cause Hughes to pay dividends to GM in such amounts as GM determines are
desirable under the then prevailing facts and circumstances. Such amounts may
be the same as, greater than, or less than the cash dividends paid by General
Motors on the Class H Common Stock. There is no fixed relationship, on a per
share or aggregate basis, between the cash dividends that may be paid by
General Motors to holders of the Class H Common Stock and the dividends or
other amounts that may be paid by Hughes to General Motors. However, it has
been the practice of the Board of Directors of Hughes to pay quarterly cash
dividends to General Motors in an aggregate amount equal to the quarterly
dividend per share paid by General Motors with respect to Class H Common Stock
multiplied by the denominator of the fraction used in determining the Available
Separate Consolidated Net Income of Hughes. See "Class H Common Stock--
Considerations Relating to Multi-Class Common Stock Capital Structure."
16
CLASS H COMMON STOCK
Class H Common Stock is one of three classes of General Motors common stock.
The other two classes of common stock are $1 2/3 Par Value Common Stock and
Class E Common Stock. A description of all classes and series of General Motors
capital stock, including Class H Common Stock, appears as Appendix A hereto,
and the discussions below are qualified by reference thereto.
PRICE RANGE AND DIVIDENDS
The table below shows the range of reported per share sale prices on the New
York Stock Exchange Composite Tape for the Class H Common Stock for the periods
indicated, and the dividends paid per share on the Class H Common Stock in such
periods. A recent closing sale price, as reported on the New York Stock
Exchange, is set forth on the cover page of this Prospectus.
CALENDAR YEAR HIGH LOW DIVIDENDS PAID
------------- ------ ------ --------------
1993
First Quarter.............................. $27.50 $22.88 $0.18
Second Quarter............................. 33.00 23.38 0.18
Third Quarter.............................. 38.00 30.50 0.18
Fourth Quarter............................. 42.38 34.50 0.18
1994
First Quarter.............................. $40.38 $32.63 $0.20
Second Quarter............................. 38.75 31.75 0.20
Third Quarter.............................. 38.00 34.63 0.20
Fourth Quarter............................. 37.75 31.00 0.20
1995
First Quarter (through March 23, 1995)..... $40.38 $34.00 $0.23
DIVIDEND POLICY
Subject to the rights of the holders of General Motors Preferred Stock (if
any) and General Motors Preference Stock, under the General Motors Certificate
of Incorporation, dividends on Class H Common Stock may be declared and paid
out of the assets of General Motors only to the extent of the sum of (i) the
paid in surplus of General Motors attributable to the Class H Common Stock plus
(ii) an allocated portion of the earnings, determined as described herein, of
Hughes. See "Appendix A--Common Stock--Dividends." The General Motors
Certificate of Incorporation allocates the earnings of Hughes between amounts
available for the payment of dividends on Class H Common Stock and amounts
available for the payment of dividends on $1 2/3 Par Value Common Stock. Under
the General Motors Certificate of Incorporation, the amortization of intangible
assets arising from the purchase accounting adjustments related to GM's
acquisition of HAC is charged against earnings attributable to $1 2/3 Par Value
Common Stock and not against earnings attributable to Class H Common Stock. The
Hughes Statement of Consolidated Operations set forth in Appendix B reflects
amortization of purchase accounting adjustments arising from GM's acquisition
of HAC in 1985 of $123.8 million in each of 1994, 1993 and 1992. Also, $3,005.3
million, $3,129.1 million and $3,252.9 million, respectively, of related
unamortized purchase accounting adjustments are included in the Hughes
Consolidated Balance Sheet as of December 31, 1994, 1993 and 1992 set forth in
Appendix B. The General Motors Certificate of Incorporation provides that, in
calculating the amount available for payment of dividends on Class H Common
Stock (which amount is also used to calculate earnings per share of Class H
Common Stock), amortization of the excess purchase price for GM's acquisition
of HAC will not be charged against the earnings of Hughes. For purposes of
calculating the amounts available for payment of dividends on Class H Common
Stock and on $1 2/3 Par Value Common Stock, amortization of such purchase
accounting adjustments is charged against the amounts available for the payment
of dividends on $1 2/3 Par Value Common Stock, not Class H Common Stock. To aid
holders of Class H Common Stock, this Prospectus also provides supplemental
data which enables readers to review the financial performance of Hughes
excluding amortization of GM purchase accounting adjustments related to the
acquisition of
17
HAC. See the Hughes Financial Information set forth in Appendix B. The
cumulative amounts legally available for the payment of dividends on Class H
Common Stock as of December 31, 1994, 1993, 1992, 1991 and 1990 are set forth
in the General Motors Summary Financial Data included in the Prospectus
Summary. See also Note 7 to the Hughes Consolidated Financial Statements in
Appendix B.
Dividend policy is one of the matters reviewed by the Capital Stock
Committee of the General Motors Board of Directors. See "Relationship Between
General Motors and Hughes" and "--Considerations Relating to Multi-Class
Common Stock Capital Structure." Under the current dividend policy as adopted
by the General Motors Board of Directors, the annual per share dividends on
the Class H Common Stock, when, as and if declared by the Board of Directors
in its sole discretion, will equal approximately 35% of the portion of Hughes'
net income for the previous year that is allocated to the amount available for
the payment of dividends on Class H Common Stock for dividend purposes (the
"Available Separate Consolidated Net Income of Hughes"). See "Prospectus
Summary--Class H Common Stock" and Note 7 to the Hughes Consolidated Financial
Statements in Appendix B. Under the current dividend practices and policies of
the General Motors Board of Directors, dividends on Class H Common Stock are
not materially affected by developments involving the performance (operations,
liquidity or financial condition) of General Motors (excluding Hughes). The
Board of Directors declared a dividend on the Class H Common Stock of $0.20
per share in each quarter of 1994 and $0.18 per share in each quarter of 1992
and 1993, which in each case was based on an annual rate higher than 35% of
the Available Separate Consolidated Net Income of Hughes for the preceding
year (excluding the effect of a $749.4 million after-tax special Hughes
restructuring charge recorded in 1992). In February 1995, the Board of
Directors of General Motors increased the quarterly dividend on Class H Common
Stock from $0.20 per share to $0.23 per share (which is based on an annual
rate of approximately 35% of the Available Separate Consolidated Net Income of
Hughes for 1994).
Under Delaware law and the General Motors Certificate of Incorporation, the
General Motors Board of Directors is not required to declare dividends on any
class of General Motors common stock. If and to the extent the General Motors
Board of Directors chooses to declare dividends on any or all of the classes
of its common stock, neither Delaware law nor the General Motors Certificate
of Incorporation requires that there be any proportionate or other fixed
relationship between the amount of dividends declared with respect to such
different classes of common stock. The General Motors Board of Directors
reserves the right to reconsider from time to time its practices and policies
regarding dividends on GM's common stocks and to increase or decrease the
dividends paid on GM's common stocks on the basis of General Motors'
consolidated financial position, including liquidity, and other factors,
including, with regard to Class H Common Stock, the earnings and consolidated
financial position of Hughes. See "Appendix A--Common Stock--Dividends."
Information concerning General Motors and its consolidated financial
performance, including Management's Discussion and Analysis, may be found in
the documents incorporated herein by reference, including the GM 1994 Form 10-
K. There is no fixed relationship, on a per share or aggregate basis, between
the cash dividends that may be paid by General Motors to holders of Class H
Common Stock and cash dividends or other amounts that may be paid by Hughes to
General Motors. However, it has been the practice of the Board of Directors of
Hughes to pay quarterly cash dividends to General Motors in an aggregate
amount equal to the quarterly dividend per share paid by General Motors on
Class H Common Stock multiplied by the denominator of the fraction used to
determine the Available Separate Consolidated Net Income of Hughes. See
"Relationship Between General Motors and Hughes."
VOTING RIGHTS
Under the General Motors Certificate of Incorporation, holders of Class H
Common Stock may cast one-half of a vote per share on all matters submitted to
General Motors stockholders for a vote, while
18
holders of $1 2/3 Par Value Common Stock may cast one vote per share and
holders of Class E Common Stock may cast one-eighth of a vote per share.
Holders of all three classes of common stock vote together on all matters,
except that separate class votes are required for certain amendments to the
General Motors Certificate of Incorporation. See "Appendix A--Common Stock--
Voting."
LIQUIDATION RIGHTS
In the event of the liquidation, dissolution or winding up of the business of
General Motors, whether voluntary or involuntary, the General Motors
Certificate of Incorporation provides that, after the holders of General Motors
Preferred Stock, if any were outstanding, and Preference Stock receive the full
preferential amounts to which they are entitled, holders of the Class H Common
Stock, $1 2/3 Par Value Common Stock and Class E Common Stock will receive the
assets remaining for distribution to the General Motors stockholders on a per
share basis in proportion to the respective per share liquidation units of such
classes. Subject to adjustment as described below, each share of Class H Common
Stock, $1 2/3 Par Value Common Stock and Class E Common Stock would currently
be entitled to liquidation units of approximately one-half (0.50), one (1.0)
and one-eighth (0.125), respectively. 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 General Motors (which includes 100% of the stock of
Hughes). See "Appendix A--Common Stock--Liquidation Rights."
RECAPITALIZATION
Under the General Motors Certificate of Incorporation, all outstanding shares
of Class H Common Stock may be recapitalized as shares of $1 2/3 Par Value
Common Stock (i) at any time after December 31, 1995, in the sole discretion of
the General Motors Board of Directors, subject to certain conditions based on
the amount of dividends paid on Class H Common Stock during the five full
fiscal years prior to the proposed recapitalization, or (ii) automatically, if
at any time General Motors disposes of substantially all of the business of HAC
(or its successors) or Delco Electronics. In the event of such a
recapitalization, each holder of Class H Common Stock would receive shares of
$1 2/3 Par Value Common Stock having a market value, as of the valuation date
provided for in the General Motors Certificate of Incorporation, equal to 120%
of the market value of such holder's Class H Common Stock on such valuation
date. Based on the dividends paid on Class H Common Stock in 1990 through 1994,
the conditions described in clause (i) above would be satisfied during 1995
(although the General Motors Board of Directors may not elect to recapitalize
Class H Common Stock as described in clause (i) until after December 31, 1995).
See "Appendix A--Common Stock--Recapitalization by Exchange of Stock."
CONSIDERATIONS RELATING TO MULTI-CLASS COMMON STOCK CAPITAL STRUCTURE
Class H Common Stock is one of three classes of General Motors common stock.
The General Motors Certificate of Incorporation restricts the power of the
General Motors Board of Directors to declare and pay dividends on any one of
the three classes of common stock to certain defined amounts which are
attributable to each separate class of common stock and based on the legally
available retained earnings of General Motors. For dividend purposes, this
restriction serves to preserve the interest in retained earnings of holders of
each class of GM common stock in relation to the interests therein of holders
of the other two classes. However, this restriction does not result in a
physical segregation of the assets of General Motors, Hughes or EDS, nor does
it result in the establishment of separate accounts or dividend or liquidation
preferences with respect to such assets for the benefit of the holders of any
of the three separate classes of General Motors common stock. Holders of Class
H Common Stock and Class E Common Stock have no direct rights in the equity or
assets of Hughes or EDS, but rather, together with holders of $1 2/3 Par Value
Common Stock, have certain liquidation rights in the equity and assets of
General Motors (which includes 100% of the stock of both Hughes and EDS).
19
The existence of multiple classes of common stock with separate dividend
rights as provided for in the General Motors Certificate of Incorporation can
give rise to potential divergences among the interests of the holders of each
of the separate classes of General Motors common stock with respect to various
intercompany transactions and other matters. Because General Motors is
incorporated under the Delaware General Corporation Law, the laws of Delaware
govern the duties of the General Motors Board of Directors with respect to such
divergences. Under Delaware law, the General Motors Board of Directors owes an
equal fiduciary duty to all holders of General Motors common stock and must act
with due care and on an informed basis in the best interest of General Motors
and all such stockholders, regardless of class. In this regard, the General
Motors Board of Directors, in the discharge of its fiduciary duties, takes
care, principally through its Capital Stock Committee (comprised entirely of
independent directors of General Motors), to oversee the policies, programs and
practices of General Motors which may impact the potentially divergent
interests of the three classes of General Motors common stock.
The By-Laws of General Motors, in defining the role of the Capital Stock
Committee, provide that such Committee shall oversee those matters in which the
three classes of stockholders may have divergent interests, particularly as
they relate to: (a) the business and financial relationships between General
Motors or any of its units with Hughes, General Motors or any of its units with
EDS, and between Hughes and EDS; (b) dividends in respect of, disclosures to
stockholders and the public concerning, and transactions by GM or any of its
subsidiaries in, shares of Class H Common Stock or Class E Common Stock; and
(c) any matters arising in connection therewith, all to the extent the
Committee may deem appropriate, and to recommend such changes in such policies,
programs and practices as the Committee may deem appropriate. In performing
this function, the Capital Stock Committee's role is not to make decisions
concerning matters referred to its attention, but rather to oversee the process
by which decisions concerning such matters are made. The Committee does this
with a view towards, among other things, assuring a process of fair dealing
among GM, Hughes and EDS as well as fairness to the interests of all GM
stockholders in the resolution of such matters.
HOWARD HUGHES MEDICAL INSTITUTE
As of the date hereof, HHMI owns 17,503,800 shares or approximately 18.5% of
the Class H Common Stock outstanding (based on the number of shares outstanding
as of February 28, 1995). After the completion of this offering, HHMI will own
2,503,800 shares or approximately 2.6% of the Class H Common Stock outstanding
(based on the number of shares outstanding as of February 28, 1995). See
"Selling Stockholder."
HHMI acquired its shares of Class H Common Stock in 1985 in connection with
GM's acquisition of HAC from HHMI. HHMI's investment in shares of Class H
Common Stock constitutes its single largest investment. HHMI is selling the
shares of Class H Common Stock offered hereby in order to diversify its
portfolio of investments and in light of the expiration on March 1, 1995 of
transfer restrictions on 15,000,000 of HHMI's shares of Class H Common Stock
under an agreement between General Motors and HHMI dated February 27, 1989, as
amended. After the sale of the shares offered hereby, HHMI's remaining shares
of Class H Common Stock would still constitute one of HHMI's largest equity
investments.
20
FINANCIAL REVIEW OF HUGHES AND ITS BUSINESS SEGMENTS
Class H Common Stock is one of three classes of General Motors common stock.
The following Financial Review discusses the performance of Hughes and its
business segments for the years ended December 31, 1994, 1993 and 1992.
Information concerning General Motors and its consolidated financial
performance, including Management's Discussion and Analysis, may be found in
the documents incorporated herein by reference, including the GM 1994 Form 10-
K.
Because the amount available for payment of dividends on Class H Common Stock
is based on the earnings of Hughes without giving effect to purchase accounting
adjustments related to the acquisition of HAC by General Motors, the financial
information in this Financial Review does not give effect to such purchase
accounting adjustments. For additional information, including the consolidated
financial statements of Hughes giving effect to the purchase accounting
adjustments, the reader should refer to Appendix B, to the consolidated
financial statements of General Motors and Hughes (including the notes thereto)
and Management's Discussion and Analysis which are included in the GM 1994 Form
10-K and are incorporated herein by reference and the other documents
incorporated herein by reference.
As described above under "Prospectus Summary--Summary Financial Data--
Hughes--Hughes Unaudited Summary Consolidated Pro Forma Segment Data," in order
to better reflect Hughes' strategic direction and the manner in which its
businesses are now managed, effective January 1, 1995, Hughes will report its
operations in three business segments. All financial data in this Prospectus
(other than that presented under "Prospectus Summary--Summary Financial Data--
Hughes--Hughes Unaudited Summary Consolidated Pro Forma Segment Data--Four
Business Segment Data" and in the Hughes Consolidated Financial Statements
included in Appendix B) are presented to reflect the new three business segment
presentation.
21
HUGHES
The following table sets forth unaudited summary Hughes consolidated pro
forma financial data. These data exclude purchase accounting adjustments
related to GM's acquisition of HAC.
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
(AMOUNTS IN MILLIONS EXCEPT
PER SHARE DATA AND
PERCENTAGES)
INCOME STATEMENT DATA
Net Sales
Outside Customers........................ $ 9,108.7 $ 9,062.8 $ 8,267.6
General Motors and Affiliates............ 4,953.6 4,387.4 3,901.4
Other Income--net.......................... 37.1 67.3 128.1
--------- --------- ---------
Total Revenues......................... 14,099.4 13,517.5 12,297.1
Restructuring Charge....................... -- -- 1,237.0
Operating Profit (Loss) (a)................ 1,630.4 1,460.1 (194.2)
Interest Expense........................... 15.1 33.2 60.6
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Changes... $ 1,652.4 $ 1,494.2 $ (126.7)
Effective Income Tax Rate.................. 34.7% 38.3% 37.0%
Earnings (Loss) Used for Computation of
Available Separate Consolidated Net Income
(Loss)*................................... $ 1,049.2 $ 921.6 $ (921.6)
========= ========= =========
Average Number of Shares of Class H Common
Stock Outstanding (Numerator)............. 92.1 88.6 75.3
Class H Dividend Base (Denominator)........ 399.9 399.9 399.9
Available Separate Consolidated Net Income
(Loss)*................................... $ 241.6 $ 204.5 $ (142.3)
Earnings (Loss) Attributable to Class H
Common Stock on a Per Share Basis*........ $ 2.62 $ 2.30 $ (2.29)
Dividends Per Share of Class H Common
Stock..................................... 0.80 0.72 0.72
SELECTED FINANCIAL STATEMENT DATA
Cash and Marketable Securities............. $ 1,501.8 $ 1,008.7 $ 702.7
Total Assets (b)........................... 11,845.2 10,988.0 10,956.3
Long-Term Debt and Capitalized Leases...... 353.5 416.8 711.0
Stockholder's Equity (b) (c)............... 4,970.5 4,199.0 3,562.1
Depreciation and Amortization (d).......... 470.2 503.5 487.1
Capital Expenditures (e)................... 746.3 580.0 558.5
SELECTED FINANCIAL RATIOS
Operating Profit (Loss) Margin (f)......... 11.6% 10.9% (1.6)%
Pre-Tax Profit (Loss) Margin (g)........... 11.8 11.1 (1.0)
Net Profit (Loss) Margin (h)*.............. 7.5 6.9 (7.6)
Return on Equity (b) (i)*.................. 22.9 23.7 (21.9)
Pre-Tax Return on Total Assets (b) (j)..... 14.5 13.6 (1.2)
-------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) 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
General Motors (which includes 100% of the stock of Hughes).
(c) General Motors' equity in its wholly-owned subsidiary, Hughes.
(d) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $123.8 million in 1994, 1993 and
1992. See Note 7 to the Hughes Consolidated Financial Statements in
Appendix B.
(e) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million and $101.6 million in 1994,
1993 and 1992, respectively.
(f) Operating Profit (Loss) as a percentage of Net Sales.
(g) Income (Loss) Before Income Taxes and Cumulative Effects of Accounting
Changes as a percentage of Net Sales.
(h) Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss) as a percentage of Net Sales.
(i) Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss) as a percentage of average Stockholder's Equity (General
Motors' equity in its wholly-owned subsidiary, Hughes).
(j) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of average Total Assets.
* Includes impact of unfavorable cumulative effect of accounting changes of
$30.4 million, or $0.08 per share in 1994, and $872.1 million, or $2.18 per
share in 1992.
22
Overview
Effective January 1, 1995, Hughes conducts its operations in three primary
business segments: Automotive Electronics; Aerospace and Defense Systems; and
Telecommunications and Space.
Hughes' sales of automotive electronics are heavily dependent on General
Motors' production of motor vehicles in North America, which is dependent on
market and industry conditions as well as work stoppages, labor strikes and
other matters affecting General Motors. The automotive industry is historically
cyclical. Hughes' sales of automotive electronics to GM NAO are also dependent
upon the level of Hughes-supplied electronic content (based on the number and
sophistication of electronic functions) per vehicle and the price of such
electronics. Since 1992, pursuant to its global sourcing initiative, GM NAO has
aggressively pursued price reductions from its suppliers and has provided
suppliers worldwide with the opportunity to bid for business customarily
sourced with Hughes. As a result, Hughes has reduced its prices to GM NAO and
Hughes expects prices to continue to decline.
Approximately 69% of Hughes' 1994 revenues in the Aerospace and Defense
Systems segment were attributable to the U.S. Department of Defense. Hughes'
business has been affected by efforts to reduce the U.S. budget deficit through
reductions in defense spending. While the precise effects on specific Hughes
programs cannot be known at this time, the general decline in the U.S. defense
budget in real dollars is expected to continue, intensifying the competition in
a highly competitive market. Hughes' strategy includes diversification of its
U.S. defense sales and, in 1994, no single U.S. Department of Defense program
accounted for more than approximately 10% of Hughes' Aerospace and Defense
Systems segment revenues (or approximately 4% of Hughes' total revenues), and
the ten largest U.S. Department of Defense programs, in the aggregate,
accounted for less than 45% of the Aerospace and Defense Systems segment
revenues. Hughes' contracts with the U.S. government are subject to termination
by the government either for its convenience or for default by Hughes and
awards may be contested by other bidders. Sales to the U.S. government may be
affected by changes in acquisition policies, budget considerations, changing
concepts in national defense, spending priorities, and other factors that are
outside Hughes' control. See "Business of Hughes--General--United States
Government Contracts."
In its Telecommunications and Space segment, Hughes' telecommunications
businesses compete with other communications technologies and systems, such as,
with respect to telecommunications systems for fixed and mobile applications,
fiber optics networks, cable systems, wire telephony and radio-based systems
and other satellite-based systems. In direct-to-home satellite broadcasting
services, Hughes competes and will compete in present and future
telecommunications markets with telephone companies, cable television, other
broadcast television and other entertainment services, including video rentals,
as well as direct broadcast services operated by others.
The impact of the factors described above has been mitigated, and, Hughes
believes, may continue to be mitigated, by reducing costs and increasing sales
of automotive electronics to international customers and North American
customers other than GM NAO, the diversification of Hughes' electronics-based
aerospace and defense products and systems, and the continuing strong sales of
satellite-based communications products and services.
As Hughes seeks to increase its international sales in all its business
segments, it will meet increased competition from foreign companies.
International operations also present risks not present in U.S. operations,
including stability of foreign governments, currency and exchange risks and
local political issues.
To the extent Hughes' financial information is affected by the factors
described above, such financial information may not necessarily be indicative
of Hughes' future operating results or financial condition.
23
Results of Operations
Hughes reported revenues of $14,099.4 million in 1994, an increase of 4.3%
over 1993, and $13,517.5 million in 1993, an increase of 9.9% compared with
1992 revenues of $12,297.1 million. The increase in revenues over the last
three years is largely the result of continued growth in the Automotive
Electronics segment, Aerospace and Defense Systems segment revenues generated
by the missile systems business acquired from General Dynamics Corporation
("General Dynamics") in August 1992, and the ongoing success in the
Telecommunications and Space segment. However, lower production rates and
planned terminations on several defense programs resulted in a decline in
Aerospace and Defense Systems segment revenues in 1994. Approximately 35.1%,
32.5% and 31.7% of Hughes' total revenues in 1994, 1993 and 1992, respectively,
were attributable to sales to General Motors and its affiliates, and are
primarily included in the Automotive Electronics segment. International
revenues accounted for approximately 19.0%, 15.9% and 14.2% of Hughes' revenues
in 1994, 1993 and 1992, respectively. Revenues under U.S. government contracts
accounted for approximately 37.6%, 44.2% and 46.1% of Hughes' total revenues in
1994, 1993 and 1992, respectively, and are primarily included in the Aerospace
and Defense Systems segment and the Telecommunications and Space segment. See
"Business of Hughes--General--United States Government Contracts."
Included in revenues is other income of $37.1 million, $67.3 million and
$128.1 million for 1994, 1993 and 1992, respectively. The 1994 amount includes
a $35.0 million pre-tax charge for the expected loss on disposition of a
subsidiary. The 1993 amount includes a gain of $89.7 million on the sale of
Hughes' 30% interest in Japan Communications Satellite Company, Inc. ("JCSAT")
and a $55.0 million charge related to the sale of Rediffusion and related
entities in December 1993. The 1992 amount includes proceeds of $35.0 million
from settlement of a patent infringement suit and a $28.0 million gain
resulting from the formation of the Hughes-JVC Technology joint venture.
Operating profit was $1,630.4 million in 1994, an increase of 11.7% over
1993, and $1,460.1 million in 1993, an increase of 40.0% compared to 1992
operating profit of $1,042.8 million (excluding the 1992 special provision for
restructuring described below). Operating profit margin (operating profit
divided by net sales), on a comparable basis, was 11.6%, 10.9%, and 8.6% in
1994, 1993, and 1992, respectively. The improvement in both operating profit
and operating profit margin over this time period was primarily the result of
the continuing emphasis on cost reduction efforts, most notably in the
Automotive Electronics segment and the Aerospace and Defense Systems segment,
and the overall growth in revenues.
Selling, general, and administrative expenses were $1,018.3 million in 1994,
an increase of 9.6% over 1993, and $929.1 million in 1993, a decrease of 10.3%
compared to $1,036.2 million in 1992. Selling, general and administrative
expenses were 7.2%, 6.9% and 8.4% of revenues in 1994, 1993 and 1992,
respectively. The $89.2 million increase in 1994 was primarily due to the
commencement of nationwide DIRECTV service and increased international sales
activities in Hughes' telecommunications equipment and services business. The
decrease of $107.1 million in 1993 was primarily due to cost reductions
resulting from restructuring activities which began in the second half of 1992.
Interest expense decreased 54.5% in 1994 and 45.2% in 1993 primarily due to
an overall decrease in debt balances and an increase in the amount of
capitalized interest associated with the construction of telecommunications and
other equipment.
The effective income tax rate was 34.7%, 38.3%, and 37.0% in 1994, 1993, and
1992, respectively. The lower 1994 tax rate resulted from the recognition of
capital loss carryforward benefits. The Revenue Reconciliation Act of 1993 did
not have a material adverse effect on Hughes' 1994 or 1993 earnings and is not
expected to have a significant impact in future years.
24
Hughes' 1994 earnings were $1,049.2 million, or $2.62 per share of Class H
Common Stock, an increase of 13.8% compared with 1993 earnings of $921.6
million, or $2.30 per share, and a loss in 1992 of $921.6 million or $2.29 per
share. Earnings in 1994 include the unfavorable effect of an accounting change
for postemployment benefits, while 1992 earnings included the restructuring
charge described below and the accounting changes for postretirement benefits
and revenue recognition described below. Excluding these special items, Hughes'
earnings in 1994 and 1992 would have been $1,079.6 million, or $2.70 per share,
and $699.9 million, or $1.76 per share, respectively.
Hughes took a special charge in June 1992 of $1,237.0 million ($749.4 million
after-tax, or $1.87 per share of Class H Common Stock), for the restructuring
of Hughes' non-automotive operations. The special charge comprehended a
reduction of Hughes' worldwide employment, a major facilities consolidation,
and a reevaluation of certain business lines that no longer met Hughes'
strategic objectives. Restructuring costs of $228.3 million, $527.6 million and
$250.9 million were charged against the reserve during 1994, 1993, and 1992,
respectively. In addition, in 1994 and 1993 the restructuring reserve was
increased by $35.0 million and $78.0 million, respectively, primarily due to
changes in the estimated loss on disposition of two subsidiaries. The remaining
liability of $343.2 million relates primarily to reserves for excess leased
facilities and other site consolidation costs. Approximately $288.2 million of
this amount will require future cash outflows. It is expected that these costs
will be expended predominantly over the next three years.
Hughes adopted SFAS No. 112, Employers' Accounting for Postemployment
Benefits, effective January 1, 1994. This Statement requires accrual of the
costs of benefits provided to former or inactive employees after employment,
but before retirement. The cumulative effect of this accounting change as of
January 1, 1994 was $49.6 million, or $30.4 million after-tax ($0.08 per share
of Class H Common Stock).
Hughes adopted SFAS No. 106 in January 1992. This Statement requires that the
cost of postretirement benefits other than pensions be recognized in the
financial statements during the period employees provide service to Hughes.
Hughes' previous practice was to recognize the cost of such postretirement
benefits when incurred (pay-as-you-go). The cumulative effect of this
accounting change as of January 1, 1992 was $1,366.6 million, or $832.1 million
after-tax ($2.08 per share of Class H Common Stock).
Hughes has disclosed in its financial statements certain amounts associated
with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, Hughes does not admit or otherwise acknowledge that
such amounts or existing postretirement benefit plans of Hughes (other than
pensions) represent enforceable liabilities of Hughes.
Hughes changed its revenue recognition policy for certain commercial long-
term contracts effective January 1, 1992 from the percentage-of-completion
method to the units-of-delivery method. The unfavorable effect of this change
was $40.0 million after-tax, or $0.10 per share of Class H Common Stock.
The 1994 year-end backlog of $13,210 million remained relatively unchanged
from the 1993 amount of $13,399 million. Year-end 1993 backlog decreased $623
million from the $14,022 million reported in 1992 primarily due to the sale of
Rediffusion. A portion of the backlog is subject to appropriation decisions by
the U.S. government subsequent to award. In addition, Hughes' contracts with
the U.S. government are subject to termination by the government either for its
convenience or for default by Hughes. Sales to the U.S. government may be
affected by changes in acquisition policies, budget considerations, changing
concepts in national defense, spending priorities, and other factors that are
outside Hughes' control. See "Business of Hughes--General--United States
Government Contracts."
25
Liquidity and Capital Resources
Hughes' balance sheet strengthened further in 1994 as cash and cash
equivalents increased $493.1 million to $1,501.8 million at December 31, 1994.
Operating activities provided net cash of $1,376.8 million in 1994 as Hughes
achieved record earnings while aggressively managing working capital.
Additional cash of $200 million was generated by the collection of a note
receivable from General Motors. Cash was used to fund capital expenditures for
property and special tools and telecommunications and other equipment
(primarily related to the DIRECTV service), as well as to pay dividends to
General Motors.
Cash and cash equivalents at December 31, 1993 amounted to $1,008.7 million,
a $306.0 million increase from $702.7 million at December 31, 1992. The
increase was due to net cash provided by operating activities of $1,493.5
million, partially offset by net cash used in investing and financing
activities. Proceeds from the sale of investments and businesses, and from the
disposal of property, generated an additional $396.6 million of cash in 1993.
Cash was used primarily to fund capital expenditures, reduce outstanding debt
and pay dividends to General Motors.
As a measure of liquidity, the current ratio (ratio of current assets to
current liabilities) was 1.76 at December 31, 1994, 1.61 at December 31, 1993,
and 1.44 at December 31, 1992. These increases were due to the build-up of cash
balances described above.
Property, net of accumulated depreciation, decreased $22.6 million in 1994
while telecommunications and other equipment, net of accumulated depreciation,
increased $304.1 million primarily due to expenditures related to the DIRECTV
service.
Total capital expenditures (including both property and equipment and
telecommunications and other equipment) were $746.3 million, $580.0 million and
$558.5 million in 1994, 1993 and 1992, respectively. Management anticipates
that total capital expenditures will increase to approximately $875 million in
1995 and will be financed primarily from cash provided by operating activities.
Expenditures for property and equipment were $490.5 million in 1994 compared
with $448.9 million and $456.9 million in 1993 and 1992, respectively.
Management anticipates that capital expenditures in 1995 will increase
approximately $80 million over 1994 and will be financed primarily from cash
provided by operating activities.
Telecommunications and other equipment expenditures were $255.8 million in
1994 compared with $131.1 million and $101.6 million in 1993 and 1992,
respectively. Management anticipates that telecommunications and other
equipment expenditures in 1995 will increase approximately $50 million over
1994 and will be financed primarily from cash provided by operating activities.
Long-term debt and capitalized leases was $353.5 million at December 31,
1994, a decrease of $63.3 million from $416.8 million at December 31, 1993,
reflecting scheduled principal payments. Long-term debt and capitalized leases
decreased $294.2 million in 1993, from $711.0 million at December 31, 1992,
partially due to the prepayment of debt to GM arising in connection with the
General Dynamics missile systems business acquisition and the repayment of
certain Japanese yen debt related to Hughes' investment in JCSAT. The ratio of
long-term debt and capitalized leases to the total of such debt and pro forma
stockholder's equity decreased to 6.6% in 1994 from 9.0% in 1993, and 16.6% in
1992.
In evaluating both its pension and retiree medical liabilities, Hughes
recognized the impact of the recent increase in long-term interest rates by
increasing the discount rate used in determining the actuarial present values
of the projected benefit obligations. In 1994, the weighted average discount
rate for pension obligations for Hughes' non-automotive employees increased
from 7.5% to 8.75% and the weighted average discount rate for Hughes' other
postretirement benefits increased from 6.99% to 8.57%.
For information concerning litigation affecting Hughes, see Note 17 to the
Hughes Consolidated Financial Statements included in Appendix B and the GM 1994
Form 10-K, which is incorporated herein by reference.
26
AUTOMOTIVE ELECTRONICS SEGMENT
The following table sets forth unaudited selected pro forma consolidated
financial data for Hughes' Automotive Electronics segment.
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT
PERCENTAGES)
Revenues....................................... $5,221.7 $4,453.4 $3,935.3
Revenues as a percentage of Hughes Revenues.... 37.0% 32.9% 32.0%
Net Sales...................................... $5,170.6 $4,451.0 $3,926.7
Operating Profit (a)........................... 794.8 624.3 463.2
Operating Profit Margin (b).................... 15.4% 14.0% 11.8%
Depreciation and Amortization.................. $ 142.2 $ 146.8 $ 121.4
Capital Expenditures........................... 166.4 148.2 263.9
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit as a percentage of Net Sales.
Revenues in the Automotive Electronics segment increased in 1994 to $5,221.7
million from $4,453.4 million in 1993, a 17.3% increase, as compared with
$3,935.3 million in 1992, a 13.2% increase in 1993. The increases are primarily
attributable to three factors: (1) an increase in Hughes-supplied electronic
content per GM North American-produced vehicle to $857 in 1994 from $782 and
$760 in 1993 and 1992, respectively; (2) an increase in GM North American
vehicle production of 8% between 1994 and 1993 and 9% between 1993 and 1992;
and (3) an increase in sales to customers other than GM NAO to $672 million in
1994 from $603 million and $484 million in 1993 and 1992, respectively. See
"Automotive Electronics" for further discussion of these factors and their
effect on Hughes revenues.
Operating profit for the Automotive Electronics segment steadily increased
over the last three years. In 1994, operating profit was $794.8 million
compared with $624.3 million in 1993 and $463.2 million in 1992. The increases
are attributable not only to the increased electronic content per vehicle and
higher vehicle volumes, but also to an aggressive cost reduction program at
Delco Electronics, which has yielded cost savings (without giving effect to
inflation) of 11%, 10% and 9% in 1994, 1993, and 1992, respectively. The
operating profit margin was 15.4%, 14.0%, and 11.8% in 1994, 1993, and 1992,
respectively. Operating profit margins beyond 1995 are not expected to be
maintained at the current level due to the potential for reduced auto
production volumes, increased pricing pressures, and GM NAO's global sourcing
initiatives. See "Automotive Electronics."
Depreciation and amortization in the Automotive Electronics segment was
$142.2 million, $146.8 million and $121.4 million in 1994, 1993 and 1992,
respectively. The increase from 1992 to 1993 was due to additional depreciation
related to the upgrade and expansion of facilities completed in 1993. Hughes
anticipates that the Automotive Electronics segment's depreciation and
amortization expenses, excluding tool bill recovery fluctuations, will increase
as new and expanded facilities are brought on-line.
Capital expenditures in the Automotive Electronics segment increased to
$166.4 million in 1994, compared with $148.2 million in 1993, a decrease of
$115.7 million from 1992. The increase in capital spending in 1994 reflects
expenditures for technology upgrades at certain facilities. The decrease in
capital spending in 1993 reflects the completion of several projects to upgrade
and expand facilities and a decrease in expenditures related to model changes.
27
AEROSPACE AND DEFENSE SYSTEMS SEGMENT
The following table sets forth unaudited selected pro forma consolidated
financial data for Hughes' Aerospace and Defense Systems segment. These data
exclude purchase accounting adjustments related to GM's acquisition of HAC.
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT
PERCENTAGES)
Revenues...................................... $6,023.6 $6,472.2 $5,827.0
Revenues as a percentage of Hughes Revenues... 42.7% 47.9% 47.4%
Net Sales..................................... $6,007.3 $6,442.9 $5,781.8
Restructuring Charge.......................... -- -- 911.8
Operating Profit (Loss) (a)................... 663.6 664.2 (466.6)
Operating Profit (Loss) Margin (b)............ 11.0% 10.3% (8.1)%
Depreciation and Amortization (c)............. $ 158.5 $ 201.2 $ 219.1
Capital Expenditures.......................... 159.5 131.4 100.3
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit (Loss) as a percentage of Net Sales.
(c) Excludes amortization arising from purchase accounting adjustments
related to GM's acquisition of HAC amounting to $100.9 million in
1994, 1993 and 1992. See Note 7 to Hughes' Consolidated Financial
Statements in Appendix B.
Aerospace and Defense Systems segment revenues were $6,023.6 million in 1994,
a 6.9% decrease from 1993 revenues of $6,472.2 million. The decline was
principally due to the full year impact of lower production rates and planned
terminations on several U.S. defense programs. Revenues increased $645.2
million, or 11.1%, between 1993 and 1992. The increase was due largely to
revenues from a full year of operations of the missile systems business
acquired in August 1992 from General Dynamics, as well as increased effort on
the Peace Shield air defense system for Saudi Arabia.
Operating profit in the Aerospace and Defense Systems segment of $663.6
million in 1994 remained relatively unchanged from $664.2 million in 1993,
compared with $445.2 million (excluding the restructuring charge described
above) in 1992. The increase over 1992 reflects the ongoing efforts to reduce
costs across Hughes' aerospace and defense businesses and continued benefits
from the acquisition and consolidation of the missile systems business acquired
from General Dynamics in August 1992. Future operating profits could be
negatively impacted by further reductions in the U.S. defense budget.
Depreciation and amortization expense in the Aerospace and Defense Systems
segment decreased from 1992 to 1994, largely because of the disposition of
excess assets and facilities in conjunction with the 1992 restructuring and the
consolidation of Hughes' missile systems business.
Capital expenditures in the Aerospace and Defense Systems segment for 1994,
1993 and 1992 were $159.5 million, $131.4 million and $100.3 million,
respectively. The increases in 1994 and 1993 were due to expenditures related
to the consolidation of facilities in an effort to increase the operational
efficiencies of manufacturing and engineering activities.
28
TELECOMMUNICATIONS AND SPACE SEGMENT
The following table sets forth unaudited selected pro forma consolidated
financial data for Hughes' Telecommunications and Space segment. These data
exclude purchase accounting adjustments related to GM's acquisition of HAC.
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT
PERCENTAGES)
Revenues....................................... $2,596.2 $2,238.3 $1,982.4
Revenues as a percentage of Hughes Revenues.... 18.4% 16.6% 16.1%
Net Sales...................................... $2,633.8 $2,135.8 $1,972.9
Restructuring Charge........................... -- -- 195.3
Operating Profit (a)........................... 271.0 209.6 50.7
Operating Profit Margin (b).................... 10.3% 9.8% 2.6%
Depreciation and Amortization (c).............. $ 140.8 $ 114.0 $ 122.8
Capital Expenditures (d)....................... 399.3 271.8 182.7
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit as a percentage of Net Sales.
(c) Excludes amortization arising from purchase accounting adjustments
related to GM's acquisition of HAC amounting to $21.0 million in 1994,
1993 and 1992. See Note 7 to Hughes' Consolidated Financial Statements
in Appendix B.
(d) Includes expenditures related to telecommunications and other
equipment amounting to $255.8 million, $131.1 million and $101.6
million in 1994, 1993 and 1992, respectively.
Revenues in the Telecommunications and Space segment were $2,596.2 million in
1994, a 16.0% increase over 1993 revenues of $2,238.3 million. The increase
resulted from higher cellular communications equipment and private business
network sales, additional satellite transponder sales, increased satellite
construction sales, and the commencement of DIRECTV service. Revenues for 1993
were 12.9% higher than 1992 revenues of $1,982.4 million. The 1993 increase in
revenues reflects additional sales of satellites to commercial customers and
increased sales of fixed wireless and cellular communications equipment and
services internationally.
Operating profit in the Telecommunications and Space segment increased in
1994 to $271.0 million, a 29.3% increase over the $209.6 million reported in
1993. The improvement is a result of the sale of additional satellite
transponders and increased cellular communications equipment, private business
networks and satellite construction sales, partially offset by higher operating
expenses relating to the commencement of DIRECTV service. Excluding the 1992
restructuring charge, 1993 operating profit declined 14.8% from 1992 operating
profit of $246.0 million. The decrease was due to a reduction in revenues from
satellite transponder sales and an increase in costs related to the DIRECTV
service, partially offset by the recognition of cost savings from satellite
construction activities in 1992. Operating profit margins were 10.3% in 1994,
9.8% in 1993 and 2.6% in 1992. The 1995 margin will be negatively impacted by
the increased operating expenses associated with the continued expansion of the
DIRECTV service. After 1995, the Telecommunications and Space segment's
operating margins are expected to increase as the DIRECTV service becomes
profitable.
Depreciation and amortization was $140.8 million in 1994, $114.0 million in
1993 and $122.8 million in 1992. The increase in depreciation and amortization
between 1992 and 1994 is due principally to the increases in telecommunications
and other equipment described below.
Capital expenditures, including expenditures related to telecommunications
and other equipment, increased to $399.3 million from $271.8 million in 1993
and $182.7 million in 1992, primarily reflecting continuing investment in
satellite and ground equipment associated with the DIRECTV service.
29
Telecommunications and other equipment expenditures were $255.8 million in
1994, $131.1 million in 1993 and $101.6 million in 1992. Hughes expects to
pursue global telecommunications opportunities which would likely increase the
expenditures for telecommunications and other equipment in the near term.
CORPORATE AND OTHER
Included in Corporate and Other are business units not reported in any of
the three segments described above, including Avicom, certain portions of the
former HIEC and, prior to 1994, Rediffusion.
Corporate and Other revenues were $257.9 million in 1994, a 27.1% decline
from 1993 revenues of $353.6 million. Revenues for 1993 were 36.0% lower than
1992 revenues of $552.4 million. The decline in 1994 was primarily due to the
sale of Rediffusion in December 1993, while the decline in 1993 was primarily
due to reduced sales at Rediffusion and the nonrecurring other income items
described below. The 1993 amount includes a $55.0 million charge related to
the sale of Rediffusion and related entities in December 1993 and the 1992
amount includes proceeds of $35.0 million from settlement of a patent
infringement suit and a $28.0 million gain resulting from the formation of a
Hughes-JVC Technology joint venture.
The operating loss attributed to Corporate and Other in 1994 was $99.0
million, compared with operating losses of $38.0 million in 1993 and $111.6
million (excluding the restructuring charge of $129.9 million described above)
in 1992. The operating loss in 1994 was primarily attributable to an $83
million operating loss at Avicom resulting from additional costs and revenue
deferral related to product development and initial systems service of its in-
flight entertainment systems. See "Corporate and Other."
OVERVIEW OF HUGHES BUSINESS
Hughes, a wholly-owned subsidiary of General Motors, develops, manufactures
and markets automotive electronics products and systems, aerospace and defense
electronics products and systems, and satellites and satellite-based
communications systems, and provides related services. Based on the most
recently available Fortune 500 survey, Hughes on an independent basis would
have ranked among the 40 largest industrial corporations in the United States.
Hughes is one of the world's leading suppliers of automotive electronics, a
leading supplier of aerospace and defense electronics systems and a world
leader in the manufacture and private ownership and operation of
communications satellites. Hughes provides a broad range of satellite-related
services and is a leader in the United States direct broadcast satellite
market with its programming distribution service known as DIRECTV, which was
introduced in 1994 and is the first high-powered, all digital direct-to-home
television distribution service in North America.
Hughes currently conducts its operations in three primary business segments:
Automotive Electronics; Aerospace and Defense Systems; and Telecommunications
and Space. In 1994, these segments represented, respectively, 37%, 43% and 18%
of Hughes' revenues and 49%, 41% and 17% of Hughes' operating profit
(excluding purchase accounting adjustments related to GM's acquisition of HAC)
and operations reported as Corporate and Other represented approximately 2% of
revenues and reported an operating loss of $99.0 million. See "Corporate and
Other."
Hughes seeks to enhance its profitability and status as a growth company in
the increasingly competitive worldwide market for advanced electronics
products and systems through cost competitiveness, technological leadership,
growth and diversification of its product lines, expanded international and
non-defense activities, and increased market leadership through strategic
acquisitions and divestitures. Hughes believes that its continued growth will
depend largely upon the factors discussed below. Hughes participates in
markets that are highly competitive. See "Business of Hughes--General--
Competition." In addition, Hughes will meet increased competition from foreign
companies as it seeks to increase its international sales. International
operations present risks not present in U.S. operations, including stability
of foreign governments, currency and exchange rate risks and local political
issues.
30
MAINTAINING COMPETITIVE POSITION WITH GM NAO AND EXPANDING OTHER
AUTOMOTIVEELECTRONICS SALES
Hughes, through its wholly-owned subsidiary, Delco Electronics, is one of the
world's leading suppliers of automotive electronics. Hughes' strategy in its
Automotive Electronics segment is to maintain its position as a principal
supplier to GM NAO while continuing to expand sales to international and other
customers. Hughes' sales of automotive electronics are heavily dependent on
General Motors' production of motor vehicles in North America, the level of
Hughes-supplied electronic content (based on the number and sophistication of
electronic functions) per vehicle and the price of such electronics. Since the
1980's, Hughes revenues per GM North American vehicle have increased each year,
primarily as a result of increased electronic content. Since 1992, pursuant to
its global sourcing initiative, GM NAO has aggressively pursued price
reductions from its suppliers and has provided suppliers worldwide with the
opportunity to bid for business customarily sourced with Hughes. Hughes
believes that it has been and will continue to be able to compete effectively
for GM NAO business because of the quality of its products, its on-going cost
reduction efforts, and its product and technological innovations. In 1993 and
1994, Hughes won approximately 93% of all globally sourced, competitive bids
for GM NAO automotive electronics business for which Hughes competed (based on
the dollar value of all bids submitted by Hughes). Hughes expects that the
number and sophistication of electronic functions in vehicles will continue to
increase, but that its prices to GM NAO will continue to decrease as a result
of GM NAO's global sourcing initiative and increasing electronic sophistication
at lower prices. As a result, Hughes expects that its revenues per GM North
American vehicle will remain constant or decrease after 1995, unless Hughes is
able to achieve its goal of mitigating the effect of continuing price
reductions for current products by developing, producing and expanding sales of
enhanced products. Hughes believes that, utilizing its core technologies,
opportunities exist for products offering consumers enhanced safety,
convenience and performance. Moreover, Hughes believes that it will be able to
mitigate the effect of GM NAO price reductions on operating profit through its
demonstrated ability to reduce costs. In addition, Hughes anticipates increased
sales to other domestic and international customers. During 1994, approximately
35% (by dollar value) of Delco Electronics' contracts for new business were
with customers other than GM NAO. Deliveries under such contracts are expected
to begin in 1996. Hughes intends, where appropriate, to enter into strategic
alliances and partnering arrangements and to make acquisitions to enhance its
ability to compete for international business. Hughes believes it can realize
further growth by expanding the after-market distribution of its products, and
developing products for new markets, such as engine management controllers for
small engine and marine applications. See "Automotive Electronics."
STRENGTHENING ITS LEADERSHIP POSITION IN THE AEROSPACE AND DEFENSE SYSTEMS
MARKET
Hughes has been a major producer of electronics-based aerospace and defense
products and systems for more than four decades. Hughes has positioned itself
as a leading developer and producer of a variety of tactical programs and as a
subcontractor for certain types of subsystems for strategic purposes rather
than seeking to become a prime contractor for major strategic weapons platforms
such as tanks and aircraft. This permits Hughes to participate in major
segments of the defense market while reducing the impact of specific program
cancellations. Hughes is a leading supplier of defense electronics products and
services to the U.S. government, participating in approximately half of the
current U.S. tactical missile programs, and Hughes' airborne radar units are
deployed on four of the five U.S. military front-line fighter aircraft. Hughes'
business strategy is to strengthen its leadership position in aerospace and
defense electronics systems and services through continued emphasis on
technological advances, operational efficiencies, cost reduction and
competitiveness. Due to its technological capabilities and the volume of its
products and systems in operation around the world, Hughes believes it can
capitalize on the opportunities presented by the continuing trend toward
upgrading and retrofitting electronic systems as a cost effective alternative
to developing new strategic weapons platforms. Hughes also intends to continue
its strategy of reducing its vulnerability to reductions in U.S. defense
spending by diversifying its customer base and product line, with emphasis on
international markets and non-defense government agencies. Hughes also seeks to
diversify its
31
product lines and customer base (i.e. branches of the U.S. military) with
respect to U.S. defense sales. During 1994, no single U.S. Department of
Defense program accounted for more than 10% of Hughes' Aerospace and Defense
Systems segment revenues (or approximately 4% of Hughes' total revenues), and
the ten largest U.S. Department of Defense programs, in the aggregate,
accounted for less than 45% of the Aerospace and Defense Systems segment
revenues. In support of these strategies, Hughes intends, where appropriate,
to enter into strategic alliances and partnering arrangements and to make
strategic acquisitions and divestitures such as its 1992 acquisition of the
missile systems business of General Dynamics and its 1995 acquisition of the
training systems and services business of CAE-Link Corporation ("CAE-Link").
Hughes also believes that its reorganization of its Aerospace and Defense
Systems segment effective for 1995 will further enhance its ability to compete
in a more cost efficient manner. See "Aerospace and Defense Systems."
CONTINUING EXPANSION OF SATELLITE AND DIGITAL COMMUNICATIONS SYSTEMS AND
DIRECT BROADCASTING SERVICES
Hughes is a leading worldwide manufacturer of communications satellites and
provider of satellite-based services. Hughes has one of the world's largest
private fleets of communications satellites and is the world's leading
supplier of satellite-based private business networks. Hughes also provides a
broad range of satellite-related services and is a leader in the United States
direct broadcast satellite market with its programming distribution service
known as DIRECTV, which was introduced in 1994 and is the first high-powered,
all digital direct-to-home television distribution service in North America.
Hughes seeks to capture more of the value-added benefits of the satellite-
based services market by capitalizing on its technological capabilities, the
size and desirable orbital locations of its satellite fleet and its management
expertise in satellite operations. Hughes' strategy also includes building on
its technology and experience to develop new applications for its satellite-
based services for governments, businesses and consumers and expanding
international sales. Hughes believes significant opportunities exist for it in
mobile wireless communications systems and, in areas with deficient
communications infrastructures (such as developing nations), fixed wireless
telecommunications networks for local and international telecommunications,
and direct-to-home satellite-based programming distribution services. Hughes
has entered into a partnership to introduce satellite-based direct broadcast
entertainment into Latin America and is exploring other international
opportunities based on its experience developed in connection with the DIRECTV
service. Hughes' strategy also includes developing new satellite-based
technologies for opportunities such as satellite-based data communications for
personal computers and new systems for telephone, video and data
communications. In addition, Hughes seeks to maintain its strong position in
satellite manufacturing and to continue to increase the profitability of its
manufacturing operations through more efficient production processes. See
"Telecommunications and Space."
AUTOMOTIVE ELECTRONICS
Hughes, through its wholly-owned subsidiary, Delco Electronics, is one of
the world's leading suppliers of automotive electronics, with an estimated 23%
share of worldwide automotive electronics sales in 1994. Hughes is currently
the principal supplier of automotive electronics to GM NAO. In 1994,
approximately 86% (or $4.5 billion) of Hughes' Automotive Electronics segment
revenues were attributable to sales to GM NAO, with the remaining 14%
resulting from sales to customers (including GM operations outside of North
America) other than GM NAO. In 1994, the Automotive Electronics segment
accounted for approximately 37% of Hughes' revenues and approximately 49% of
Hughes' operating profit (excluding purchase accounting adjustments related to
GM's acquisition of HAC).
Hughes' strategy is to maintain its position as a principal supplier of
automotive electronics to GM NAO while continuing to expand its sales to
international and other customers. Sales to GM NAO are heavily dependent on GM
motor vehicle production, which is dependent on market and industry conditions
as well as work stoppages, labor strikes and other factors affecting General
Motors. In addition, the automotive industry is historically cyclical. Hughes'
sales of automotive electronics to GM NAO are also
32
dependent upon the level of Hughes-supplied electronic content (based on the
number and sophistication of electronic functions) per vehicle and the price
of such electronics. Since the 1980's, Hughes' revenues per GM North American
vehicle have increased each year, primarily as a result of increased
electronic content. Since 1992, pursuant to its global sourcing initiative, GM
NAO has aggressively pursued price reductions from its suppliers and has
provided suppliers worldwide with the opportunity to bid for business
customarily sourced with Hughes. Hughes believes that due to the quality of
its products, its on-going cost reduction efforts, and product and
technological innovations, it has been and will continue to be able to compete
effectively for GM NAO business. In 1993 and 1994, Hughes won approximately
93% of all globally sourced, competitive bids for GM NAO automotive
electronics business for which Hughes competed (based on the dollar value of
all bids submitted by Hughes).
Hughes expects that the level of electronic functions in GM North American
vehicles will continue to increase, but that its prices to GM NAO will
continue to decrease as a result of GM NAO's global sourcing initiative and
increasing electronic sophistication at lower prices. As a result, Hughes
expects that its revenues per GM North American vehicle will remain constant
or decrease after 1995, unless Hughes is able to achieve its goal of
mitigating the effect of continuing price reductions for current products by
developing, producing and expanding sales of enhanced products. Hughes
believes that, utilizing its core technologies, opportunities exist for
products offering consumers enhanced safety, convenience and performance.
Moreover, Hughes believes that it will be able to mitigate the effect of GM
NAO price reductions on operating profit through its demonstrated ability to
reduce costs. In addition, Hughes anticipates increased sales to other
domestic and international customers. During 1994, approximately 35% (by
dollar value) of Delco Electronics' contracts for new business were with
customers other than GM NAO. Deliveries under such contracts are expected to
begin in 1996. Hughes believes it can realize further growth by expanding the
after-market distribution of its products and developing products for new
markets, such as engine management controllers for small engine and marine
applications.
Hughes believes consumer demand for vehicles with enhanced safety,
convenience and performance features will provide opportunities for additional
revenues from Hughes-supplied automotive electronics on GM North American
vehicles. Examples include passenger-side and side-impact air bags, improved
audio systems, advanced instrumentation and air controls and anti-theft
security devices. Hughes believes other opportunities exist as a result of new
products based on Hughes core technologies such as head-up displays, collision
warning and avoidance systems, and enhanced vehicle navigation and
communication systems. Successful commercialization of these products will
depend on, among other things, consumer acceptance, affordability and the
ability to achieve high volume production of sophisticated products, which
cannot be assured.
Delco Electronics' aggressive cost reduction programs have yielded
substantial cost savings over the last several years. Hughes continues to work
aggressively to reduce its costs for automotive electronics in order to
maintain its competitiveness with respect to both GM NAO and other sales. By
improving product design and manufacturing techniques, Hughes has been able to
and expects to continue to improve its production methods while reducing its
costs of production. More than half of Hughes' automotive electronics products
manufacturing is conducted outside the United States, resulting in substantial
cost savings as compared to U.S. operations. Other efforts to reduce costs
include business process re-engineering, purchases of components from
unaffiliated suppliers, synchronous workshops, supplier cost improvement
programs and a global electronics manufacturing strategy.
Hughes anticipates continuing to grow its automotive electronic
international sales (including sales to GM's international operations and
affiliates) and its sales to North American customers other than GM NAO by
capitalizing on its cost reduction efforts, product quality and technology
together with its worldwide manufacturing capabilities and capacities. The
average levels of electronic content of vehicles outside North America are
substantially below levels in the United States, presenting significant
business opportunities to Hughes. Delco Electronics has formed three customer-
focused business units to pursue more effectively sales to customers other
than GM NAO. Hughes intends, where appropriate, to enter into strategic
alliances and partnering arrangements and to make acquisitions to enhance its
ability to compete for international business.
33
BUSINESS UNITS AND PRINCIPAL PRODUCTS
Hughes' automotive electronics operations are conducted primarily through
two product business units and three customer-focused business units. The two
product business units, Vehicle Electronics and Driver Systems, are
responsible for all product development activities and sales of end products
to GM NAO. Delco Electronics' three customer-focused business units, Delco
Electronics-Europe, Delco Electronics-Asia/Pacific and Delco Electronics-
Americas, have production responsibility outside of North America, marketing
responsibility for sales to GM's international operations, and worldwide
marketing responsibility for sales to other customers. Delco Electronics-
Europe (headquartered in Wiesbaden, Germany) and Delco Electronics-
Asia/Pacific (headquartered in Singapore) have product and marketing
responsibility for Europe and the Asia/Pacific region, respectively. Delco
Electronics-Americas, established in 1994, has production and marketing
responsibility for customers in North America and South America other than GM
NAO.
The following table sets forth revenues of Hughes' Automotive Electronics
segment by business unit for each of the last three years.
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
GM NAO Sales
Vehicle Electronics............................... $2,344 $1,842 $1,488
Driver Systems.................................... 2,155 2,006 1,955
------ ------ ------
Subtotal........................................ 4,499 3,848 3,443
Other Sales
Delco Electronics-Europe.......................... 284 240 222
Delco Electronics-Asia/Pacific.................... 168 106 83
Delco Electronics-Americas and Other ............. 220 257 179
------ ------ ------
Subtotal........................................ 672 603 484
Total Sales..................................... 5,171 4,451 3,927
Other Income.................................... 51 2 8
------ ------ ------
Total Revenues.................................. $5,222 $4,453 $3,935
====== ====== ======
The principal products of Hughes' two product business units for automotive
electronics sales to GM NAO are as follows:
PRINCIPAL PRODUCTS DESCRIPTION
------------------ -----------
VEHICLE ELECTRONICS
Engine Management Controllers......... Microprocessor-based controllers to optimize
engine performance, fuel economy and driveability
while reducing emissions and providing on-board
diagnostics.
Ignition Modules...................... Solid state spark-timing electronics for ignition
control.
Pressure Sensors...................... Micro-machined pressure sensors used primarily for
air-to-fuel ratio mix control.
Control Modules....................... Microprocessor-based controllers for engine,
transmission and other body and chassis functions.
Air Bag Control Modules
and Sensors.......................... Control modules and sensors for driver- and
passenger-side supplemental inflatable restraint
systems.
Anti-lock Brake Controllers........... Electronic systems which control the brakes to
prevent wheel lock-up.
PASS-Key(R)........................... Anti-theft vehicle security systems.
FOREWARN(R)........................... Microwave-based object detection systems.
34
PRINCIPAL PRODUCTS DESCRIPTION
------------------ -----------
DRIVER SYSTEMS
Audio Systems......................... Full line of audio systems ranging
from AM radios to integrated
compact disc receivers.
Amplifiers............................ Vehicle acoustic systems, including
speakers.
Instrument Panel Clusters............. Full line of instrumentation, from
traditional analog and digital
clusters to auxiliary displays,
such as head-up displays.
Air Controls.......................... Heater, ventilation and air
conditioner controls, ranging from
mechanical (or manual) to
electronic (or automatic).
TelepathTM 100........................ Satellite-based electronic
navigation system.
SALES TO GM NAO
Approximately 86% of Hughes' 1994 Automotive Electronics segment revenues
were attributable to sales to GM NAO. Hughes' sales of automotive electronics
to GM NAO, and thus Hughes' Automotive Electronics segment revenues, are
heavily dependent upon the level of General Motors' North American production
and sales of motor vehicles. Such sales by Hughes are also dependent on the
level of Hughes-supplied electronic content (based on the number and
sophistication of electronic functions) per vehicle and the price (or cost to
GM NAO) of such electronics. Since the 1980's, Hughes revenues per GM North
American vehicle have increased each year, primarily as a result of increased
electronic content. Since 1992, pursuant to its global sourcing initiative, GM
NAO has aggresively pursued price reductions from its suppliers and has
provided suppliers worldwide with the opportunity to bid for business
customarily sourced with Hughes. Hughes believes that it has been and will
continue to be able to compete effectively for GM NAO business because of the
quality of its products, its on-going cost reduction efforts, and its product
and technological innovations. In 1993 and 1994, Hughes won approximately 93%
of all globally sourced, competitive bids for GM NAO automotive electronics
business for which Hughes competed (based on the dollar value of all bids
submitted by Hughes).
Hughes expects that the level of electronic functions in vehicles will
continue to increase, but that its prices to GM NAO will continue to decrease
as a result of GM NAO's global sourcing initiative and increasing electronic
sophistication at lower prices. As a result, Hughes expects that its revenues
per GM North American vehicle will remain constant or decrease after 1995,
unless Hughes is able to achieve its goal of mitigating the effect of
continuing price reductions for current products by developing, producing and
expanding sales of enhanced products. Hughes believes that, utilizing its core
technologies, opportunities exist for products offering consumers enhanced
safety, convenience and performance. Moreover, Hughes believes that it will be
able to mitigate the effect of GM NAO price reductions on operating profit
through its demonstrated ability to reduce costs.
It is a policy of General Motors that a standard of fair dealing govern the
prices, terms and conditions of commercial transactions between Hughes
(including Delco Electronics) and General Motors. See "Relationship Between
General Motors and Hughes."
GM Production and Sales
The following table sets forth certain General Motors production, delivery
(sales to ultimate purchasers, including both retail and fleet customers) and
market share data for North America over the last three years.
1994 1993 1992
---- ---- ----
North American Motor Vehicle Production (in millions of
units)*.................................................. 5.2 4.8 4.4
North American Motor Vehicle Deliveries (in millions of
units)**................................................. 5.6 5.2 5.0
North American Motor Vehicle Market Share (%)**........... 32.3% 32.5% 33.1%
--------
*Includes units which are manufactured in the United States and Canada by
General Motors (excluding affiliates), available for sale anywhere in the
world.
** Includes units which are manufactured by other companies and which are sold
in North America by General Motors and its affiliates.
35
The automotive industry is historically cyclical and is dependent on general
market conditions, including interest rates. In addition, although not
necessarily leading to a permanent loss of volume, GM's vehicle production is
subject to interruptions from work stoppages, labor strikes, plant and
equipment failures and other conditions and events, many of which are beyond
the control of General Motors.
Electronic Content of Motor Vehicles
Since the 1980s, Hughes revenues per GM North American vehicle have
increased each year, primarily as a result of increases in the number and
sophistication of electronic functions. The increasing level of electronic
content of motor vehicles is reflected in the average Hughes electronics
dollar sales per vehicle produced by General Motors in the United States and
Canada (for sale anywhere in the world) and in Mexico (for sale in the United
States and Canada) from 1992 to 1994, as set forth in the following table:
AVERAGE HUGHES DOLLAR SALES
PER VEHICLE PRODUCED BY
GENERAL MOTORS IN NORTH
AMERICA
-----------------------------
1994 1993 1992
--------- --------- ---------
Vehicle Electronics........................ $ 448 $ 373 $ 325
Driver Systems............................. 409 409 435
--------- --------- ---------
Total.................................. $ 857 $ 782 $ 760
========= ========= =========
The Hughes-supplied electronic content per GM North American vehicle varies
among vehicle models and according to the options selected by customers, with
more expensive vehicles tending to have more sophisticated electronic
functions. Hughes believes that the functionality of automotive electronics in
GM NAO vehicles will continue to increase, principally as a result of
continued, and often increasingly stringent, regulatory standards for
automotive emissions and consumer demand for increased performance, all of
which will require more sophisticated electronic engine controls. In addition,
in the near term, Hughes believes that electronic components such as sensors
and controllers will be increasingly utilized to meet consumer preference for
enhanced safety and security features, such as anti-lock braking systems,
frontal and side-impact air bags and theft-deterrent systems. Hughes also
believes that future growth opportunities for electronic content may emerge in
new, enhanced safety and convenience products based on Hughes' core
technologies.
Automotive Emission Standards. Hughes believes that the use of sophisticated
engine control computers in the United States will continue to increase,
primarily because of increasingly stringent automotive emissions standards and
more sophisticated diagnostic requirements as defined by the 1990 Clean Air
Act and California Air Resources Board regulations and higher corporate
average fuel economy ("CAFE") standards. Hughes' engine control modules
increase fuel efficiency while helping to lower exhaust emissions.
Safety Features. Hughes expects consumer demand for vehicles with enhanced
safety features to contribute to the growth in automotive electronics
functionality. For example, 87% of GM North American passenger cars in 1994
were equipped with Hughes-supplied air bag control modules, as compared to 24%
in 1991 and 4% in 1989. Hughes is also developing side-impact air bag
controllers for GM vehicles manufactured in North America. Hughes currently
provides the majority of GM NAO's passenger car requirements for anti-lock
brake controllers.
Convenience Features. Hughes believes that the development and wider
acceptance of convenience features will continue, although consumer demand
will depend on the affordability of such features. Such products include
compact disc players, advanced instrumentation and air controls (such as a
dual-zone heater and air control which allows the driver and the front seat
passenger individually to adjust air temperature) and the PASS-Key Anti-Theft
Security Device.
New Products. In 1994, Hughes announced several new automotive electronics
products and product lines which it believes may contribute to future growth
in automotive electronic content in GM North American vehicles and other
vehicles. These products utilize Hughes' core technologies,
36
including technologies from its defense and telecommunications businesses. The
FOREWARN forward and rear-looking radar collision warning system, originally
introduced as a safety feature for school buses, is being expanded to include
side detection sensing and sensing for trucks and vans. Also announced was the
Rec-ignition family of remote keyless entry and personalization products for
security and convenience, which unlock vehicle doors and trunks and adjust
seats, side mirrors, steering wheel and climate control from a distance before
the driver enters the vehicle. Other new technologies introduced in 1994
included Telepath 100 (a satellite-based vehicle navigation system), low tire
pressure warning devices, and infant seat occupant sensors. For a description
of additional products under development, see "Development Projects."
Successful commercialization of these products will depend on, among other
things, consumer acceptance, affordability and ability to achieve high volume
production of sophisticated products, which cannot be assured.
GM NAO Sourcing Initiative; Competition
In 1994, 86% of Hughes' revenues from the Automotive Electronics segment were
derived from sales to GM NAO and Hughes supplied a substantial majority of GM
NAO's requirements for automotive electronics. The context in which Hughes
markets its automotive electronics products to General Motors was strongly
affected in 1992 by the formation of GM NAO and GM NAO's decision to source
globally its procurement needs. Pursuant to this global sourcing initiative, GM
NAO has aggressively pursued price reductions from its suppliers and has
provided suppliers worldwide with the opportunity to bid for business
customarily sourced with Hughes. As a result, Hughes has reduced its prices to
GM NAO and Hughes expects prices to continue to decline.
Hughes believes that it has been and will continue to be able to compete
effectively for GM business because of the quality of its products, its on-
going cost reduction efforts, and its product and technological innovations.
Hughes also believes that it derives a competitive advantage from its business
practice of placing Delco Electronics engineers at GM facilities to help
integrate Delco Electronics electronic products into GM's vehicle designs.
Hughes believes that its technological experience from its non-automotive
businesses also provides it with a competitive advantage in developing and
implementing new automotive electronic products. In 1993 and 1994, Hughes won
approximately 93% of all globally sourced, competitive bids for GM NAO
automotive electronics business for which Hughes competed (based on the dollar
value of all bids submitted by Hughes). There can be no assurance that Hughes
will continue to be awarded this high a proportion of GM NAO contracts for
which it bids. See also "Business of Hughes--General--Competition."
INTERNATIONAL AND OTHER SALES
Sales of Hughes' automotive electronics to customers other than GM NAO grew
at a 15% compounded annual rate from $382 million in 1990 to $672 million in
1994. In 1993 and 1994, Hughes was awarded approximately 23% of all orders
(excluding GM NAO orders) for which it has competed worldwide (based on the
dollar value of all bids submitted by Hughes). In 1994, approximately 35% (by
dollar value) of Delco Electronics contracts for new business were with
customers other than GM NAO. Deliveries under such contracts are expected to
begin in 1996. Hughes currently supplies automotive electronics products to
several customers worldwide, including Chrysler, Daewoo, Isuzu, Renault,
Toyota, John Deere, Nissan, BMW, Audi, Ford, Fiat and Mercedes. In 1993 and
1994, Hughes received major quality or productivity awards from Calsonic,
Nippondenso, Toyota, Isuzu, Nissan and NUMMI.
The levels of average electronic content of European-produced and Asian-
produced vehicles are currently substantially below the average level of
electronic content of vehicles sold in North America and Hughes believes that
the worldwide demand for automotive electronics should grow significantly
through the end of the decade. Hughes' customer-focused business units were
established to focus on these growth opportunities as Hughes seeks to
capitalize on its cost reduction efforts, product quality and technology,
together with its worldwide manufacturing capabilities and capacities, to
continue to grow international sales (including sales to GM's international
operations and affiliates) and sales to customers other than GM NAO. In 1994,
the Delco Electronics facilities in Singapore, Liverpool,
37
Milwaukee and in Matamoros and Reynosa, Mexico, were certified under ISO 9000,
a series of quality systems standards developed in 1987 by the International
Organization for Standardization, which has become a prerequisite for pursuing
contracts in Europe and Asia.
The success of Hughes' international and non-GM efforts will depend, among
other things, upon the availability of technical, manufacturing and other
resources. Competition in such markets is intense and not necessarily open to
all suppliers on equal terms. Suppliers of components and accessories to major
automobile manufacturers (including General Motors affiliates outside North
America) are often affiliated with their customers and typically have
longstanding relationships with them which entail specialized knowledge of
customer needs and preferences. Hughes intends, where appropriate, to enter
into strategic alliances and partnering arrangements and to make acquisitions
to enhance its ability to compete for international business.
DEVELOPMENT PROJECTS
To maintain its leadership in advanced electronics design and manufacturing,
Hughes continues to invest in research and development. Current projects
include a test of a new low-cost wireless traffic information system which
sends data over FM radio signals; participation in a consortium developing the
Automated Highway System ("AHS"), which will offer dedicated lanes in which
steering, braking and throttle of AHS-equipped vehicles are controlled through
special communications systems; and development of a comprehensive vehicle
crash avoidance system.
In addition, Hughes believes it is a leader in the development of the
electric vehicle. In 1994, Delco Propulsion Systems ("DPS") was formed to be
responsible for developing, sourcing and marketing opportunities and systems
for the global electric vehicle market. DPS is a joint effort of Hughes and the
Allison Transmission and Delphi Energy & Engine Management Systems divisions of
General Motors. In 1994, Hughes also announced the Dolphin(TM) electric vehicle
drive system, the first advanced AC drive system for electric vehicles to reach
production.
AEROSPACE AND DEFENSE SYSTEMS
Hughes has been a major producer of electronics-based aerospace and defense
products and systems for more than four decades. Hughes is a leading supplier
of defense electronics products and services to the U.S. government,
participating in approximately half of the current U.S. tactical missile
programs, and Hughes' airborne radar systems are deployed on four of the five
U.S. military front-line fighter aircraft. Hughes has effective research and
working knowledge in the scientific and technology thrusts currently listed by
the U.S. Department of Defense as being critical to the future of
the nation's defense. Hughes has positioned itself as a leading developer and
producer of a variety of tactical programs and as a subcontractor for certain
types of subsystems for strategic purposes rather than seeking to become a
prime contractor for major strategic weapons platforms such as tanks and
aircraft. This permits Hughes to participate in major segments of the defense
market while reducing the impact of specific program cancellations. During
1994, no single U.S. Department of Defense program accounted for more than 10%
of Hughes' Aerospace and Defense Systems segment revenues (or approximately 4%
of Hughes' total revenues), and the ten largest U.S. Department of Defense
programs, in the aggregate, accounted for less than 45% of the Aerospace and
Defense Systems segment revenues. In 1994, the Aerospace and Defense Systems
segment accounted for approximately 43% of Hughes' revenues and approximately
41% of Hughes' operating profits (excluding purchase accounting adjustments
related to GM's acquisition of HAC).
Approximately 69% of Hughes' 1994 revenues in the Aerospace and Defense
Systems segment were attributable to sales to the U.S. Department of Defense.
While the precise effects on specific Hughes defense-related programs cannot be
known at this time, Hughes expects defense spending, particularly by the U.S.
government, generally to continue to decline in real dollars. In addition,
several of Hughes' large programs for the U.S. government are completed or are
nearing completion, including thermal imaging systems and laser rangefinders
for the U.S. Army's M1A1 Abrams tank and Bradley Fighting Vehicle and the
Maverick and Phoenix missile programs. Hughes believes, however, that it is
38
well positioned to compete in the increasingly technologically oriented, cost-
conscious defense market as was demonstrated by several major contract awards
in 1993 and 1994.
Hughes' business strategy is to strengthen its leadership position in
aerospace and defense electronics products, systems and services through
continued emphasis on technological advances, operational efficiencies, cost
reduction and competitiveness. Due to its technological capabilities and the
volume of its products and systems in operation around the world, Hughes
believes that it can capitalize on the opportunities presented by the
continuing trend toward upgrading and retrofitting electronic systems as a
cost-effective alternative to developing new strategic weapons platforms.
Hughes also intends to continue its strategy of reducing its vulnerability to
reductions in U.S. defense spending by diversifying its customer base and
product line, with emphasis on international markets and non-defense government
agencies. In addition to sales to the U.S. Department of Defense, Hughes
provides products and services to NASA and other U.S. government agencies for a
variety of space, aerospace, civic and other purposes. By building on its
expertise and experience in developing and manufacturing defense electronics
systems and providing related services, Hughes is seeking to expand its non-
defense businesses in this segment. For example, Hughes applied the technology
and expertise from its air defense systems in developing its civilian air
traffic control systems business and is exploring non-defense opportunities for
its information systems business unit. Hughes is also seeking to expand its
business internationally. In support of these strategies, Hughes intends, where
appropriate, to enter into strategic alliances and partnering arrangements and
to make strategic acquisitions and divestitures such as its 1992 acquisition of
the missile systems business of General Dynamics and its 1995 acquisition of
the training systems and services business of CAE-Link.
Hughes believes that its reorganization of the Aerospace and Defense Systems
segment effective for 1995 will enhance its ability to compete in a more cost
efficient manner. Under this reorganization, Hughes expects to have reduced
Aerospace and Defense Systems headcount by approximately 4,400 employees
(excluding the effects of the CAE-Link acquisition) by the end of 1995 and
plans to continue pursuing further cost reduction initiatives in the areas of
headcount, facilities utilization, and materials and supplies purchasing.
Hughes also seeks to diversify both its product line and its customer base
with respect to its sales to the U.S. Department of Defense, consistent with
its strategy of reducing Hughes' vulnerability to U.S. defense spending cuts.
By positioning itself as a leading developer and producer of a variety of
tactical programs and as a subcontractor for certain types of subsystems for
strategic programs, Hughes participates in major segments of the defense market
while reducing the impact of specific program cancellations. Tactical programs,
such as airborne radar systems and the AMRAAM and TOW missile programs,
typically involve the large-scale production of expendable products or
electronics systems which are later upgraded. Hughes provides subsystems for a
variety of strategic programs in which its technological capabilities may offer
it a competitive advantage. For example, Hughes is developing subsystems for a
variety of Ballistic Missile Defense ("BMD") programs. Hughes' strategy also
includes diversifying its customer base. In 1994, no single branch of the U.S.
Armed Forces accounted for more than 22% of Hughes' Aerospace and Defense
Systems segment revenues. See also "Business of Hughes--General--United States
Government Contracts."
39
Hughes currently divides its Aerospace and Defense Systems segment into four
principal business units: weapons systems, information systems, radar and
communications systems and electro-optical systems. The following table sets
forth the revenues of each of these business units for each of the last three
years.
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Weapons Systems..................................... $2,605 $2,949 $2,397
Information Systems................................. 1,343 1,190 1,070
Radar and Communications Systems.................... 1,262 1,308 1,314
Electro-Optical Systems............................. 814 1,025 1,046
------ ------ ------
Total........................................... $6,024 $6,472 $5,827
====== ====== ======
WEAPONS SYSTEMS
Hughes' weapons systems business consists of its missile systems, naval and
maritime systems, and Delco systems operations businesses. The principal
products of these businesses are as follows:
BUSINESS DESCRIPTION
-------- -----------
Missile Systems................ Tactical guided missiles (including air-to-
air, air-to-surface, surface-to-surface and
surface-to-air missiles), guidance and
control systems, sensor systems and missile
launchers.
Naval and Maritime Systems..... Torpedoes, sonar and other acoustics
systems, ship defense and display systems,
and underwater surveillance systems.
Delco Systems Operations....... Turret systems for light-armored vehicles
and inertial systems.
Missile Systems
Hughes develops and produces tactical guided missiles, guidance and control
systems, sensor systems and missile launchers. With its air-to-air, air-to-
surface, surface-to-surface and surface-to-air missile products, Hughes
participates in all portions of the missile systems market and believes it is a
leader in the missile systems business. Approximately 69% of Hughes' 1994
weapons systems revenues were generated by its missile systems business.
In 1992, Hughes acquired the missile business of General Dynamics, which
solidified Hughes' position in this market, particularly its surface-to-air
capabilities, and expanded Hughes' customer base (particularly the U.S. Navy).
In 1994, Hughes completed a consolidation of its missile systems business
(including the operations acquired from General Dynamics), including the
consolidation of five major production plants to a single location and the
consolidation of other production and engineering and administrative
facilities. In total, through 1994, 5.8 million square feet of space was
eliminated and headcount was reduced from approximately 13,500 to 7,900.
Hughes has been a long-time supplier and leader in air-to-air missiles, such
as the Phoenix used on the F-14 fighter and the Advanced Medium Range Air-to-
Air Missile ("AMRAAM") developed by Hughes, which has become a primary weapon
system on front-line fighter aircraft for the U.S. Air Force and the U.S. Navy.
The U.S. Department of Defense has approved Hughes for full-scale production of
AMRAAMs, and Hughes is currently in production as one of two producers. AMRAAMs
have been selected for use on fighter aircraft operated by Norway, Korea, the
United Kingdom and Turkey and Hughes believes there continues to be a
significant international market for AMRAAMs. Hughes is also one of two
producers of Sparrow air-to-air missiles for the U.S. Air Force. In 1994,
Hughes was awarded a sole source contract for the production of the Tomahawk
Cruise Missile and development of the next version of Tomahawk. Such award is
being protested by another bidder, although Hughes believes such protest is
without merit. Hughes is also one of two companies awarded a demonstration and
validation contract by the U.S. Navy and U.S. Air Force to design and develop
the AIM-9X, a successor to the Sidewinder air-to-air missile.
40
Hughes also has been a significant developer and producer of air-to-surface
and surface-to-surface missiles. In 1994, Hughes resumed production for foreign
countries of Maverick air-to-surface missiles, which were used effectively
during Operation Desert Storm. In 1994, Hughes received orders totalling
approximately $115 million from the U.S. Army and Canada for 7,296 tube-
launched, optically-tracked, wire guided ("TOW") anti-tank missiles. Hughes
believes opportunities exist for continued sales to foreign governments of
Maverick and TOW missiles.
Hughes believes surface-to-air missiles, with their defensive capabilities,
offer the greatest opportunity for growth in its missile systems business. In
1994, Hughes delivered the first missiles for the Norwegian Advanced Surface-
to-Air Missile Systems ("NASAMS"), an air defense system that uses the AMRAAM
as an anti-aircraft/helicopter missile. Hughes is participating in the
Lightweight Exo-Atmospheric Projectile ("LEAP") and the Exo-Atmospheric Kill
Vehicle ("EKV") programs currently under development as part of BMD. Hughes is
currently one of two producers of the Standard Missile, a surface-to-air
missile designed to provide area defense against aircraft and anti-ship
missiles, and in 1994 received related orders totalling $209 million.
Hughes is currently the sole source producer for the U.S. Army of the Stinger
surface-to-air anti-aircraft missile, receiving in 1994 orders totalling $76
million for missile and launcher production, engineering services, retrofits
and development work. Hughes is currently the sole source producer of the U.S.
Navy's Phalanx close-in weapon system, receiving $134 million of orders in 1994
for production of systems and upgrade kits, engineering services and
development work. Hughes is a primary producer of the Rolling Airframe Missile,
a surface-to-air weapon providing self-defense against anti-ship missiles, and
related launcher systems in cooperation with the German government, receiving
in 1994 orders totalling $189 million.
Naval and Maritime Systems
Hughes' naval and maritime systems business includes torpedoes, sonar and
other acoustics systems, support team equipment and display systems,
principally for the U.S. Navy. Hughes also produces ship defense systems such
as the Mk23 Target Acquisition System, an advanced radar system which permits
ships to detect low-flying, high speed missiles and aircraft. For over twenty
years, Hughes has been involved in supporting the U.S. Navy's Surveillance
Towed Array Sensor Segment ("SURTASS") system, a passive underwater
surveillance sensing system that utilizes an acoustic sensor array towed from a
dedicated surface ship to acquire data. Since 1992, Hughes has participated in
the U.S. Navy's helicopter-borne Airborne Low Frequency Sonar ("ALFS") program.
Production for such program is currently scheduled through late 1996 and Hughes
believes technology developed through such participation presents opportunities
for international sales.
Delco Systems Operations
Hughes is a leader in supplying turret systems for light-armored vehicles to
the U.S. military and supplies a variety of international customers as well.
Hughes also develops and produces inertial systems such as the 30 mm
hemispherical resonator and the HRG-based Space Inertial Reference Unit.
41
INFORMATION SYSTEMS
Hughes' information systems business consists of its command and control
systems; information systems; training and simulation systems; scientific,
engineering and technical services; and air traffic control systems businesses.
The principal products and services of these businesses are as follows:
BUSINESS DESCRIPTION
-------- -----------
Command and Control Systems..... Complex military command and control
systems for air defense systems.
Information Systems............. Complex information systems and related
support services principally for the U.S.
government for defense, intelligence,
scientific and other purposes and for
commercial customers.
Training Systems and Services... Training systems (including simulators)
and services for the U.S. government, NASA
and industrial customers.
Scientific, Engineering and
Technical Services............. Support services, including training,
testing, maintenance and logistics.
Air Traffic Control Systems..... Full range of civilian air traffic control
systems. Integrated systems for
information and operations management for
airports.
Command and Control Systems
Hughes' radar and large-scale system software capabilities make it a world
leader in air defense networks, with approximately 80% of the worldwide air
defense market (excluding the Commonwealth of Independent States and China).
Approximately 32% of Hughes' 1994 information systems revenues were generated
by its command and control systems business.
Hughes' air defense systems utilize modular software to integrate large
amounts of data from a variety of sensors, rapidly process the data using
proprietary algorithms, and then communicate information to decision makers in
command and control centers on a real-time basis. As of March 1, 1995, Hughes'
systems were deployed in the United States and over 20 other nations worldwide.
In 1991, Hughes was awarded an $837 million contract to design, develop and
implement an air defense system for Saudi Arabia called Peace Shield and, in
1994, Hughes was awarded a major contract to update the software for Peace
Shield. Hughes is also currently under contract to design, develop and
implement air defense systems for Egypt, Iceland, Kuwait, NATO and Taiwan.
Information Systems
Hughes has expertise in processing large quantities of data in real time,
storing data in secure data bases accessible to geographically distributed
users and handling the requirements of complex communications networks.
Approximately 27% of Hughes' 1994 information systems revenues were generated
by its information systems business unit.
42
For the U.S. government, Hughes has developed the Command, Control,
Communications and Intelligence ("C/3/I") system and support for classified
military requirements as well as mission and sensor data processing for
national security applications. In addition, Hughes provides systems
engineering services to the U.S. Defense Information Systems Agency. Hughes
also provides scientific and engineering services for NASA and the National
Oceanic and Atmospheric Administration such as Mission to Planet Earth and
other planetary and astrophysical research. In 1993, Hughes was awarded a
contract currently valued at approximately $800 million by NASA to develop the
Earth Observing System Data Information Systems ("EOSDIS") Core System. Hughes
also has developed law enforcement applications for the U.S. Immigration and
Naturalization Services and is currently pursuing opportunities in information
technology for the federal government in health care and other non-defense
areas.
Training Systems and Services
Hughes has been a pioneer, and continues to be a leader in, the field of
advanced training systems, services and equipment (including simulators) for a
variety of military requirements. Hughes believes that, with its February 1995
acquisition of substantially all of the assets of CAE-Link (for a purchase
price of approximately $155 million), it is a leading supplier of training
systems and services to the U.S. Department of Defense. Hughes also provides
training systems and services for NASA and industrial customers.
For military applications, Hughes has focused its resources on opportunities
that permit it to take advantage of ongoing Hughes and other similar defense
programs, such as training programs for the B-2, F/A-18, F-16 and C-141
aircraft, and is well positioned to provide combined arms tactics training for
the U.S. Army and the U.S. Navy. Hughes' flight training systems include
sophisticated simulators in which pilots practice combat tactics as well as
emergency procedures and standard maneuvers. The flexible software of these
simulators can be adapted so that pilots can also train for specific missions.
Hughes' training systems are capable of teaching all phases of operations and
maintenance for aircraft as diverse as the F-16 and F/A-18 fighters and the C-
141 cargo aircraft. Hughes also designs and produces multi-platform training
equipment for the U.S. Navy. Using Hughes' Anti-Submarine Warfare Tactical
Team Trainers, teams of navy personnel train in coordinating ships, submarines
and aircraft in simulated anti-submarine and fleet defense warfare maneuvers.
Through the acquisition of CAE-Link, Hughes increased its training business
with the U.S. Army and U.S. Air Force and added NASA to its training and
simulation systems customer base.
Hughes also develops equipment, systems and programs for industrial training
and testing applications, including curriculum and coursework and training
delivery and management. In 1994, Hughes was selected by General Motors Europe
to be its single training integrator and to provide various dealer training
programs. Hughes also has advanced training system projects with several
General Motors facilities in the United States. Hughes is exploring training
opportunities for GM in Asia and other areas outside of the United States and
Europe.
Scientific, Engineering and Technical Services
Hughes provides a range of support services, primarily to the U.S.
Department of Defense and other military customers, both through direct
contracts and through support of other Hughes projects. Hughes is a leading
supplier of depot repair facilities and test systems, including those for
electro-optical, radar and display equipment, out-of-production spares and low
volume production items. Hughes also provides a range of support services for
government test and training programs, including installation, operations and
maintenance, as well as software development and system management. In
addition, Hughes is a recognized supplier of logistics management and
information support, ranging from integrated logistics support to providing
documentation and technical information and training support. Finally, Hughes
offers personnel to maintain, modify, and upgrade Hughes products in the
field, as well as operations and support for arms control treaty
implementation and information systems. Hughes is the largest supplier of
demilitarization support to the U.S. government in the former Soviet Union.
43
Air Traffic Control Systems
Hughes has applied its technology and experience in air defense systems to
development of civilian air traffic control systems. Hughes offers a full range
of systems to the air traffic control market, with products that range from
systems that integrate multiple support centers and radar installations for
large countries to systems servicing a single airport tower.
Hughes' air traffic control systems business is primarily international.
Currently, Hughes is working on contracts to modernize and better integrate
Canada's civil and military air traffic control systems. Hughes also is under
contract to provide air traffic control systems in Indonesia, Saudi Arabia,
Switzerland, Belgium, Kuwait, Germany, Russia, Turkey and China. In addition to
air traffic control systems, Hughes also develops integrated automated systems
for airport resource information and operations management requirements. In
1993, Hughes was awarded a program management consultant contract for the new
Hong Kong airport.
RADAR AND COMMUNICATIONS SYSTEMS
Hughes' radar and communications systems consist of its airborne radar,
processors, ground-based radar, communications and electronic warfare
businesses. The principal products of these businesses are as follows:
BUSINESS DESCRIPTION
-------- -----------
Airborne Radar.......... Multi-mode fire control, reconnaissance and
surveillance radar and related upgrades for
military aircraft for sale to the U.S. and other
governments. Radar systems for use in customs, law
enforcement, environmental monitoring and military
applications.
Processors.............. Sophisticated processors for use in aerospace and
defense products and systems, including the
advanced Common Integrated Processor.
Ground-Based Radar...... Ground-based radar and short-range air defense
systems.
Communications.......... Command and control systems for gathering,
processing and transmitting large amounts of
information for military uses.
Electronic Warfare...... Systems for the passive detection, tracking and
identification of signals.
Airborne Radar
Hughes is a leading developer and producer of sophisticated airborne radar
systems. Its radar units are deployed by the U.S. military aboard four of its
five front-line fighter aircraft (the F-14, the F-15, the F/A-18 and the AV-8B
Harrier jet), the AC-130U gunship, the U-2R reconnaissance aircraft and the B-2
stealth bomber, as well as by foreign militaries including those of Japan,
Canada, Australia, Spain, Kuwait, Germany, Israel, Finland, Italy, Malaysia,
Switzerland and Saudi Arabia. Approximately 67% of Hughes' 1994 radar and
communications systems revenues were generated by its airborne radar business.
Hughes' strategy is to maintain its leading position in the airborne radar
market through the combination of sales of its existing systems, concentrated
efforts to improve, upgrade and retrofit the airborne radar systems on in-
service aircraft, and expansion of international sales. With more than 3,000
tactical aircraft in operation throughout the world that have the potential for
upgrades and associated software improvements and with its technological
expertise and reputation, Hughes believes that it is well positioned to compete
for the upgrade and retrofit projects which are a significant segment of this
market (particularly during a period when the U.S. Department of Defense's
procurement budget is
44
declining) and for international sales. Consistent with its dual strategies of
upgrading existing systems and pursuing international business, Hughes is
delivering a new generation of radars for F-15s for the Royal Saudi Air Force,
which has ordered 72 of such radars (plus spares). In 1994, Hughes was awarded
contracts to upgrade the radar systems for U.S. Air Force F-15s and Hughes
delivered the first upgraded radar for the U.S. Navy and Marine Corps F/A-18s.
Processors
Hughes is a leading developer and producer of sophisticated processors for a
variety of military products. Hughes is developing the Common Integrated
Processor, an advanced, ultra high-speed modular computer developed for the F-
22 Advanced Tactical Fighter ("ATF"). This processor provides the computing
power for the avionics systems on the ATF. Once commenced, production of the
ATF is projected by the U.S. Air Force to continue into the first quarter of
the next century. Hughes is also the supplier of the mission computer for the
C-17 Globemaster III transport aircraft.
Ground-Based Radar
Hughes supplies a variety of ground-based radar products and short-range air
defense systems. Hughes' ground-based radar products are deployed in the U.S.
Army's Forward Area Air Defense system, the NASAMS, other medium- and short-
range air defense systems and the Firefinder family of weapon-locating radars
in use by the military forces of the United States and 16 other nations.
Communications
Hughes supplies communications products and command and control systems that
can efficiently collect, process and transmit large amounts of information.
Hughes' primary communications product is the Enhanced Position Location
Reporting System ("EPLRS"), a digital position locator and communications
system. This system provides secure tactical data communications, friendly
identification, position reporting and navigation services to the U.S. Army.
Hughes also provides a Position Location Reporting System for the U.S. Marines,
which provides rapid data communications and data on battlefield unit
locations. In addition, Hughes is part of a team awarded a U.S. Army contract
for the Applique program to integrate computer units into tactical military
platforms to replace hand-drawn maps and radio communications with digital
capabilities, enabling enhanced battle command and operational capabilities.
Electronic Warfare
Utilizing technical expertise from its airborne radar systems, Hughes has
established itself in the electronic warfare business with its development of
an advanced special receiver which is expected to become the standard radar
warning receiver for U.S. Navy and Marine Corps tactical aircraft. This
receiver, which provides threat warning information to aircrews, has been
designated as the core system for the U.S. Navy's Integrated Defensive
Electronic Countermeasures system. In 1994, Hughes was awarded a contract to
demonstrate and validate the precision direction finding system for the Manned
Destructive Suppression of Enemy Air Defenses mission of the U.S. Air Force and
two other electronic warfare contracts.
45
ELECTRO-OPTICAL SYSTEMS
Electro-optical systems use advanced sensors to detect radiated energy in the
form of heat or light, high-speed data and signal processors to analyze the
sensor data, and sophisticated communications and display technology to deliver
that information to commanders and other decision makers. Hughes' electro-
optical systems business employs its thermal imaging, laser guidance, infrared
sensors and advanced optics technologies for a variety of tactical applications
and space and strategic applications. Hughes' electro-optical systems business
includes Hughes' Santa Barbara Research Center, which designs and produces
infrared focal plane detectors and civilian space sensors.
The principal products of the electro-optical systems business are as
follows:
PRODUCT DESCRIPTION
------- -----------
Tactical Systems............... Systems for use in military aircraft, tanks
and ground defense systems, including weapon
fire control systems, night and obscured
vision systems and sensors.
Space and Strategic Systems.... Systems for earth monitoring and planetary
exploration and ballistic missile warning,
tracking and guidance systems.
Tactical Systems
Hughes is a leading producer of tactical military laser and thermal electro-
optical systems. Hughes provides night vision systems incorporating its thermal
imaging and laser technologies for aircraft, tanks, armored personnel carriers
and, together with its licensees, has built more than 30,000 tactical laser
rangefinders and more than 20,000 thermal imaging systems. Hughes' laser
rangefinders, which are used on tanks, project an invisible laser beam at a
prospective target, analyze the returned signal and convey target range and
direction information to the tank's weapons control computer. By permitting a
tank crew to see through darkness, smoke and dust, Hughes' thermal imaging
systems extend a tank crew's engagement range and operating maneuverability.
Hughes is a contractor for the U.S. Army's Horizontal Technology Integration
program to provide improved electro-optical sights on armored vehicles. Hughes
has also been selected to become a qualified production source for second
generation thermal imaging target acquisition fire control system upgrades for
the Bradley Fighting Vehicle.
For light-armored vehicles, Hughes produces a high performance fire control
thermal imaging system that is being used in conjunction with fire control and
TOW missile programs and has been installed on a variety of vehicles. For
infantry application, Hughes has developed an infrared thermal weapon sight for
the U.S. Army that is light enough to be used with rifles, machine guns and
shoulder-launched missiles.
Hughes' infrared sensors are also used in sophisticated fire detection and
suppression systems deployed on the M1A1 Abrams tank and Bradley Fighting
Vehicle. Hughes or licensees using technology developed by Hughes have produced
fire control systems and components for most of the United States' battle tanks
and fighting vehicles and for a significant portion of those of other
countries.
Airborne systems being developed by Hughes include an infrared system for the
U.S. Marine Corps V-22 Osprey that incorporates advanced staring focal plane
array technology. Hughes also provides a night targeting system for the AH-1
Cobra attack helicopter, and night vision systems for a variety of other
helicopters in service with the U.S. and other armed forces. Fixed-wing
electro-optical products include the infrared navigation and targeting pods for
the F/A-18 Hornet aircraft.
46
Space and Strategic Systems
Hughes is a leading designer and producer of visible light wavelength and
infrared detector sensors for imaging products deployed on satellites and used
for a variety of earth monitoring, planetary exploration and commercial
purposes. In the area of earth remote sensing for civil space applications,
Hughes has manufactured key instruments for a majority of the imaging weather
satellites launched since the late 1960s and is currently performing on several
major civil earth monitoring contracts.
Hughes' advanced optics technology and products are also applied in systems
for a wide variety of surveillance and scientific purposes and can be used in
adverse environments. Hughes has pioneered the technologies for telescopes that
can maintain high performance at extremely low temperatures and which are
fundamental to space sensors and interceptors used by the U.S. Department of
Defense. In addition, for both tactical and space and strategic applications,
advances in wide field of view reflective optics for land and airborne
applications are permitting increased capability in increasingly smaller
packages by enabling visible, infrared and laser wavelengths to use a single
aperture. Precision machining and diamond turning technology are being used to
enable production of these optics with fewer parts and lower cost.
Hughes is currently developing space-based infrared sensors to detect and
track ballistic missiles in flight, providing data for early warning and
tracking. Hughes is a contractor on the U.S. Air Force's Brilliant Eyes program
and is planning to bid in 1995 on the Space-Based Infrared Systems program.
Hughes also produces guidance electronics for the Trident II submarine-launched
ballistic missile.
TELECOMMUNICATIONS AND SPACE
Hughes is a leading worldwide manufacturer of communications satellites and
provider of satellite-based services. Hughes has one of the world's largest
private fleets of geostationary communications satellites and is the world's
leading supplier of satellite-based private business networks. Hughes also
provides a broad range of satellite-related services and is a leader in the
U.S. direct broadcast satellite market with its programming distribution
service known as DIRECTV, which was introduced in 1994 and is the first high-
powered, all digital direct-to-home television distribution service in North
America. Hughes believes it is a leading manufacturer of communications
satellites and satellite-based electronic equipment for the U.S. government.
Hughes is a vertically integrated supplier of satellites and satellite-based
communications systems and services. It also provides communications equipment
and services in the mobile communications and packet switching markets. Its
equipment and services are applied in, among other things, data, video and
audio transmission, cable and network television distribution, private business
networks, digital cellular communications and direct-to-home satellite
broadcast distribution of television programming. In 1994, the
Telecommunications and Space segment accounted for approximately 18% of Hughes'
revenues and approximately 17% of Hughes' operating profit (excluding purchase
accounting adjustments related to GM's acquisition of HAC).
Hughes seeks to capture more of the value-added benefits of the satellite-
based services market by capitalizing on its technological capabilities, the
size and desirable orbital locations of its satellite fleet, and its management
expertise in satellite operations. Hughes' strategy also includes building on
its technology and experience to develop new applications for its satellite-
based services for governments, businesses and consumers and expanding
international sales for all its businesses. Hughes believes significant
opportunities exist in (i) mobile wireless communications systems and services
based on Hughes' digital satellite and cellular communications technologies;
(ii) fixed wireless telecommunications networks for local and international
telecommunications in areas with deficient communications infrastructures (such
as developing nations); and (iii) direct-to-home satellite-based television
programming distribution outside North America based on Hughes' experience with
its DIRECTV service, especially in areas lacking established alternative
distribution infrastructures (such
47
as developing nations). Hughes' strategy also includes developing new
satellite-based technologies for opportunities such as satellite-based data
communications directly to personal computers and new systems for telephone,
video and data communications. In addition, Hughes seeks to maintain its strong
position in satellite manufacturing and to continue to increase the
profitability of its manufacturing operations through more efficient production
processes.
Hughes has divided its Telecommunications and Space segment into four
principal businesses: satellite construction, satellite ownership and
operation, telecommunications equipment and services, and DIRECTV, Hughes
direct-to-home satellite programming distribution service for the North
American market. The following table sets forth revenues of the
Telecommunications and Space segment for each of the last three years. Due to
the commencement of the DIRECTV programming and distribution services in 1994,
revenues associated with the DIRECTV service have been included with satellite
ownership and operation revenues.
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Satellite Construction.............................. $1,426 $1,288 $1,150
Satellite Ownership and Operation................... 361 354 417
Telecommunications Equipment and Services........... 809 596 415
------ ------ ------
Total........................................... $2,596 $2,238 $1,982
====== ====== ======
SATELLITE CONSTRUCTION
Through Hughes Space and Communications Company ("HSC"), Hughes is a world
leader in the manufacture of geostationary commercial communications
satellites, having built over 40% of the communications satellites now in
commercial service worldwide. Hughes believes that it is a leading manufacturer
of satellites and satellite-based electronic equipment for the U.S. government,
and its satellites and satellite payloads are used for a variety of defense,
NASA and other government space missions.
Since its construction of the world's first geosynchronous communications
satellite in 1963, Hughes has been recognized worldwide as a leader in the
design and manufacture of communications satellites. Since 1990, Hughes has
received approximately 31% of all publicly announced new satellite orders
worldwide. The following table outlines certain publicly announced information
with respect to commercial (non-defense) communications satellites during the
period from 1992 to 1994. Through March 1, 1995, one additional Hughes-built
satellite was placed in service in 1995.
1994 1993 1992
---- ---- ----
Commercial Communications Satellite Launches
Hughes-Built........................................... 10 5 7
Total.................................................. 20 10 19
Commercial Communications Satellites in Service
Hughes-Built........................................... 57 52 47
Total.................................................. 138 127 119
As of March 1, 1995, Hughes has publicly announced outstanding orders to
construct 29 communications satellites for companies (including subsidiaries
and affiliates of Hughes) and government agencies in nine countries, including
orders for 23 of its advanced HS 601 satellites (of which three are commercial
orders for its higher-power models). In February 1995, Hughes received an order
for approximately $482 million to develop NASA's next generation of Tracking,
Data and Relay Satellites ("TDRS"). Such award is being protested by another
bidder, although Hughes believes such protest is without merit. Under the TDRS
contract, Hughes will build three HS 601 satellites (the first of which is
projected for delivery in 1999) and provide related launch and operations
support. As of March 1, 1995, fourteen Hughes-built satellites are scheduled
for launch in the remainder of 1995. Launch schedules are subject to a number
of factors, including construction delays, weather, availability
48
of launch vehicles, launch vehicle problems, and governmental and political
pressures, many of which are beyond the control of Hughes. Launch difficulties
and delays can, in certain circumstances, result in increased costs to Hughes.
Hughes believes that its leadership position in the competitive satellite
manufacturing industry reflects the high quality and reliability of its
satellites, which results from its technological superiority in satellite
design, production and operation. One measure of the reliability of Hughes'
satellites is the duration of their operational service. Since the launch of
Hughes' first satellite in 1963, Hughes' satellites have accumulated over 700
years of in-orbit experience, with channel availability of 99.4% on HS 376, HS
601 and other current generation commercial satellites. Approximately 98% of
Hughes' satellites have remained in service past their originally scheduled
retirement dates. The quality of Hughes' satellites is also evidenced by the
number of repeat customers. Since 1965, approximately one-half of all Hughes'
satellite sales have been made to repeat customers. Since 1990, the U.S. Navy,
as well as private companies and the governments of Brazil and Mexico, have
made follow-on purchases of communications satellites from Hughes.
Hughes' technological capabilities have led to enhancements in the quality of
its satellites, reductions in production and operating costs, and expansion of
its satellite product line, thereby strengthening Hughes' leadership position
and expanding the market for satellites as a whole. For example, Hughes has
developed a family of framework, propulsion and power systems (referred to as
"buses"), which can be replicated at relatively low cost in a variety of
commercial and defense configurations. In addition, Hughes has applied signal
compression and has developed other methods to enhance the efficiency of
transponders. The newest product in this family is the HS 601 bus which offers
substantially higher power levels than those previously achieved. Advancements
in digital electronics, high power amplifiers, antenna implementations and
propulsion systems offer enhanced performance capabilities of Hughes-built
satellites at a relatively lower weight than other satellites. These
advancements are expected to provide a significant competitive advantage for
Hughes as a result of enhanced performance capabilities and because the cost of
launch varies with satellite weight.
In order to enhance its competitive position in both the government and
commercial satellite manufacturing markets, Hughes continues to work to lower
its costs and improve productivity while maintaining its quality standards.
Since 1992, Hughes has improved its satellite manufacturing productivity by
approximately 47% (as measured by satellite sales dollars per employee) and
reduced cycle time from order to delivery for satellite production by
approximately 30%.
SATELLITE OWNERSHIP AND OPERATION
Through Hughes Communications, Inc. ("HCI"), Hughes maintains one of the
world's largest private fleet of communications satellites and offers a broad
range of services in the commercial satellite communications market. Hughes
believes that it is a leader in the markets it serves, including cable
television distribution, broadcast television distribution, private business
networks, news gathering, radio networks, educational systems and video time
sharing.
As of March 1, 1995, HCI operated 15 satellites, consisting of nine used for
cable and broadcast video, voice and data transmission (collectively known as
the Galaxy network), two used for DIRECTV service, three Leasat satellites
operated for the U.S. Navy, and one operated for another communications
company. As of December 31, 1994, approximately 38% of the U.S. commercial-use
transponders in space were on Hughes' satellites in the Galaxy network. The
following table sets forth the number of transponders on the in-orbit
satellites in the Galaxy network as of December 31, 1994, 1993 and 1992 and the
percentage of such transponders committed, in the aggregate, to use by Hughes'
customers during each of 1994, 1993 and 1992.
1994 1993 1992
---- ---- ----
Satellites................................................ 9 10 9
Transponders Available.................................... 235 259 211
Transponders Committed.................................... 89% 68% 69%
49
To meet the expected demand for additional satellite capacity, Hughes is in
production on two new satellites for use in providing a range of satellite-
based services. Delays in the production or successful launch of these
satellites could materially affect the ability of Hughes to deliver services
and benefit from the opportunities it is currently pursuing. Launch schedules
are subject to a number of factors, including construction delays, weather,
availability of launch vehicles, launch vehicle problems, and governmental and
political pressures, many of which are beyond the control of Hughes.
Hughes enjoys strategic advantages in selling and leasing transponders as a
result of the desirable Earth-orbit locations of its geosynchronous
communications satellites, particularly over the continental United States. Key
anchor customers transmitting from Hughes' satellites provide an established
base of viewers with satellite dishes aimed at Hughes' satellites. This
attracts additional customers for Hughes because program originators can access
this base of viewers at relatively lower start-up costs since such prospective
viewers do not need to re-target their satellite dishes. In addition, the
number of satellites owned and operated by Hughes creates competitive
advantages for Hughes through economies of scale in the day-to-day operation
and control of satellites and added flexibility in scheduling and supporting
transponder services provided to customers.
Hughes' business strategy is to capture more of the value-added benefits of
the satellite-based services market by capitalizing on its technological
capabilities, the size and desirable orbital locations of its satellite fleet
and its management expertise in satellite operations. In addition, Hughes seeks
to expand into related markets where it believes that its technologies will
provide it with a sustainable competitive advantage. For example, Hughes is
actively involved in nearly every aspect of providing satellite-based
transponder services to cable television programmers. Most of the space-based
hardware (including the satellites, the transponders and other electronic
components comprising the satellite payloads) and most of the ground-based
control equipment are designed or manufactured by Hughes. Hughes also
distributes cable television programming for HBO, Turner Broadcasting, ESPN,
USA Network and other programmers to local cable companies across the United
States and provides services for news gathering.
Hughes is the largest shareholder of American Mobile Satellite Corporation
("AMSC"), with an equity interest of approximately 27%. AMSC common stock is
publicly traded and other shareholders include Singapore Telecommunications
Ltd., McCaw Cellular Communications, Inc. (a subsidiary of AT&T) and Mtel
Corporation. AMSC has an FCC license to provide a full range of satellite-based
mobile telephone, facsimile and data services in the United States, including
Alaska, Hawaii, Puerto Rico, the Virgin Islands and approximately 200 miles of
coastal waters. AMSC's system is an adjunct to existing cellular
communications, as it operates by filling in the "white spaces" left uncovered
by such systems. AMSC and TMI Communication Company Limited Partnership of
Canada are each purchasing a Hughes HS 601 satellite and another satellite
pursuant to a joint procurement program to provide communication services to
the United States and Canada. AMSC has announced that it expects to commence
providing services in 1995. Currently, AMSC offers SKYCELL(R) Fleet Management
mobile data and position reporting services to the maritime, trucking and rail
industries throughout the United States through leased satellites.
Although Hughes' satellite ownership and operations activities to date have
been focused largely in North America, Hughes' business strategy also includes
application of its U.S. telecommunications industry experience and technology
to international markets. Consistent with this strategy, HCI has entered into a
partnership with three prominent Latin American media companies to introduce
satellite-based direct broadcast entertainment into Latin America. The service,
to be known as DIRECTV Latin America(TM), is expected to provide up to 144
television channels and 60 music channels to be offered to customers in Mexico,
Central America, South America and the Caribbean (collectively, the third
largest television market in the world). DIRECTV Latin America is expected to
commence service in 1996 using a Hughes HS 601 satellite currently scheduled
for launch in the fourth quarter of 1995. Local suppliers have agreed to
provide marketing, sales, distribution, customer service and other
infrastructure
50
services. Hughes believes that its early entry into the Latin American market
coupled with its existing DIRECTV technology will provide it with a competitive
advantage. In addition, Hughes is exploring opportunities in Japan, Europe, the
Asia/Pacific region and India to capitalize further on its experience developed
in connection with its DIRECTV service.
Hughes is also pursuing the development of an international fixed satellite-
based communication system called Spaceway(TM), which is being designed to
offer affordable access to a variety of interactive, high-speed and high-
quality broad band voice, video, audio and data telecommunications services
through four interconnected regional satellite systems.
Both the DIRECTV Latin America service and the Spaceway system, if and when
operational, will compete with other technologies and systems. See "Business of
Hughes--General--Competition." Delays in the successful production or launch of
the related satellites could materially delay the commencement or expansion of
such services, which could materially affect market acceptance of such services
and the financial results to Hughes. Launch schedules are subject to a number
of factors, including construction delays, weather, availability of launch
vehicles, launch vehicle problems, and governmental and political pressures,
many of which are beyond the control of Hughes. In addition, there can be no
assurance that Hughes will receive the approvals from the U.S. Federal
Communications Commission and other U.S. and foreign governmental agencies that
will be required to launch and operate the satellites for direct broadcast
services and the Spaceway system. For other matters with respect to the DIRECTV
Latin America service, see "DIRECTV" below. The equipment, systems and
technology for the Spaceway system are currently under development and there
can be no assurance that Hughes will be able to offer the presently
contemplated range of services, that the cost of any such services offered will
be attractive to customers or that such services can be successfully
commercialized.
TELECOMMUNICATIONS EQUIPMENT AND SERVICES
Through Hughes Network Systems, Inc. ("HNS"), Hughes provides a broad range
of telecommunications equipment, satellite ground-based equipment and satellite
communications services. With an estimated worldwide market share in excess of
60%, Hughes is the world's leading supplier of satellite-based private business
networks, which are individually designed, owner controlled, interactive,
highly flexible communications systems with the capacity to link thousands of
locations for data exchange, voice communications and videoconferencing. Hughes
also provides shared-hub systems that allow users with more modest
communications needs to share usage of Hughes' satellite ground stations and
networks. Hughes is also a leader in wireless telephone networks and digital
cellular mobile systems and believes significant opportunities exist in
utilizing both satellite and digital cellular technologies to provide fixed
wireless telecommunications networks for local and international
telecommunications in areas with deficient communications infrastructures
(particularly developing nations) and to provide mobile communications systems
and services.
Hughes' private business networks utilize its very small aperture terminals
("VSATs"). VSATs are replacing more conventional satellite dishes for many uses
because VSATs, which take advantage of more powerful satellites, are smaller,
less expensive to manufacture and easier to install. As a leading supplier of
VSATs, Hughes has delivered or received orders for more than 100,000 VSATs for
use in the private networks of companies, government agencies, universities and
research institutions. Among these are the more than 9,100 installed in the GM
Pulsat network, which is the world's largest private business network. Since
1987, Hughes has sold private business networks to a variety of customers
worldwide, including Chrysler, Toyota, Chevron, IBM, Wal-Mart, Toys "R" Us,
Jusco (Japan), China Ministry of Posts and Telecommunications and France
Telecom. Sales to international customers are expected to increase,
particularly as government regulation of private ownership of such networks
decreases. As of March 1, 1995, Hughes had sold private networks for use in
over 38 countries in North America, Europe, Asia, Latin America and Africa.
51
Hughes believes that its technologies and other capabilities position it to
become a leading provider of both ground-based and satellite-based mobile
communications services, which Hughes expects to become an increasingly
important segment of the telecommunications market. Hughes is currently
actively involved in many segments of the mobile communications market, from
the design and manufacture of digital switching and consumer equipment for the
cellular market to the construction and operation of satellites and satellite-
based systems for use on vehicles and aircraft throughout North America and
Japan and on vessels worldwide. For example, Hughes is a leading supplier of
coastal earth stations used by a number of countries to transmit ship-to-shore
telephone signals via the International Maritime Satellite Organization's
("INMARSAT") satellites.
Hughes provides telecommunications equipment for cellular-based wireless
applications. Hughes believes that it has developed a unique and flexible
system that uses common hardware and software modules for multiple wireless
telecommunications applications, including analog and digital mobile cellular,
mobile data, fixed wireless telephony and Personal Communication Services
("PCS"). The advanced GMH 2000(TM) cellular system supports and is compatible
with the U.S. Telecommunications Industry Association ("TIA") analog and Time
Division Multiple Access ("TDMA") digital cellular standards, the Cellular
Digital Packet Data ("CDPD") mobile data standard, the BellCore "PACS" system
proposed as a PCS standard and Hughes' proprietary enhancement to TDMA,
Extended Time Division Multiple Access ("E-TDMA") standard. E-TDMA(R) offers
enhanced signal quality and confidentiality and significantly increased
capacity as compared to conventional analog switching technology. Hughes has a
contract with BellSouth Cellular Corporation to deploy its GMH 2000 dual analog
digital cellular networks for voice and data transmission in more than 50
markets in the southeast United States. GTE Mobilnet has announced that it will
install a Hughes network with CDPD technology in each of 10 markets in 1995.
Hughes believes that significant opportunities exist in providing
communications networks for use in areas with deficient communications
infrastructures (particularly developing nations) because systems utilizing
satellite and digital cellular technologies can generally be installed more
quickly and economically than traditional wire-based telephone systems. Hughes'
systems are capable of providing both local and international
telecommunications services. Hughes' satellite-based private business networks
are well suited for use by businesses and governments seeking improved
communications in countries with less developed communications infrastructures
because such systems can operate independently of existing wire-based switched
telephone systems. Hughes is currently providing services through its Telephony
Earth Station VSAT. Moreover, Hughes believes that its digital cellular
technology (including E-TDMA) offers an alternative infrastructure for
telephone systems, particularly in areas where installation of wire- or cable-
based systems is not cost-effective. Hughes has signed contracts for major
telephone infrastructures in Jakarta, Indonesia; Prague, Czech Republic;
Blantyre, Malawi; Vladivostok and Novorosslysk, Russia; and Chengdu and Daqing,
China. The Hughes program in Tatarstan, a Russian republic, for a high capacity
fixed wireless telephone system has been in operation since January 1995.
Hughes is discussing with several other countries and cities the installation
of similar systems to provide and upgrade basic telephone service.
In 1996 HNS expects to begin providing subscriber equipment for DIRECTV
services. In addition, Hughes is developing DirecPC(TM), a satellite-based
information delivery service that is expected to use small antennas and high-
speed digital transmission to make software, documents, desk-top video, games,
news and other information accessible through personal computers. There can be
no assurance that Hughes will receive the approvals from the U.S. Federal
Communications Commission and other governmental agencies that are required to
be able to provide such service or that such service can be successfully
commercialized.
52
DIRECTV
Through DIRECTV Enterprises, Inc., Hughes has developed and operates the
first high-powered, all digital direct-to-home television distribution service
in North America, and is a leader in the direct broadcast satellite market in
the United States with its programming distribution service known as DIRECTV.
Introduced in June 1994, DIRECTV service is broadcast from two Hughes HS 601
satellites directly to 18-inch receiving antennae and decoding boxes located in
households in the 48 contiguous states in the United States. Hughes uses 11 of
the 16 transponders on the first satellite and all 16 transponders on the
second satellite for DIRECTV services. The remaining five transponders on the
first satellite have been sold to United States Satellite Broadcasting, Inc.
("USSB") for use in its own programming service. Hughes plans to launch a third
satellite in the second quarter of 1995 to provide additional programming
services and back-up support for its broadcast services. The receiving
equipment for direct-to-home television service, called Digital Satellite
System or DSS(TM), was initially manufactured exclusively by Thomson Consumer
Electronics under the RCA(R) brand name and currently retails for approximately
$699 and $899. Hughes expects Sony to begin supplying DSS equipment in the
second quarter of 1995, and DIRECTV, Inc. has announced that HNS, Toshiba and
Uniden are expected to commence supplying DSS equipment in 1996. Based on
consumer electronics marketing trends, Hughes anticipates that the prices for
DSS equipment will decline as additional suppliers enter the market.
Both the DIRECTV programming service and DSS equipment are distributed
through consumer electronics stores such as Sears, Circuit City and Best Buy;
satellite television dealers; and an arrangement with the National Rural
Telecommunications Cooperative ("NRTC") whereby the NRTC offers DIRECTV
services to member cooperatives serving approximately seven million households
located primarily in rural areas of the continental United States. Because a
significant number of consumers in rural areas do not have access to cable
television, Hughes believes that direct broadcasting service represents the
most convenient and economical method of providing multi-channel video services
to such consumers. Hughes also believes that distribution through the NRTC is
advantageous since NRTC members already provide utilities such as electric
power and telephone services to consumers within their respective regions.
The DIRECTV entertainment services currently offered to subscribers include
over 150 television channels (including The Disney Channel, ESPN and CNN); an
assortment of pay per view events such as movies, boxing, wrestling, musical
concerts and other similar programs; 28 audio channels of commercial-free, CD-
quality music; professional sports programming consisting of out-of-market
games from the NFL, NBA and NHL and collegiate football sports programming; and
other entertainment services such as Prime Time 24, The Golf Channel, TV Asia,
STARZ! and Playboy TV. Hughes believes that the wide diversity of programming
and the variety of programming packages available to consumers (especially in
the areas of sports and movies) will allow DIRECTV to compete effectively in
the market for television entertainment. Future program offerings may include
additional niche or specialized programming, interactive services and
data/information services. In January 1995, Hughes began selling programming
packages to restaurants, bars, office buildings and other commercial
establishments.
As of March 5, 1995, Hughes provided DIRECTV programming services to
approximately 425,000 subscribers in the United States. Although the factors
described below make it difficult to predict future subscription levels for any
particular period of time, Hughes currently believes that its DIRECTV service
will become profitable at a subscription level of approximately 3.2 million
subscribers, which it does not expect to occur until after 1995 and Hughes has
a target of 10 million subscribers in North America by 2000. Primestar and USSB
are the only other direct broadcast service companies currently in operation in
the United States. Other direct broadcast service companies are expected to
commence operation of direct-to-home services in 1996 or 1997. DIRECTV service
also competes with cable television, other broadcast television and other
entertainment services, including video rentals and telephone services.
53
Due to, among other things, the scope of the competition for direct broadcast
entertainment services and the relatively low brand and concept awareness level
that is associated with the introduction of any new product, there can be no
assurance as to the long-term market acceptance of direct broadcast services.
The technology for the DIRECTV service is based, in part, on Hughes' satellite
and satellite-based services experience and, in part, on the expertise of
Thomson Consumer Electronics (which markets products under both the RCA and GE
brand names) for the DSS equipment. Because Hughes has limited experience in
marketing directly to consumers and operating the related infrastructure and
support services, Hughes has outsourced many of the significant facets of such
operations to vendors experienced in the respective fields. To date, the
operating experience with the DIRECTV service of Hughes and others reflects a
subscriber base substantially below targeted levels. Based on the foregoing and
other factors outside the control of Hughes, such as general economic
conditions, there can be no assurance that any level of subscription or
profitability will be achieved or, if and when achieved, that any level of
subscription or profitability will be maintained. Failure to reach targeted
levels or to sustain such levels will materially adversely affect the timing
and amount of revenues and profitability to Hughes from its DIRECTV service.
CORPORATE AND OTHER
Hughes operates other businesses in addition to those described above in the
discussions of Hughes' three business segments. These businesses are to be
reported as part of "Corporate and Other" in Hughes' consolidated financial
statements and the revenues of these businesses are not, in the aggregate,
material to Hughes. The most significant of these businesses are Avicom, a
supplier of cabin management, interactive passenger communications and
entertainment systems and related services for the commercial airline market,
and certain portions of the former HIEC. Corporate and Other also includes
other minor business activities and, through 1993, Rediffusion, a supplier of
commercial flight simulators and related systems and services, which Hughes
sold in 1993.
Through Avicom, Hughes is working to develop a complete cabin communications
and entertainment system that integrates its audio distribution technology,
large system processing capability and liquid crystal display technology. This
system is being designed to be fully interactive and allow passengers (through
individual screens at their seats) to watch and listen to individually selected
entertainment programs, request meals and beverages and order duty free and
other merchandise. The interactive feature is not currently meeting all design
and quality requirements and, thus, installation of this portion of systems
under existing sales contracts is being delayed pending completion of a product
improvement program. The operating loss attributed to Corporate and Other in
1994 includes an $83 million operating loss reported by Avicom.
BUSINESS OF HUGHES--GENERAL
COMPETITION
Hughes is generally recognized as a leader in automotive electronics,
aerospace and defense systems, and telecommunications and space equipment and
services. Hughes competes on the basis of quality and reliability, price,
responsiveness to customer needs, technical expertise and innovation, financial
and management capability and overall reputation. Competition for international
business is affected by the presence of foreign competitors, preferences for
domestic suppliers and international political and trade considerations. In
order to compete more effectively and to complement its internal strengths,
Hughes has entered into, and expects to continue to enter into, strategic
alliances, partnering arrangements and other joint ventures and to make
strategic acquisitions and divestitures. As a subsidiary of General Motors,
Hughes has access to GM's business network of companies and government contacts
around the world, to a large potential customer base and to GM's global
purchasing power.
54
In 1992, GM NAO announced its intentions to begin filling its procurement
needs on a global basis. Pursuant to this initiative, GM NAO has aggressively
pursued price reductions from its suppliers and has provided suppliers
worldwide with the opportunity to bid for business customarily sourced with
Hughes. As a result, Hughes has reduced its prices to GM NAO and Hughes
expects prices to continue to decline. Hughes believes that it is has been and
will continue to be able to compete effectively for GM business because of the
quality of its products, its on-going cost reduction efforts and its product
and technological innovations. Hughes also believes that it derives a
competitive advantage from its business practice of placing Delco Electronics
engineers at GM facilities to help integrate Delco Electronics electronic
products into GM's vehicle designs. Hughes believes that its technological
experience from its non-automotive businesses also provides it with a
competitive advantage in developing and implementing new automotive electronic
products. Delco Electronics believes that its cost reduction programs, which
include internal cost improvement programs, business process engineering,
purchases of components from unaffiliated suppliers, synchronous workshops,
supplier cost improvement programs and a global electronics manufacturing
strategy, will provide significant ongoing and sustainable cost savings. In
light of the foregoing, Hughes expects to be able to continue to compete
effectively for GM NAO business as well as international and North American
business other than GM NAO.
In the Aerospace and Defense Systems segment Hughes competes with a variety
of U.S. and international companies for U.S. government and other business.
The U.S. government has historically used multiple supply sources for a single
program to further intensify competition and add to the number of experienced
contractors available for future programs. It is anticipated that the ability
to use multiple sources for production will be limited by declines in U.S.
government defense spending. Hughes believes that its technological
capabilities and the volume of its products and systems in operation around
the world provide it with competitive advantages in the continuing trend
toward upgrading and retrofitting electronic systems on existing weapons
platforms. Hughes believes that its reorganization of the Aerospace and
Defense Systems segment effective in 1995 (including its cost reduction and
consolidation efforts in the areas of headcount, facilities utilization, and
materials and supplies purchasing) will enhance its ability to compete in a
cost efficient manner. See "United States Government Contracts."
Hughes has certain competitive advantages in its telecommunications and
space business. In the construction of satellites, Hughes' family of satellite
bus designs gives it the flexibility to respond to varying customer
requirements, and its relatively lighter weight satellites are less expensive
to launch than are heavier competing models. In the sale and leasing of
satellite transponders, Hughes enjoys advantages from its economies of scale
and its strategic occupation of many of the most desirable North American
Earth-orbit locations for geosynchronous communications satellites. Hughes
also believes that its experience acquired through the development and
operation in North America of the DIRECTV service, and its early entry into
the Latin American satellite-based direct broadcast market, will provide it
with competitive advantages in such markets and in its efforts to expand
direct broadcast services to other markets. See "Telecommunication and Space--
DIRECTV."
Notwithstanding the competitive advantages described above, Hughes
participates in markets that involve a high level of competition by other
companies that have similar or better financial, technological and personnel
resources as Hughes. In particular, the U.S. government defense market is
becoming increasingly competitive and Hughes expects consolidation within the
industry due to expected real-dollar declines in the U.S. and other defense
budgets. In addition, as Hughes seeks to increase its sales internationally it
will meet an increased level of competition from foreign companies, some of
which may be owned or subsidized by governmental agencies. Hughes'
telecommunications businesses compete with other communications technologies
and systems, such as, with respect to telecommunications systems for fixed and
mobile applications, fiber optics networks, cable systems, wire telephony and
radio-based systems and other satellite-based systems. In addition to existing
and other planned operations of direct-to-home broadcasting services, Hughes'
direct broadcasting service competes and will compete in present and future
telecommunications markets with telephone
55
companies, cable television, other broadcast television and other entertainment
services, including video rentals. No assurance can be given as to the effect
that any such competition may have on the financial condition or results of
operations of Hughes.
UNITED STATES GOVERNMENT CONTRACTS
Hughes acts as a prime contractor or major subcontractor with respect to many
different U.S. government programs. Government acquisition programs typically
follow a life cycle that begins with the research and development stage and
progresses into full-scale production which may continue, with refinements and
improvements, for several years. Because of significant start-up costs, many
programs are not expected to become profitable until well into the full-scale
production phase. Moreover, not all programs are selected for full-scale
production, even when considerable resources have been expended in pre-
production phases. The U.S. government has historically used multiple supply
sources for a single program to further intensify competition and add to the
number of experienced contractors available for future programs. It is
anticipated that the ability to use multiple sources for production will be
limited by declines in U.S. defense spending. See "Aerospace and Defense
Systems."
Hughes' U.S. government business is performed under two general types of
contracts, fixed-price and cost reimbursement. Under certain fixed-price
contracts, Hughes realizes all the benefit or detriment caused by decreased or
increased costs of performing the contract. Under other fixed-price contracts,
Hughes shares with the U.S. government the savings from performing for less
than a specified target cost as well as the cost burden of exceeding the target
cost up to a ceiling price, and carries the entire burden of costs exceeding
the ceiling price. Cost reimbursement contracts provide for reimbursement of
costs, to the extent such costs are reasonable, allocable to the contract and
allowable under applicable regulations, plus payment of a fee. Approximately
62% of Hughes' total sales to the U.S. government in 1994 were pursuant to
fixed-price contracts, and approximately 38% were pursuant to cost
reimbursement contracts. Total Hughes net sales to the U.S. government in 1994
were approximately $5.3 billion and are primarily in the Aerospace and Defense
Systems segment and the Telecommunications and Space segment.
A significant number of Hughes' fixed-price government contracts contain
progress payment provisions under which Hughes may receive payments in advance
of delivery in amounts ranging from over 80% to 100% of cumulative total costs
incurred, with the remainder, including profit, billed upon delivery and
acceptance. Under cost reimbursement contracts, Hughes is periodically
reimbursed for allowable costs and paid a portion of the fee component based on
progress. Under either type of contract, certain costs, including certain
financing, research and development and marketing expenses, are not
reimbursable under currently applicable regulations.
A portion of Hughes' contracts with the U.S. government which are the basis
of Hughes' backlog are subject to appropriations decisions subsequent to award.
Once awarded, contracts may be contested by other bidders. In addition, Hughes'
contracts with the U.S. government are subject to termination by the U.S.
government either for its convenience or for default by Hughes. The costs
recovered for terminations for convenience may not fully reimburse Hughes, and
the profit or fee received by Hughes may be lower than that which it had
expected for the portion of the contract performed. In cases of termination for
default, normal contract remedies generally apply. In addition, the U.S.
government has broad discretion to suspend or debar contractors from engaging
in new government business, including discretion as to the period of suspension
or debarment. A contractor may be debarred based on a conviction or civil
judgment involving certain offenses, including fraud in connection with
obtaining or performing a public contract (or subcontract thereunder), and may
be suspended if indicted for such an offense or if there is other adequate
evidence that such an offense has been committed. Like other government
contractors, Hughes is subject to civil and criminal audits and investigations
of its contracting activity.
Sales to the U.S. government may be affected by changes in acquisition
policies, budget considerations, changing concepts of national defense,
spending priorities, and other factors that are outside the control of Hughes.
56
RESEARCH AND INTELLECTUAL PROPERTY
The ability to generate technological innovations is important to Hughes'
long-term success. The development of new technologies may provide business
opportunities and may result in product improvements which, among other things,
enable the extension of profitable production programs. Research and
development are carried on in each of Hughes' business units in connection with
ongoing product improvement efforts. Hughes Research Laboratories located in
Malibu, California, conducts long-range applied research in the specialized
fields of physics, chemistry, electronics, and information sciences. See
"Business of Hughes--General--United States Government Contracts." In addition,
units of Hughes consult with the research laboratories of General Motors.
Hughes utilizes a large number of patents and trademarks which are held by
General Motors, Hughes or other affiliates. Hughes believes that, in the
aggregate, the rights existing under such patents, trademarks and licenses are
important. Hughes believes, however, that its competitive position is primarily
dependent on research, engineering and production capabilities. Hughes actively
pursues patent and trademark protections for its technological and engineering
innovations, and actively pursues enforcement of its intellectual property
rights.
EMPLOYEES
As of December 31, 1994, Hughes employed approximately 79,000 persons.
Hughes believes that it is one of the world's largest private employers of
engineers and scientists. As of December 31, 1994, approximately 34% of Hughes'
employees had engineering or technical degrees and 18% had advanced degrees.
Hughes has continuing requirements for skilled technical personnel, and
conducts recruiting in a highly competitive environment from a limited pool of
qualified individuals.
As of December 31, 1994, approximately 23% of Hughes' work force in the
United States was represented by labor unions. The principal unions
representing these employees are the United Automobile Workers, which has a
contract with General Motors that expires in September 1996, the Electronic and
Space Technicians Local 1553 of the United Brotherhood of Carpenters and
Joiners, which has a contract with Hughes that expires in October 1998, and the
International Association of Machinists, which has a contract with Hughes that
expires in October 1996. Hughes has not experienced any significant labor
problems in the past five years, and management considers its employee
relations to be good.
Hughes has incentive compensation programs that cover officers and other
executives. These programs include, among other things, grants to executives of
shares and options to acquire shares of Class H Common Stock. The value of
shares of Class H Common Stock and options to acquire such shares which may be
awarded under such programs will vary to the extent of any changes in the
market price of Class H Common Stock during holding or vesting periods
applicable to such awards.
57
MANAGEMENT
The principal executive officers of Hughes include the following:
NAME AGE POSITIONS
---- --- ---------
C. Michael Armstrong 56 Chairman and Chief Executive Officer
Michael T. Smith 51 Vice Chairman
Charles H. Noski 42 Senior Vice President and Chief Financial Officer
Executives of Hughes having primary responsibility for business segments
include the following:
NAME AGE BUSINESS
---- --- --------
Gary W. Dickinson 56 Automotive Electronics
Michael T. Smith 51 Aerospace and Defense Systems
Steven D. Dorfman 59 Telecommunications and Space--HSC and HCI
Jack A. Shaw 56 Telecommunications and Space--HNS
Eddy W. Hartenstein 44 Telecommunications and Space--DIRECTV
SELLING STOCKHOLDER
All of the 15,000,000 shares of the Class H Common Stock offered hereby are
being sold by HHMI. HHMI is a tax-exempt medical research organization. As of
the date hereof, HHMI owns 17,503,800 shares or approximately 18.5% of the
Class H Common Stock outstanding (based on the number of shares outstanding on
February 28, 1995). After the completion of this offering, HHMI will own
2,503,800 shares or approximately 2.6% of the Class H Common Stock outstanding
(based on the number of shares outstanding on February 28, 1995).
HHMI acquired its shares of Class H Common Stock in 1985 in connection with
GM's acquisition of HAC from HHMI. HHMI's investment in shares of Class H
Common Stock constitutes its single largest investment. HHMI is selling the
shares of Class H Common Stock offered hereby in order to diversify its
portfolio of investments and in light of the expiration on March 1, 1995 of
transfer restrictions on 15,000,000 of HHMI's shares of Class H Common Stock
under an agreement between General Motors and HHMI dated February 27, 1989, as
amended (the "1989 Class H Agreement"). After the sale of the shares offered
hereby, HHMI's remaining shares of Class H Common Stock would still constitute
one of HHMI's largest equity investments.
This offering is being made pursuant to an agreement entered into on February
15, 1995 between General Motors and HHMI. Under such agreement, General Motors
is entitled to receive the net proceeds of this offering (after reduction for
expenses, including underwriting discounts and commissions) in excess of $37.50
per share. Based on the price for shares of Class H Common Stock to be sold in
this offering, General Motors and HHMI expect a payment of approximately
$ to be made by HHMI to General Motors within 10 business days after the
closing of this offering. Such agreement also provides that HHMI has the right
to cause General Motors to purchase from HHMI, at a price equal to $30 per
share, a number of shares of Class H Common stock equal to 15,000,000 less the
number of shares sold in this offering. Such put right is exercisable by HHMI
on the earlier of the business day after the date of this Prospectus and June
30, 1995, subject to extension in certain circumstances. The put and call
rights between General Motors and HHMI arising under the 1989 Class H Agreement
with respect to shares of Class H Common Stock owned by HHMI have been
exercised or expired unexercised. See Note 1 to the Hughes Consolidated
Financial Statements in Appendix B.
Pursuant to its agreement with HHMI, General Motors has agreed to indemnify
HHMI against certain liabilities under the Securities Act.
58
HHMI has agreed not to offer, sell, contract to sell or otherwise dispose of
any shares of Class H Common Stock or any securities convertible into or
exchangeable for Class H Common Stock for a period of 90 days from the date
hereof without the prior written consent of Goldman, Sachs & Co. and Salomon
Brothers Inc on behalf of the Underwriters. See "Underwriting." Except as set
forth in the preceding sentence, the shares of Class H Common Stock held by
HHMI are not subject to any transfer restrictions.
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
This is a general discussion of certain U.S. federal income and estate tax
consequences of the purchase, ownership and disposition of Class H Common Stock
by a "Non-United States Holder." A "Non-United States Holder" is a person or
entity that, for U.S. federal income tax purposes, is a nonresident alien
individual, a foreign corporation, a foreign partnership, or a nonresident
fiduciary of a foreign estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which may be changed either retroactively or prospectively. This discussion
does not address all aspects of U.S. federal income and estate taxation that
may be relevant to Non-United States Holders in light of their particular
circumstances (including the direct or indirect ownership of more than 5
percent of the outstanding Class H Common Stock) and does not address any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
The following summary does not constitute, and should not be considered as,
legal or tax advice to prospective investors. Prospective holders should
consult their tax advisers about the particular tax consequences to them of
holding and disposing of Class H Common Stock.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-United States Holder
of Class H Common Stock generally will be subject to withholding tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
For purposes of determining whether tax is to be withheld at a 30% rate or at a
reduced rate as specified by an income tax treaty, General Motors ordinarily
will presume that dividends paid to an address in a foreign country are paid to
a resident of such country absent actual knowledge that such presumption is not
warranted. However, under proposed U.S. Treasury regulations which have not yet
been put into effect, to claim the benefits of a tax treaty, a Non-United
States Holder of Class H Common Stock would be required to file certain forms
accompanied by a statement from a competent authority of the treaty country.
Dividends paid to a holder with an address within the United States generally
will not be subject to withholding tax, unless General Motors has actual
knowledge that the holder is a Non-United States Holder. Absent such actual
knowledge, dividends paid to a holder with a U.S. address may be subject to
backup withholding if the holder is not an exempt recipient as defined in
Section 6049(b)(4) of the Code (which includes corporations) and fails to
provide a correct tax identification number and other information to General
Motors.
Upon the filing of an Internal Revenue Service Form 4224 with General Motors,
there is no withholding tax on dividends that are effectively connected with
the Non-United States Holder's conduct of a trade or business within the United
States. Instead, the effectively connected dividends are subject to regular
U.S. income tax in the same manner as if the Non-United States Holder were a
U.S. resident. Effectively connected dividends received by a non-United States
corporation may be subject to an additional "branch profits tax" at a rate of
30% (or such lower rate as may be specified by an applicable treaty) of its
effectively connected earnings and profits, subject to certain adjustments.
59
Generally, General Motors must report to the U.S. Internal Revenue Service
the amount of dividends paid, the name and address of the recipient, and the
amount, if any, of tax withheld. A similar report is sent to the holder.
Pursuant to tax treaties or other agreements, the U.S. Internal Revenue Service
may make its reports available to tax authorities in the recipient's country of
residence.
GAIN ON DISPOSITION
A Non-United States Holder generally will not be subject to U.S. federal
income tax with respect to gain realized on a sale or other disposition of
Class H Common Stock unless (i) the gain is effectively connected with a trade
or business of such holder in the United States or (ii) in the case of certain
Non-United States Holders who are nonresident alien individuals and hold Class
H Common Stock as a capital asset, such individuals are present in the United
States for 183 or more days in the taxable year of the disposition.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
If the proceeds of a disposition of Class H Common Stock are paid over by or
through a U.S. office of a broker, the payment is subject to information
reporting and to backup withholding unless the disposing holder certifies as to
his name, address, and non-United States status or otherwise establishes an
exemption. Generally, U.S. information reporting and backup withholding will
not apply to a payment of disposition proceeds if the payment is made outside
the United States through a non-U.S. office of a non-U.S. broker. However, U.S.
information reporting requirements (but not backup withholding) will apply to a
payment of disposition proceeds outside the United States if (A) the payment is
made through an office outside the United States of a broker that is either (i)
a U.S. person, (ii) a foreign person which derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the
United States or (iii) a "controlled foreign corporation" for U.S. federal
income tax purposes and (B) the broker fails to maintain documentary evidence
that the holder is a Non-United States Holder and that certain conditions are
met, or that the holder otherwise is entitled to an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
FEDERAL ESTATE TAX
An individual Non-United States Holder who is treated as the owner of or has
made certain lifetime transfers of an interest in Class H Common Stock will be
required to include the value thereof in his gross estate for U.S. federal
estate tax purposes, and may be subject to U.S. federal estate tax unless an
applicable estate tax treaty provides otherwise.
60
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholder has agreed to sell to the Underwriters named below (the
"Underwriters"), and the Underwriters have severally agreed to purchase from
the Selling Stockholder, the aggregate number of shares of Class H Common Stock
set forth below opposite their respective names.
NUMBER OF
SHARES OF
CLASS H
COMMON
UNDERWRITER STOCK
----------- ----------
Goldman, Sachs & Co............................................
Salomon Brothers Inc...........................................
Cowen & Company................................................
Morgan Stanley & Co. Incorporated..............................
----------
Total...................................................... 15,000,000
==========
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Class H Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Class H Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Underwriters.
General Motors and the Selling Stockholder have agreed that, during the
period beginning from the date of this Prospectus and continuing until the date
90 days after the date of this Prospectus, not to offer, sell, contract to sell
or otherwise dispose of any shares of Class H Common Stock or any securities
which are convertible or exchangeable into Class H Common Stock (other than
pursuant to employee benefit plans and under certain other circumstances),
without the written consent of Goldman, Sachs & Co. and Salomon Brothers Inc.
General Motors and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the shares of Class H Common Stock offered hereby will be
passed upon for General Motors by Warren G. Andersen, Attorney, Legal Staff of
General Motors. Certain matters relating to federal income tax considerations
will be passed on by Anton H. Zidansek, Assistant General Tax Counsel, Tax
Staff of General Motors. Mr. Andersen and Mr. Zidansek are the beneficial
owners of shares, including shares subject to options, of $1 2/3 Par Value
Common Stock and Class E Common Stock.
The legality of the shares offered hereby will be passed upon for the
Underwriters by Davis Polk & Wardwell. Davis Polk & Wardwell acts as counsel to
the Executive Compensation Committee of the Board of Directors of General
Motors and has acted as counsel for General Motors and its subsidiaries in
various matters.
61
EXPERTS
The consolidated financial statements and the financial statement schedule
included in the GM 1994 Form 10-K, incorporated by reference herein, have been
audited by Deloitte & Touche LLP (as to financial statements and the financial
statement schedule of General Motors and as to financial statements of Hughes)
and KPMG Peat Marwick LLP (as to financial statements of EDS), independent
auditors, as stated in their respective reports appearing therein, and have
been so incorporated in reliance upon such reports given upon the authority of
such firms as experts in accounting and auditing.
The consolidated financial statements of Hughes as of December 31, 1994 and
1993 and for the three years in the period ended December 31, 1994, included in
Appendix B herein, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing therein, and have been so
included in reliance upon such report given upon the authority of that firm as
experts in accounting and auditing.
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APPENDIX A
DESCRIPTION OF GENERAL MOTORS CAPITAL STOCK
The authorized capital stock of General Motors, which may be issued upon
resolution of the General Motors Board of Directors (the "Board of Directors"),
consists of 6,000,000 shares of Preferred Stock, without par value, issuable in
series; 100,000,000 shares of Preference Stock, $0.10 par value, issuable in
series; 2,000,000,000 shares of $1 2/3 Par Value Common Stock; 1,000,000,000
shares of Class E Common Stock, $0.10 par value; and 600,000,000 shares of
Class H Common Stock, $0.10 par value. The $1 2/3 Par Value Common Stock, the
Class E Common Stock and the Class H Common Stock are referred to collectively
as the "Common Stock."
On February 28, 1995, the following shares of capital stock of General Motors
were outstanding: 11,075,000 shares of Series B 9 1/8% Preference Stock,
represented by 44,300,000 Depositary Shares; 3,188,060 shares of Series C
Convertible Preference Stock, represented by 31,880,600 Depositary Shares;
3,925,000 shares of Series D 7.92% Preference Stock, represented by 15,700,000
Depositary Shares; 5,750,000 shares of Series G 9 1/2% Preference Stock,
represented by 23,000,000 Depositary Shares; 752,651,957 shares of $1 2/3 Par
Value Common Stock; 94,528,112 shares of Class H Common Stock; and 262,999,707
shares of Class E Common Stock. In addition, 44,881,509 shares of Class E
Common Stock have been reserved for issuance upon conversion of currently
outstanding Series C Convertible Preference Stock.
PREFERRED STOCK
On May 1, 1993, General Motors exercised its option to redeem all outstanding
shares of Preferred Stock--$5.00 Series for $120.00 per share plus accrued
dividends and to redeem all outstanding shares of Preferred Stock--$3.75 Series
for $100.00 per share plus accrued dividends. Consequently, there are currently
no outstanding shares of Preferred Stock and the Board of Directors has no
current intent to issue any Preferred Stock.
The General Motors Certificate of Incorporation authorizes the Board of
Directors to issue shares of Preferred Stock from time to time in distinctly
designated series, and each series of Preferred Stock would rank equally and be
identical in all respects to all other series except as to the dividend rate
and redemption price. Preferred Stock would rank senior to Preference Stock and
Common Stock with respect to payment of dividends and distributions in
liquidation. If any shares of Preferred Stock were issued, no cash dividends
could be paid on any class of Common Stock or any series of Preference Stock if
current assets of General Motors in excess of its current liabilities were less
than $75 per share of outstanding Preferred Stock.
As noted above, the Board of Directors has no current intent to issue
Preferred Stock, but if any shares were issued, they would not be entitled to
vote except that (i) they would vote together with the holders of Common Stock
on the disposition of General Motors' assets as an entirety; (ii) if General
Motors has defaulted in paying dividends on Preferred Stock for six months, the
holders of Preferred Stock, voting as a class, would be entitled to elect one-
quarter of the directors; and (iii) certain mortgaging or pledging of, or the
placing of certain liens upon, General Motors' property would require the
approval of the holders of three-fourths of any outstanding Preferred Stock.
PREFERENCE STOCK
Preference Stock would rank junior to Preferred Stock, if any were
outstanding, and ranks senior to Common Stock with respect to payment of
dividends and distributions in liquidation. Subject to these limitations, the
Board of Directors may from time to time authorize the issuance of shares of
Preference Stock in such series, and having such dividend and liquidation
preferences, voting rights, redemption
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prices, conversion rights, and other terms and provisions as may be contained
in the resolutions of the Board of Directors providing for their issuance.
General Motors currently has outstanding four series of Preference Stock.
Outstanding shares of Series B 9 1/8% Preference Stock are referred to as
"Series B Preference Shares." Outstanding shares of Series C Convertible
Preference Stock are referred to as "Series C Preference Shares." Outstanding
shares of Series D 7.92% Preference Stock are referred to as "Series D
Preference Shares." Outstanding shares of Series G 9.12% Preference Stock are
referred to as "Series G Preference Shares."
Series B 9 1/8% Preference Stock
Dividends. Subject to the rights of the holders of Preferred Stock, if any
were outstanding, dividends will be paid on the outstanding Series B Preference
Shares when, as and if declared by the Board of Directors out of General
Motors' assets legally available therefor. Dividends may be subject to
restrictions contained in any future debt agreements of General Motors and to
limitations contained in future series or classes of Preferred Stock or
Preference Stock.
Holders of Series B Preference Shares will be entitled to receive cumulative
cash dividends, at the annual rate of 9 1/8% of the per share stated value
(equivalent to $9.125 per annum per Series B Preference Share), payable
quarterly for each of the quarters ending March, June, September and December
of each year, payable in arrears on the first day that is not a legal holiday
of each succeeding May, August, November and February, respectively. Each such
dividend will be paid to holders of record on each record date, which shall be
not less than 10 nor more than 50 days preceding the payment date, as fixed by
the Board of Directors. Dividends on the Series B Preference Shares, whether or
not declared, will be cumulative from the date of original issue of the Series
B Preference Shares. The amount of dividends payable for any period shorter
than a full quarterly dividend period will be determined on the basis of a 360-
day year consisting of twelve 30-day months. Accrued but unpaid dividends will
not bear interest.
Preferential dividends will accrue whether or not General Motors has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are declared. Dividends
accumulate to the extent they are not paid on the dividend payment date
following the calendar quarter for which they accrue. Accumulated preferential
dividends will not bear interest. Dividends will not be paid on any class of
Common Stock or other stock ranking junior to the Series B Preference Shares
(other than a dividend payable in shares of any class of Common Stock) and
General Motors will not redeem, repurchase or otherwise acquire any shares of
Common Stock or other stock ranking junior to the Series B Preference Shares
(other than a redemption or purchase of shares of Common Stock made in
connection with employee incentive or benefit plans of General Motors or its
subsidiaries), unless the full preferential dividends accumulated on all
outstanding Series B Preference Shares have been paid. Dividends will not be
declared on any series of Preference Stock for any prior dividend payment
period unless there shall have been declared on all outstanding shares of
Preference Stock ranking on a parity with such series, in respect of all
dividend payment periods of such parity stock terminating with or before such
prior dividend payment period, like proportionate dividends determined ratably
in proportion to the respective preferential dividends accumulated to date on
such series and the dividends accumulated on all such outstanding parity
Preference Stock.
Conversion. The Series B Preference Shares are not convertible into shares of
any other class of capital stock of General Motors.
Redemption. The Series B Preference Shares may not be redeemed prior to
January 1, 1999. On or after January 1, 1999, General Motors may, at its
option, on not less than 35 nor more than 60 days' notice, redeem the Series B
Preference Shares, as a whole or in part, at any time or from time to time, for
cash in an amount equal to $100 per Series B Preference Share, plus an amount
equal to all dividends accrued and unpaid thereon to the date fixed for
redemption. If less than all outstanding
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Series B Preference Shares are to be redeemed, shares to be redeemed will be
selected by General Motors by lot or pro rata or by any other method determined
by General Motors in its sole discretion to be equitable. Holders of Series B
Preference Shares have no right to require redemption of such shares.
Liquidation Preference. In the event of the liquidation, dissolution or
winding up of the business of General Motors, whether voluntary or involuntary,
the holders of Series B Preference Shares will be entitled to the liquidation
preference described below, after the holders of Preferred Stock, if any were
outstanding, receive the full preferential amounts to which they are entitled
and before any distribution to holders of Common Stock. The holders of the
Series B Preference Shares will be entitled to receive for each share $100 plus
an amount equal to all dividends accrued and unpaid thereon to the date of
final distribution to such holders (subject to the right of the holders of
record of any Series B Preference Share on a record date for payment of
dividends thereon to receive a dividend payable on the date of final
distribution), but such holders shall not be entitled to any further payment.
If there are insufficient assets to permit full payment to holders of the
Series B Preference Shares and the holders of any other series of Preference
Stock which is on parity with the Series B Preference Shares as to liquidation
rights, then the holders of the Series B Preference Shares and such other
shares shall be paid ratably in proportion to the full distributable amounts to
which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
Voting. The Series B Preference Shares do not entitle holders thereof to
voting rights, except (i) with respect to any amendment or alteration of any
provision of the General Motors Certificate of Incorporation which would
adversely affect the powers, preferences or special rights of the Series B
Preference Shares, which requires the prior approval of the holders of at least
two-thirds of the outstanding Series B Preference Shares, and (ii) in the event
General Motors fails to pay accumulated preferential dividends on the Series B
Preference Shares in full for any six quarterly dividend payment periods,
whether or not consecutive, and all such dividends remain unpaid (a
"Preferential Dividend Default"), or as required by law. In the event of a
Preferential Dividend Default, the number of directors of General Motors will
be increased by two and the holders of the outstanding Series B Preference
Shares, voting together as a class with all other series of Preference Stock
ranking junior to or on a parity with the Series B Preference Shares and then
entitled to vote on the election of such directors, will be entitled to elect
such two additional directors until the full dividends accumulated on all
outstanding Series B Preference Shares have been paid.
Series C Convertible Preference Stock
Dividends. Subject to the rights of the holders of Preferred Stock, if any
were outstanding, dividends will be paid on the outstanding Series C Preference
Shares when, as and if declared by the Board of Directors out of General
Motors' assets legally available therefor. Dividends may be subject to
restrictions contained in any future debt agreements of General Motors and to
limitations contained in future series or classes of Preferred Stock or
Preference Stock.
Holders of Series C Preference Shares will be entitled to receive cumulative
cash dividends from the date of original issue, accruing at the annual rate of
$32.50 per share, and no more, payable quarterly for each of the quarters
ending March, June, September and December of each year, payable in arrears on
the first day that is not a legal holiday of each succeeding May, August,
November and February, respectively. Each such dividend will be paid to holders
of record on each record date, which shall be not less than 10 nor more than 50
days preceding the payment date as fixed by the Board of Directors. Dividends
on the Series C Preference Shares, whether or not declared, will be cumulative
from the date of original issuance thereof. The amount of dividends payable for
any period shorter than a full quarterly dividend period will be determined on
the basis of a 360-day year consisting of twelve 30-day months. Accrued but
unpaid dividends will not bear interest.
Preferential dividends will accrue whether or not General Motors has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are
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declared. Dividends accumulate to the extent they are not paid on the dividend
payment date following the calendar quarter for which they accrue. Accumulated
preferential dividends will not bear interest. Dividends will not be paid on
any class of Common Stock or other stock ranking junior to the Series C
Preference Shares (other than a dividend payable in shares of any class of
Common Stock) and General Motors will not redeem, repurchase or otherwise
acquire any shares of Common Stock or other stock ranking junior to the Series
C Preference Shares (other than a redemption or purchase of shares of Common
Stock made in connection with employee incentive or benefit plans of General
Motors or its subsidiaries), unless the full preferential dividends accumulated
on all outstanding Series C Preference Shares have been paid. Dividends will
not be declared on any series of Preference Stock for any prior dividend
payment period unless there shall have been declared on all outstanding shares
of Preference Stock ranking on a parity with such series, in respect of all
dividend payment periods of such parity stock terminating with or before such
prior dividend payment period, like proportionate dividends determined ratably
in proportion to the respective preferential dividends accumulated to date on
such series and the dividends accumulated on all such outstanding parity
Preference Stock.
Conversion. The Series C Preference Shares are convertible at any time at the
option of the holders thereof into shares of Class E Common Stock at a
conversion price of $35.52 per share of Class E Common Stock (equivalent to a
conversion rate of 14.078 shares of Class E Common Stock for each Series C
Preference Share), subject to adjustment as described below. For purposes of
such conversion, each Series C Preference Share will be valued at $500.00.
Notwithstanding the foregoing, if Series C Preference Shares are called for
redemption by General Motors as provided below, holders of those shares will
not have the right to convert such shares into Class E Common Stock after the
close of business on the effective date of such call for redemption. In order
to prevent dilution of conversion rights, the conversion price will be adjusted
in the event of (i) a dividend in shares of Class E Common Stock paid with
respect to the Class E Common Stock, (ii) the subdivision or combination of the
outstanding shares of Class E Common Stock, (iii) the issuance to holders of
Class E Common Stock of certain rights or warrants to purchase Class E Common
Stock at below market prices, or (iv) the conversion or exchange of all
outstanding shares of Class E Common Stock for any securities of General Motors
by a recapitalization or otherwise.
Redemption. At any time on or after February 19, 1996, General Motors may at
its option call for redemption, on not less than 15 nor more than 60 days'
notice, any or all of the outstanding Series C Preference Shares at the call
price set forth in the following paragraph, plus any accumulated and unpaid
preferential dividends.
The call price per Series C Preference Share shall be as follows, if the
effective date of the redemption occurs during the 12-month period beginning
February 19 of the years indicated, plus in each case accrued and unpaid
dividends on such shares to and including the effective date: 1996-- $519.50;
1997--$516.25; 1998--$513.00; 1999--$509.75; 2000--$506.50; 2001--$503.25; 2002
and thereafter--$500.00. General Motors may pay the call price in cash, in
shares of $1 2/3 Par Value Common Stock, or in a specified combination thereof.
If fewer than all outstanding Series C Preference Shares are called by
General Motors, the shares to be so called shall be selected by lot or pro rata
or by any other method determined by General Motors in its sole discretion to
be equitable. Holders of Series C Preference Shares have no right to require
redemption of such shares.
Liquidation Preference. In the event of the liquidation, dissolution or
winding up of the business of General Motors, whether voluntary or involuntary,
after the holders of Preferred Stock, if any were outstanding, receive the full
preferential amounts to which they are entitled and before any distribution to
holders of Common Stock, the holders of Series C Preference Shares, together
with holders of all other currently outstanding shares of Preference Stock,
will be entitled to the respective liquidation preferences described below.
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The holders of Series C Preference Shares shall be entitled to receive for
each share $500.00 plus an amount equal to all dividends accrued and unpaid
thereon to the date of final distribution to such holders, and no more. If
there are insufficient assets to permit full payment to holders of the Series C
Preference Shares and the holders of any other series of Preference Stock which
is on parity with the Series C Preference Shares as to liquidation rights, then
the holders of the Series C Preference Shares and such other shares shall be
paid ratably in proportion to the full distributable amounts to which holders
of all such parity shares are respectively entitled upon such dissolution,
liquidation or winding up.
Voting. The Series C Preference Shares do not entitle holders thereof to
voting rights, except (i) with respect to any amendment or alteration of any
provision of the General Motors Certificate of Incorporation which would
adversely affect the powers, preferences or special rights of the Series C
Preference Shares, which requires the prior approval of the holders of at least
two-thirds of the outstanding shares of such series, and (ii) in the event
General Motors fails to pay preferential dividends on the Series C Preference
Shares in full for any six quarterly dividend payment periods, whether or not
consecutive, and all such dividends remain unpaid (a "Preferential Dividend
Default"), or as required by law. In the event of a Preferential Dividend
Default, the number of directors of General Motors will be increased by two and
the holders of the outstanding Series C Preference Shares, voting together as a
class with all other series of Preference Stock then entitled to vote on the
election of directors, will be entitled to elect such two additional directors
until the full dividends accumulated on all outstanding Series C Preference
Shares are paid.
Series D 7.92% Preference Stock
Dividends. Subject to the rights of the holders of Preferred Stock, if any
were outstanding, dividends will be paid on the outstanding Series D Preference
Shares when, as and if declared by the Board of Directors out of General
Motors' assets legally available therefor. Dividends may be subject to
restrictions contained in any future debt agreements of General Motors and to
limitations contained in future series or classes of Preferred Stock or
Preference Stock.
Holders of Series D Preference Shares will be entitled to receive cumulative
cash dividends, at the annual rate of 7.92% of the per share stated value
(equivalent to $7.92 per annum per Series D Preference Share), payable
quarterly for each of the quarters ending March, June, September and December
of each year, payable in arrears on the first day that is not a legal holiday
of each succeeding May, August, November and February, respectively. Each such
dividend will be paid to holders of record on each record date, which shall be
not less than 10 nor more than 50 days preceding the payment date, as fixed by
the Board of Directors. Dividends on the Series D Preference Shares, whether or
not declared, will be cumulative from the date of original issue of the Series
D Preference Shares. The amount of dividends payable for any period shorter
than a full quarterly dividend period will be determined on the basis of a 360-
day year consisting of twelve 30-day months. Accrued but unpaid dividends will
not bear interest.
Preferential dividends will accrue whether or not General Motors has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are declared. Dividends
accumulate to the extent they are not paid on the dividend payment date
following the calendar quarter for which they accrue. Accumulated preferential
dividends will not bear interest. Dividends will not be paid on any class of
Common Stock or other stock ranking junior to the Series D Preference Shares
(other than a dividend payable in shares of any class of Common Stock) and
General Motors will not redeem, repurchase or otherwise acquire any shares of
Common Stock or other stock ranking junior to the Series D Preference Shares
(other than a redemption or purchase of shares of Common Stock made in
connection with employee incentive or benefit plans of General Motors or its
subsidiaries), unless the full preferential dividends accumulated on all
outstanding Series D Preference Shares have been paid. Dividends will not be
declared on any series of Preference Stock
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for any prior dividend payment period unless there shall have been declared on
all outstanding shares of Preference Stock ranking on a parity with such
series, in respect of all dividend payment periods of such parity stock
terminating with or before such prior dividend payment period, like
proportionate dividends determined ratably in proportion to the respective
preferential dividends accumulated to date on such series and the dividends
accumulated on all such outstanding parity Preference Stock.
Conversion. The Series D Preference Shares are not convertible into shares of
any other class of capital stock of General Motors.
Redemption. The Series D Preference Shares may not be redeemed prior to
August 1, 1999. On or after August 1, 1999, General Motors may, at its option,
on not less than 35 nor more than 60 days' notice, redeem the Series D
Preference Shares, as a whole or in part, at any time or from time to time, for
cash in an amount equal to $100 per Series D Preference Share, plus an amount
equal to all dividends accrued and unpaid thereon to the date fixed for
redemption. If less than all outstanding Series D Preference Shares are to be
redeemed, shares to be redeemed will be selected by General Motors by lot or
pro rata or by any other method determined by General Motors in its sole
discretion to be equitable. Holders of Series D Preference Shares have no right
to require redemption of such shares.
Liquidation Preference. In the event of the liquidation, dissolution or
winding up of the business of General Motors, whether voluntary or involuntary,
the holders of Series D Preference Shares will be entitled to the liquidation
preference described below, after the holders of Preferred Stock, if any were
outstanding, receive the full preferential amounts to which they are entitled
and before any distribution to holders of Common Stock. The holders of the
Series D Preference Shares will be entitled to receive for each share $100 plus
an amount equal to all dividends accrued and unpaid thereon to the date of
final distribution to such holders (subject to the right of the holders of
record of any Series D Preference Share on a record date for payment of
dividends thereon to receive a dividend payable on the date of final
distribution), but such holders shall not be entitled to any further payment.
If there are insufficient assets to permit full payment to holders of the
Series D Preference Shares and the holders of any other series of Preference
Stock which is on parity with the Series D Preference Shares as to liquidation
rights, then the holders of the Series D Preference Shares and such other
shares shall be paid ratably in proportion to the full distributable amounts to
which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
Voting. The Series D Preference Shares do not entitle holders thereof to
voting rights, except (i) with respect to any amendment or alteration of any
provision of the General Motors Certificate of Incorporation which would
adversely affect the powers, preference or special rights of the Series D
Preference Shares, which requires the prior approval of the holders of at least
two-thirds of the outstanding Series D Preference Shares, and (ii) in the event
General Motors fails to pay accumulated preferential dividends on the Series D
Preference Shares in full for any six quarterly dividend payment periods,
whether or not consecutive, and all such dividends remain unpaid (a
"Preferential Dividend Default"), or as required by law. In the event of a
Preferential Dividend Default, the number of directors of General Motors will
be increased by two and the holders of the outstanding Series D Preference
Shares, voting together as a class with all other series of Preference Stock
ranking junior to or on a parity with the Series D Preference Shares and then
entitled to vote on the election of such directors, will be entitled to elect
such two additional directors until the full dividends accumulated on all
outstanding Series D Preference Shares have been paid.
Series G 9.12% Preference Stock
Dividends. Subject to the rights of the holders of Preferred Stock, if any
were outstanding, dividends will be paid on the outstanding Series G Preference
Shares when, as and if declared by the Board of Directors out of General
Motors' assets legally available therefor. Dividends may be subject to
restrictions contained in any future debt agreements of General Motors and to
limitations contained in future series or classes of Preferred Stock or
Preference Stock.
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Holders of Series G Preference Shares will be entitled to receive cumulative
cash dividends, at the annual rate of 9.12% of the per share stated value
(equivalent to $9.12 per annum per Series G Preference Share), payable
quarterly for each of the quarters ending March, June, September and December
of each year, payable in arrears on the first day that is not a legal holiday
of each succeeding May, August, November and February, respectively. Each such
dividend will be paid to holders of record on each record date, which shall be
not less than 10 nor more than 50 days preceding the payment date as fixed by
the Board of Directors. Dividends on the Series G Preference Shares, whether or
not declared, will be cumulative from the date of original issue of the Series
G Preference Shares. The amount of dividends payable for any period shorter
than a full quarterly dividend period will be determined on the basis of a 360-
day year consisting of twelve 30-day months. Accrued but unpaid dividends will
not bear interest.
Preferential dividends will accrue whether or not General Motors has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are declared. Dividends
accumulate to the extent they are not paid on the dividend payment date
following the calendar quarter for which they accrue. Accumulated preferential
dividends will not bear interest. Dividends will not be paid on any class of
Common Stock or other stock ranking junior to the Series G Preference Shares
(other than a dividend payable in shares of any class of Common Stock) and
General Motors will not redeem, repurchase or otherwise acquire any shares of
Common Stock or other stock ranking junior to the Series G Preference Shares
(other than a redemption or purchase of shares of Common Stock made in
connection with employee incentive or benefit plans of General Motors or its
subsidiaries), unless the full preferential dividends accumulated on all
outstanding Series G Preference Shares have been paid. Dividends will not be
declared on any series of Preference Stock for any prior dividend payment
period unless there shall have been declared on all outstanding shares of
Preference Stock ranking on a parity with such series, in respect of all
dividend payment periods of such parity stock terminating with or before such
prior dividend payment period, like proportionate dividends determined ratably
in proportion to the respective preferential dividends accumulated to date on
such series and the dividends accumulated on all such outstanding parity
Preference Stock.
Conversion. The Series G Preference Shares are not convertible into shares of
any other class of capital stock of General Motors.
Redemption. The Series G Preference Shares may not be redeemed prior to
January 1, 2001. On or after January 1, 2001, General Motors may, at its
option, on not less than 35 nor more than 60 days' notice, redeem the Series G
Preference Shares, as a whole or in part, at any time or from time to time, for
cash in an amount equal to $100 per Series G Preference Share, plus an amount
equal to all dividends accrued and unpaid thereon to the date fixed for
redemption. If less than all outstanding Series G Preference Shares are to be
redeemed, shares to be redeemed will be selected by General Motors by lot or
pro rata or by any other method determined by General Motors in its sole
discretion to be equitable. Holders of Series G Preference Shares have no right
to require redemption of such shares.
Liquidation Preference. In the event of the liquidation, dissolution or
winding up of the business of General Motors, whether voluntary or involuntary,
the holders of Series G Preference Shares will be entitled to the liquidation
preference described below, after the holders of Preferred Stock, if any were
outstanding, receive the full preferential amounts to which they are entitled
and before any distribution to holders of Common Stock. The holders of the
Series G Preference Shares will be entitled to receive for each share $100 plus
an amount equal to all dividends accrued and unpaid thereon to the date of
final distribution to such holders (subject to the right of the holders of
record of any Series G Preference Share on a record date for payment of
dividends thereon to receive a dividend payable on the date of final
distribution), but such holders shall not be entitled to any further payment.
If there are insufficient assets to permit full payment to holders of the
Series G Preference Shares and the holders of any other series of Preference
Stock which is on parity with the Series G Preference Shares as to liquidation
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rights, then the holders of the Series G Preference Shares and such other
shares shall be paid ratably in proportion to the full distributable amounts to
which holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
Voting. The Series G Preference Shares do not entitle holders thereof to
voting rights, except (i) with respect to any amendment or alteration of any
provision of the General Motors Certificate of Incorporation which would
adversely affect the powers, preferences or special rights of the Series G
Preference Shares, which requires the prior approval of the holders of at least
two-thirds of the outstanding Series G Preference Shares, and (ii) in the event
General Motors fails to pay accumulated preferential dividends on the Series G
Preference Shares in full for any six quarterly dividend payment periods,
whether or not consecutive, and all such dividends remain unpaid (a
"Preferential Dividend Default"), or as required by law. In the event of a
Preferential Dividend Default, the number of directors of General Motors will
be increased by two and the holders of the outstanding Series G Preference
Shares, voting together as a class with all other series of Preference Stock
ranking junior to or on a parity with the Series G Preference Shares and then
entitled to vote on the election of such directors, will be entitled to elect
such two additional directors until the full dividends accumulated on all
outstanding Series G Preference Shares have been paid.
COMMON STOCK
General Motors has three classes of common stock: $1 2/3 Par Value Common
Stock, Class E Common Stock and Class H Common Stock.
Dividends. Subject to the rights of the holders of Preferred Stock, if any
were outstanding, and Preference Stock, dividends may be paid in cash or
otherwise, when, as and if declared by the Board of Directors, on the $1 2/3
Par Value Common Stock, the Class E Common Stock and the Class H Common Stock
out of the assets of General Motors legally available therefor as provided
below.
Dividends on the $1 2/3 Par Value Common Stock may be declared and paid only
to the extent of the assets of General Motors legally available therefor,
reduced by the amount available for dividends on the Class E Common Stock and
the Class H Common Stock. Dividends paid on the $1 2/3 Par Value Common Stock
and adjustments to surplus arising from the repurchase of shares of $1 2/3 Par
Value Common Stock or other appropriate circumstances will be charged to the
amount available for payment of dividends on $1 2/3 Par Value Common Stock.
General Motors' policy is to distribute dividends on the $1 2/3 Par Value
Common Stock based on the outlook and indicated capital needs of General
Motors' business. At the November 2, 1992 meeting of the General Motors Board
of Directors, the quarterly dividend on the $1 2/3 Par Value Common Stock was
reduced from $0.40 per share to $0.20 per share to conserve cash and strengthen
GM's competitive position. On February 4, 1991, the General Motors Board of
Directors had reduced the quarterly dividend to $0.40 per share from $0.75 per
share of $1 2/3 Par Value Common Stock.
Dividends on Class E Common Stock may be declared and paid out of assets of
General Motors legally available therefor only to the extent of the sum of (i)
the paid in surplus attributable to Class E Common Stock plus (ii) the
Available Separate Consolidated Net Income of EDS earned after General Motors'
acquisition of EDS. The Available Separate Consolidated Net Income of EDS for
each quarterly accounting period is equal to (x) the separate consolidated net
income of EDS for that period, determined in accordance with generally accepted
accounting principles (without giving effect to any adjustment which would
result from accounting for the acquisition of EDS using the purchase method)
multiplied by (y) a fraction, the numerator of which is a number equal to the
weighted average number of shares of the Class E Common Stock outstanding
during that period and the denominator of which was 481.7 million for the
fourth quarter of 1994; provided that such fraction shall never be greater than
one. The denominator shall be adjusted from time to time as deemed appropriate
by the Board of
A-8
Directors (i) to reflect subdivisions and combinations of the Class E Common
Stock and stock dividends payable in shares of Class E Common Stock to holders
of Class E Common Stock, (ii) to reflect the fair market value of contributions
of cash or property by General Motors or its subsidiaries to EDS or its
subsidiaries and to reflect such contributions or contributions of General
Motors capital stock by General Motors to, or for the benefit of, employees of
EDS or its subsidiaries in connection with employee benefit plans or
arrangements and (iii) to reflect payments by EDS to General Motors of amounts
applied to the repurchase by General Motors of shares of Class E Common Stock
and purchases by EDS of shares of Class E Common Stock. The Board of Directors
has determined the denominator will be automatically adjusted at the end of
each quarter to reflect on a weighted-average basis the number of shares of
Class E Common Stock acquired or sold by EDS during such quarter. For all
purposes, determination of the Available Separate Consolidated Net Income of
EDS will be in the sole discretion of the Board of Directors, subject to
criteria set forth in GM's Certificate of Incorporation.
Under the current dividend policy as adopted by the General Motors Board of
Directors, the annual per share dividends on the Class E Common Stock, when, as
and if declared by the Board of Directors in its sole discretion, will equal
approximately 30% of the Available Separate Consolidated Net Income of EDS for
the preceding year. Under the current dividend policy, the quarterly dividend
on the Class E Common Stock for 1994 was $0.12 per share. In February 1995, the
Board of Directors increased the quarterly dividend on Class E Common Stock
from $0.12 per share to $0.13 per share. Although such dividend policy is
subject to change in the sole discretion of the General Motors Board of
Directors, it has no present intention of doing so. However, it reserves the
right to reconsider this policy from time to time and to increase or decrease
the dividends paid on the Class E Common Stock in light of the earnings and
financial position of EDS, General Motors' consolidated financial position,
including liquidity, and other factors. The Capital Stock Committee of the
Board of Directors is responsible for reviewing any dividend policy which may
have differing effects on holders of the three classes of General Motors common
stock.
The number of shares of common stock of EDS issued and outstanding, all of
which shares are owned by General Motors through a wholly owned subsidiary, is
adjusted from time to time so as to remain equal to the denominator of the
fraction described above. It is the policy of the Board of Directors of EDS to
pay quarterly dividends on such shares in a per share amount equal to the
dividends per share paid by General Motors with respect to the Class E Common
Stock. EDS makes no payments to General Motors or the holder of EDS common
stock with respect to dividend payments by General Motors on the Series C
Preference Shares.
Dividends on Class H Common Stock may be declared and paid out of assets of
General Motors legally available therefor only to the extent of the sum of (i)
the paid in surplus of General Motors attributable to Class H Common Stock plus
(ii) the Available Separate Consolidated Net Income of Hughes earned after
December 31, 1985, the date that General Motors acquired HAC. The Available
Separate Consolidated Net Income of Hughes for each quarterly accounting period
is equal to (x) the separate consolidated net income of Hughes for that period,
determined in accordance with generally accepted accounting principles (without
giving effect to any adjustment which would result from accounting for GM's
acquisition of HAC using the purchase method) multiplied by (y) a fraction, the
numerator of which is a number equal to the weighted average number of shares
of Class H Common Stock outstanding during that period and the denominator of
which was 399.9 million for the fourth quarter of 1994; provided that such
fraction shall never be greater than one. The denominator shall be adjusted
from time to time as deemed appropriate by the General Motors Board of
Directors under circumstances that are generally similar to those which would
give rise to an adjustment of the denominator for the Class E Common Stock, as
described above. For all purposes, determination of the Available Separate
Consolidated Net Income of Hughes will be in the sole discretion of the General
Motors Board of Directors, subject to criteria set forth in GM's Certificate of
Incorporation.
Under the current dividend policy as adopted by the General Motors Board of
Directors, the annual per share dividends on the Class H Common Stock, when, as
and if declared by the Board of Directors
A-9
in its sole discretion, will equal approximately 35% of the Available Separate
Consolidated Net Income of Hughes for the preceding year. The dividends paid on
the Class H Common Stock during 1994, 1993 and 1992 exceeded an annual rate
based on 35% of the Available Separate Consolidated Net Income of Hughes for
the preceding year (excluding the effect of a $749.4 million after-tax special
Hughes restructuring charge recorded in 1992). The quarterly dividend on the
Class H Common Stock for 1994 was $0.20 per share and for 1993 and 1992 was
$0.18 per share. In February 1995, the Board of Directors increased the
quarterly dividend on Class H Common Stock from $0.20 per share to $0.23 per
share (which is based on an annual rate of approximately 35% of the Available
Separate Consolidated Net Income of Hughes for 1994). Although such dividend
policy is subject to change in the sole discretion of the Board of Directors,
it has no present intention of doing so. However, it reserves the right to
reconsider this policy from time to time and to increase or decrease the
dividends paid on the Class H Common Stock in light of the earnings and
consolidated financial position of Hughes, General Motors' consolidated
financial position, including liquidity, and other factors. The Capital Stock
Committee of the Board of Directors is responsible for reviewing any dividend
policy which may have differing effects on holders of the three classes of
General Motors common stock.
The number of shares of common stock of Hughes issued and outstanding as of
December 31, 1994 was 1,000, all of which shares are owned by General Motors.
It is the policy of the Board of Directors of Hughes to pay quarterly dividends
to General Motors on such shares in an aggregate amount equal to the dividend
per share paid by General Motors with respect to the Class H Common Stock
multiplied by the denominator used to determine the Available Separate
Consolidated Net Income of Hughes.
Subject to the foregoing, the Board of Directors may declare dividends
payable exclusively to the holders of $1 2/3 Par Value Common Stock, payable
exclusively to the holders of Class H Common Stock, payable exclusively to the
holders of Class E Common Stock, or payable to the holders of any two or more
of such classes in equal or unequal amounts, notwithstanding the respective
amounts of surplus available for payment of dividends on each class, the
respective voting and liquidation rights of each class, the amount of any prior
dividends declared on each class, or any other factor.
Voting. Under the General Motors Certificate of Incorporation and subject to
adjustment as described below, holders of $1 2/3 Par Value Common Stock may
cast one vote per share on all matters submitted to General Motors'
stockholders for a vote, holders of Class E Common Stock may cast one-eighth of
a vote per share on all such matters, and holders of Class H Common Stock may
cast one-half of a vote per share on all such matters. Holders of $1 2/3 Par
Value Common Stock, Class E Common Stock and Class H Common Stock will vote
together as a single class on all matters, except that (i) any amendment to the
Certificate of Incorporation which adversely affects the rights, powers or
privileges of any class must also be approved by the holders of that class
voting separately as a class; (ii) any increase in the number of authorized
shares of Class E Common Stock must be approved by both (A) the holders of a
majority of $1 2/3 Par Value Common Stock, Class E Common Stock and Class H
Common Stock voting together as a single class and (B) the holders of a
majority of Class E Common Stock voting separately as a class; and (iii) any
increase in the number of authorized shares of Class H Common Stock must be
approved by both (A) the holders of a majority of $1 2/3 Par Value Common
Stock, Class E Common Stock and Class H Common Stock voting together as a
single class and (B) the holders of a majority of Class H Common Stock voting
separately as a class.
Recapitalization by Exchange of Stock. The Board of Directors, in its sole
discretion, may recapitalize General Motors by exchanging all of the
outstanding shares of Class E Common Stock for shares of $1 2/3 Par Value
Common Stock at the Exchange Rate (as defined below). However, the Board of
Directors may effect such an exchange only if, during each of the five full
fiscal years preceding the exchange, the aggregate cash dividends on the Class
E Common Stock have been no less than the product of the Payout Ratio (as
defined below) for such year multiplied by the Available Separate
A-10
Consolidated Net Income of EDS for the prior fiscal year. If General Motors
sells, transfers, assigns or otherwise disposes of the business of EDS
substantially as an entirety to a person, entity or group of which General
Motors is not a majority owner, all of the outstanding shares of Class E Common
Stock will automatically be exchanged for shares of $1 2/3 Par Value Common
Stock at the Exchange Rate.
At any time after December 31, 1995, the Board of Directors, in its sole
discretion, may recapitalize General Motors by exchanging all of the
outstanding shares of Class H Common Stock for shares of $1 2/3 Par Value
Common Stock at the Exchange Rate. However, the Board of Directors may effect
such an exchange only if, during each of the five full fiscal years preceding
the exchange, the aggregate cash dividends on the Class H Common Stock have
been no less than the product of the Payout Ratio for such year multiplied by
the Available Separate Consolidated Net Income of Hughes for the prior fiscal
year. If General Motors sells, transfers, assigns or otherwise disposes of
substantially all of the business of HAC, its subsidiaries and successors or of
substantially all of the other business of Hughes to a person, entity or group
of which General Motors is not a majority owner, all of the outstanding shares
of Class H Common Stock will automatically be exchanged for shares of $1 2/3
Par Value Common Stock at the Exchange Rate.
The "Payout Ratio" equals the lesser of (A) 0.25 or (B) the quotient of (x)
the total cash dividends paid on $1 2/3 Par Value Common Stock for such fiscal
year, divided by (y) the net income of General Motors for such fiscal year,
minus the Available Separate Consolidated Net Income of EDS for such fiscal
year and the Available Separate Consolidated Net Income of Hughes for such
fiscal year.
The "Exchange Rate" per share of Class E Common Stock and Class H Common
Stock will equal 120% of the ratio of (i) the average market price per share of
Class E Common Stock or of Class H Common Stock, respectively, on a specified
valuation date to (ii) the average market price per share of $1 2/3 Par Value
Common Stock on such date.
No fractional shares of $1 2/3 Par Value Common Stock will be issued in any
such exchange. In lieu thereof, a holder of shares of Class E Common Stock or
Class H Common Stock, as the case may be, will receive cash equal to the
product of (A) the fraction of a share of $1 2/3 Par Value Common Stock to
which the holder would otherwise have been entitled, multiplied by (B) the
average market price per share of $1 2/3 Par Value Common Stock on such
valuation date.
Liquidation Rights. In the event of the liquidation, dissolution or winding
up of the business of General Motors, whether voluntary or involuntary, after
the holders of Preferred Stock, if any were outstanding, and Preference Stock
receive the full preferential amounts to which they are entitled, holders of
the $1 2/3 Par Value Common Stock, Class E Common Stock and Class H Common
Stock will receive the assets remaining for distribution to the General Motors
stockholders on a per share basis in proportion to the respective per share
liquidation units of such classes. Subject to adjustment as described below,
each share of $1 2/3 Par Value Common Stock, Class E Common Stock and Class H
Common Stock would currently be entitled to liquidation units of approximately
one (1.0), one-eighth (0.125) and one-half (0.50), respectively. Holders of
Class E Common Stock and Class H Common Stock have no direct rights in the
equity or assets of EDS or Hughes, respectively, but rather, together with
holders of $1 2/3 Par Value Common Stock, have certain liquidation rights in
the equity and assets of General Motors (which includes 100% of the stock of
both EDS and Hughes).
Subdivision or Combination. If General Motors subdivides (by stock split or
otherwise) or combines (by reverse stock split or otherwise) the outstanding
shares of the $1 2/3 Par Value Common Stock, the Class E Common Stock or the
Class H Common Stock, the voting and liquidation rights of shares of Class E
Common Stock and Class H Common Stock relative to $1 2/3 Par Value Common Stock
will be appropriately adjusted.
In the event of the issuance of shares of Class E Common Stock or Class H
Common Stock as a dividend on shares of $1 2/3 Par Value Common Stock, the
liquidation rights of the applicable class of Common Stock would be adjusted so
that the relative aggregate liquidation rights of each stockholder would not be
changed as a result of such dividend.
A-11
APPENDIX B
HUGHES FINANCIAL INFORMATION
INDEX PAGE
----- ----
Hughes Unaudited Supplemental Pro Forma Financial Data:
Introduction............................................................. B-2
Condensed Statement of Consolidated Operations........................... B-3
Condensed Consolidated Balance Sheet..................................... B-3
Selected Financial Data.................................................. B-4
Selected Segment Data.................................................... B-5
Hughes Consolidated Financial Statements:
Independent Auditors' Report............................................. B-6
Statement of Consolidated Operations and Available Separate
Consolidated Net Income (Loss).......................................... B-7
Consolidated Balance Sheet............................................... B-8
Statement of Consolidated Cash Flows..................................... B-9
Notes to Consolidated Financial Statements............................... B-10
B-1
HUGHES UNAUDITED SUPPLEMENTAL PRO FORMA FINANCIAL DATA
INTRODUCTION
The Hughes Consolidated Financial Statements (pages B-6 through B-25) reflect
the application of purchase accounting adjustments related to the acquisition
of HAC by GM as described in Note 1 to such Consolidated Financial Statements.
However, as provided in the General Motors Certificate of Incorporation, the
earnings attributable to Class H Common Stock for purposes of determining the
amount available for the payment of dividends on Class H Common Stock
specifically excludes such adjustments. More specifically, amortization of
purchase accounting adjustments associated with GM's purchase of HAC in 1985
was $123.8 million in 1994, 1993, and 1992. Such amounts were charged against
the earnings available for the payment of dividends on $1 2/3 Par Value Common
Stock. Unamortized purchase accounting adjustments associated with GM's
purchase of HAC were $3,005.3 million, $3,129.1 million, and $3,252.9 million
at December 31, 1994, 1993, and 1992, respectively. In order to provide
additional analytical data, the following Hughes unaudited supplemental pro
forma financial data, which excludes the purchase accounting adjustments
related to the acquisition of HAC by GM, are provided. See Note 7 to the Hughes
Consolidated Financial Statements.
B-2
HUGHES UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
------------------------------
1994 1993 1992
--------- --------- ---------
(DOLLARS IN MILLIONS EXCEPT
PER SHARE DATA)
Net Sales
Outside Customers............................ $ 9,108.7 $ 9,062.8 $ 8,267.6
General Motors and Affiliates................ 4,953.6 4,387.4 3,901.4
Other Income--net.............................. 37.1 67.3 128.1
--------- --------- ---------
Total Revenues................................. 14,099.4 13,517.5 12,297.1
Costs and Expenses (a)......................... 12,431.9 11,990.1 11,126.2
Restructuring Charge........................... -- -- 1,237.0
Operating Profit (Loss) (b).................... 1,630.4 1,460.1 (194.2)
Interest Expense............................... 15.1 33.2 60.6
Income (Loss) Before Income Taxes.............. 1,652.4 1,494.2 (126.7)
Income Taxes (Credit).......................... 572.8 572.6 (77.2)
--------- --------- ---------
Income (Loss) Before Cumulative Effect of
Accounting Changes............................ 1,079.6 921.6 (49.5)
Cumulative Effect of Accounting Changes........ (30.4) -- (872.1)
--------- --------- ---------
Earnings (Loss) Used for Computation of
Available Separate Consolidated Net Income
(Loss)........................................ $ 1,049.2 $ 921.6 $ (921.6)
========= ========= =========
Earnings (Loss) Attributable to Class H Common
Stock on a Per Share Basis
Before Cumulative Effect on Accounting
Changes....................................... $ 2.70 $ 2.30 $ (0.11)
Cumulative Effect of Accounting Changes...... (0.08) -- (2.18)
--------- --------- ---------
Net Earnings (Loss) Attributable to Class H
Common Stock................................ $ 2.62 $ 2.30 $ (2.29)
========= ========= =========
--------
(a) Excludes Interest Expense and Restructuring Charge.
(b) Net Sales less Total Costs and Expenses other than Interest Expense.
HUGHES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF DECEMBER 31,
-------------------
1994 1993
--------- ---------
(DOLLARS IN
MILLIONS)
ASSETS
------
Cash and Cash Equivalents.................................. $ 1,501.8 $ 1,008.7
Other Current Assets....................................... 4,741.8 4,705.6
--------- ---------
Total Current Assets....................................... 6,243.6 5,714.3
Property--Net.............................................. 2,611.8 2,634.4
Telecommunications and Other Equipment--Net................ 1,071.7 767.6
Intangible Assets, Investments, and Other Assets........... 1,918.1 1,871.7
--------- ---------
Total Assets........................................... $11,845.2 $10,988.0
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Total Current Liabilities.................................. $ 3,548.1 $ 3,549.1
Long-Term Debt and Capitalized Leases...................... 353.5 416.8
Post-Retirement Benefits Other Than Pensions, Other
Liabilities, Deferred Income Taxes, and Deferred Credit... 2,973.1 2,823.1
Total Stockholder's Equity(a).............................. 4,970.5 4,199.0
--------- ---------
Total Liabilities and Stockholder's Equity............. $11,845.2 $10,988.0
========= =========
--------
(a) General Motors' equity in its wholly-owned subsidiary, Hughes. 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 General Motors
(which includes 100% of the stock of Hughes).
B-3
HUGHES UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
(AMOUNTS IN MILLIONS EXCEPT PER SHARE
AMOUNTS AND PERCENTAGES)
Operating Profit (Loss) (a).......... $ 1,630.4 $ 1,460.1 $ (194.2)
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting
Changes............................. 1,652.4 1,494.2 (126.7)
Earnings (Loss) Used for Computation
of Available Separate Consolidated
Net Income (Loss)*.................. $ 1,049.2 $ 921.6 $ (921.6)
Average Number of Shares of Class H
Common Stock
Outstanding (Numerator)............. 92.1 88.6 75.3
Class H Dividend Base (Denominator).. 399.9 399.9 399.9
Available Separate Consolidated Net
Income (Loss)*...................... $ 241.6 $ 204.5 $ (142.3)
Earnings (Loss) Attributable to Class
H Common Stock on a Per Share
Basis*.............................. 2.62 2.30 (2.29)
Stockholder's Equity (b) (c)......... 4,970.5 4,199.0 3,562.1
Dividends Per Share of Class H Common
Stock............................... 0.80 0.72 0.72
Working Capital...................... 2,695.5 2,165.2 1,692.4
Depreciation and Amortization (d).... 470.2 503.5 487.1
Capital Expenditures (e)............. 746.3 580.0 558.5
Operating Profit (Loss) Margin (f)... 11.6% 10.9% (1.6)%
Pre-Tax Profit (Loss) Margin (g)..... 11.8 11.1 (1.0)
Net Profit (Loss) Margin (h)*........ 7.5 6.9 (7.6)
Return on Equity (b) (i)*............ 22.9 23.7 (21.9)
Pre-Tax return on Total Assets (b)
(j)................................. 14.5 13.6 (1.2)
Effective income tax rate............ 34.7 38.3 37.0
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) 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
General Motors (which includes 100% of the stock of Hughes).
(c) General Motors' equity in its wholly-owned subsidiary, Hughes.
(d) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $123.8 million in 1994, 1993, and
1992. See Note 7 to the Hughes Financial Statements in this Appendix B.
(e) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million, and $101.6 million in 1994,
1993, and 1992, respectively.
(f) Operating Profit (Loss) as a percentage of Net Sales.
(g) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of Net Sales.
(h) Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss) as a percentage of Net Sales.
(i) Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss) as a percentage of average Stockholder's Equity (General
Motors' equity in its wholly-owned subsidiary, Hughes).
(j) Income (Loss) Before Income Taxes and Cumulative Effect of Accounting
Changes as a percentage of average Total Assets.
* Includes impact of unfavorable cumulative effect of accounting changes of
$30.4 million, or $0.08 per share, in 1994 and $872.1 million, or $2.18
per share, in 1992.
B-4
HUGHES UNAUDITED PRO FORMA SELECTED SEGMENT DATA
(EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS)
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT
PERCENTAGES)
AUTOMOTIVE ELECTRONICS
Revenues......................................... $5,221.7 $4,453.4 $3,935.3
Revenues as a percentage of Hughes Revenues...... 37.0% 32.9% 32.0%
Net Sales........................................ $5,170.6 $4,451.0 $3,926.7
Operating Profit (a)............................. 794.8 624.3 463.2
Operating Profit Margin (b)...................... 15.4% 14.0% 11.8%
Depreciation and Amortization.................... $ 142.2 $ 146.8 $ 121.4
Capital Expenditures............................. 166.4 148.2 263.9
AEROSPACE AND DEFENSE SYSTEMS
Revenues......................................... $6,023.6 $6,472.2 $5,827.0
Revenues as a percentage of Hughes Revenues...... 42.7% 47.9% 47.4%
Net Sales........................................ $6,007.3 $6,442.9 $5,781.8
Restructuring Charge ............................ -- -- 911.8
Operating Profit (Loss) (a)...................... 663.6 664.2 (466.6)
Operating Profit (Loss) Margin (b)............... 11.0% 10.3% (8.1)%
Depreciation and Amortization (c)................ $ 158.5 $ 201.2 $ 219.1
Capital Expenditures............................. 159.5 131.4 100.3
TELECOMMUNICATIONS AND SPACE
Revenues......................................... $2,596.2 $2,238.3 $1,982.4
Revenues as a percentage of Hughes Revenues...... 18.4% 16.6% 16.1%
Net Sales........................................ $2,633.8 $2,135.8 $1,972.9
Restructuring Charge ............................ -- -- 195.3
Operating Profit (a)............................. 271.0 209.6 50.7
Operating Profit Margin (b)...................... 10.3% 9.8% 2.6%
Depreciation and Amortization (c) ............... $ 140.8 $ 114.0 $ 122.8
Capital Expenditures (d)......................... 399.3 271.8 182.7
--------
(a) Net Sales less Total Costs and Expenses other than Interest Expense.
(b) Operating Profit (Loss) as a percentage of Net Sales.
(c) Excludes amortization arising from purchase accounting adjustments related
to GM's acquisition of HAC amounting to $100.9 million for the Aerospace
and Defense Systems segment and $21.0 million for the Telecommunications
and Space segment in 1994, 1993, and 1992.
(d) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million, and $101.6 million in 1994,
1993, and 1992, respectively.
B-5
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To The Stockholder and Board of Directors of Hughes Electronics Corporation:
We have audited the Consolidated Balance Sheet of Hughes Electronics
Corporation and subsidiaries as of December 31, 1994 and 1993 and the related
Statements of Consolidated Operations and Available Separate Consolidated Net
Income (Loss) and Consolidated Cash Flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of Hughes Electronics Corporation's management. Our
responsibility is to express an opinion on these financial statements 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 Hughes Electronics Corporation and
subsidiaries at December 31, 1994 and 1993 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective January 1, 1994
Hughes Electronics Corporation changed its method of accounting for
postemployment benefits. Also, as discussed in Notes 1 and 5 to the financial
statements, effective January 1, 1992 Hughes Electronics Corporation changed
its revenue recognition policy for certain commercial businesses and its method
of accounting for postretirement benefits other than pensions.
Deloitte & Touche LLP
Los Angeles, California
January 30, 1995
B-6
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
YEARS ENDED DECEMBER 31,
------------------------------
1994 1993 1992
--------- --------- ---------
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
REVENUES
Net sales
Outside customers............................ $ 9,108.7 $ 9,062.8 $ 8,267.6
General Motors and affiliates (Note 2)....... 4,953.6 4,387.4 3,901.4
Other income--net.............................. 37.1 67.3 128.1
--------- --------- ---------
TOTAL REVENUES............................. 14,099.4 13,517.5 12,297.1
--------- --------- ---------
COSTS AND EXPENSES
Cost of sales and other operating charges,
exclusive of items
listed below (Note 2)......................... 10,943.4 10,557.5 9,602.9
Selling, general, and administrative expenses.. 1,018.3 929.1 1,036.2
Depreciation and amortization.................. 470.2 503.5 487.1
Amortization of GM purchase accounting
adjustments related to HAC (Note 1)........... 123.8 123.8 123.8
Interest expense--net.......................... 15.1 33.2 60.6
Special provision for restructuring (Note 12).. -- -- 1,237.0
--------- --------- ---------
TOTAL COSTS AND EXPENSES................... 12,570.8 12,147.1 12,547.6
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.............. 1,528.6 1,370.4 (250.5)
Income taxes (credit) (Note 6)................. 572.8 572.6 (77.2)
--------- --------- ---------
Income (Loss) before cumulative effect of
accounting changes............................ 955.8 797.8 (173.3)
Cumulative effect of accounting changes (Notes
1 and 5)...................................... (30.4) -- (872.1)
--------- --------- ---------
NET INCOME (LOSS).............................. 925.4 797.8 (1,045.4)
Adjustments to exclude the effect of GM
purchase accounting adjustments related to HAC
(Note 7)...................................... 123.8 123.8 123.8
--------- --------- ---------
EARNINGS (LOSS) USED FOR COMPUTATION OF
AVAILABLE SEPARATE CONSOLIDATED NET INCOME
(LOSS)........................................ $ 1,049.2 $ 921.6 $ (921.6)
========= ========= =========
AVAILABLE SEPARATE CONSOLIDATED NET INCOME
(LOSS) (Note 7)
Average number of shares of General Motors
Class H Common Stock outstanding (in millions)
(Numerator)................................... 92.1 88.6 75.3
Class H dividend base (in millions)
(Denominator)................................. 399.9 399.9 399.9
Available Separate Consolidated Net Income
(Loss)........................................ $ 241.6 $ 204.5 $ (142.3)
========= ========= =========
EARNINGS (LOSS) ATTRIBUTABLE TO GENERAL MOTORS
CLASS H COMMON STOCK ON A PER SHARE BASIS
(Note 7)
Before cumulative effect of accounting changes. $ 2.70 $ 2.30 $ (0.11)
Cumulative effect of accounting changes (Notes
1 and 5)...................................... (0.08) -- (2.18)
--------- --------- ---------
Net earnings (loss) attributable to General
Motors Class H Common Stock................... $ 2.62 $ 2.30 $ (2.29)
========= ========= =========
Reference should be made to the Notes to Consolidated Financial Statements.
B-7
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
--------------------
ASSETS 1994 1993
------ --------- ---------
(DOLLARS IN
MILLIONS EXCEPT PER
SHARE AMOUNT)
CURRENT ASSETS
Cash and cash equivalents (Note 1)....................... $ 1,501.8 $ 1,008.7
Accounts and notes receivable
Trade receivables (less allowances).................... 1,039.5 736.7
General Motors and affiliates (Note 2)................. 153.9 404.1
Contracts in process, less advances and progress payments
of $2,311.2 and $2,739.2................................ 2,265.4 2,376.8
Inventories (less allowances) (Note 1)................... 1,087.9 1,060.4
Prepaid expenses, including deferred income taxes of
$89.0 and $36.7......................................... 195.1 127.6
--------- ---------
TOTAL CURRENT ASSETS................................. 6,243.6 5,714.3
--------- ---------
PROPERTY--NET (Notes 8 and 9)............................ 2,611.8 2,634.4
--------- ---------
TELECOMMUNICATIONS AND OTHER EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION OF $198.0 AND $150.2........... 1,071.7 767.6
--------- ---------
INTANGIBLE ASSETS, NET OF AMORTIZATION OF $1,276.7 AND
$1,144.6
(Note 1)................................................ 3,271.3 3,374.4
--------- ---------
INVESTMENTS AND OTHER ASSETS, INCLUDING DEFERRED INCOME
TAXES OF $214.0 AND $203.7--PRINCIPALLY AT COST (LESS
ALLOWANCES)............................................. 1,652.1 1,626.4
--------- ---------
TOTAL ASSETS......................................... $14,850.5 $14,117.1
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable
Outside................................................ $ 779.9 $ 717.1
General Motors and affiliates (Note 2)................. 80.5 117.5
Advances on contracts.................................... 645.1 660.6
Notes and loans payable (Note 9)......................... 125.7 77.8
Income taxes payable (Note 6)............................ 31.4 102.1
Accrued liabilities (Note 10)............................ 1,885.5 1,874.0
--------- ---------
TOTAL CURRENT LIABILITIES............................ 3,548.1 3,549.1
--------- ---------
LONG-TERM DEBT AND CAPITALIZED LEASES (Note 9)........... 353.5 416.8
--------- ---------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Note 5)..... 1,541.4 1,446.3
--------- ---------
OTHER LIABILITIES, DEFERRED INCOME TAXES, AND DEFERRED
CREDITS................................................. 1,431.7 1,376.8
--------- ---------
STOCKHOLDER'S EQUITY (Note 11)
Capital stock (outstanding, 1,000 shares, $0.10 par
value) and additional
paid-in capital......................................... 6,326.5 6,323.1
Net income retained for use in the business.............. 1,743.6 1,138.2
--------- ---------
Subtotal................................................. 8,070.1 7,461.3
Minimum pension liability adjustment..................... (76.1) (120.4)
Accumulated foreign currency translation adjustments..... (18.2) (12.8)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY........................... 7,975.8 7,328.1
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........... $14,850.5 $14,117.1
========= =========
Reference should be made to the Notes to Consolidated Financial Statements.
B-8
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES
Income (Loss) before cumulative effect of
accounting changes............................. $ 955.8 $ 797.8 $ (173.3)
Adjustments to reconcile income (loss) before
cumulative effect of accounting changes to net
cash provided by operating activities
Depreciation and amortization................. 470.2 503.5 487.1
Amortization of GM purchase accounting
adjustments related to HAC................... 123.8 123.8 123.8
Special provision for restructuring........... -- -- 1,237.0
Pension expense (credit), net of cash
contributions................................ 20.3 (25.6) (137.7)
Provision for postretirement benefits other
than pensions, net of cash payments.......... 78.4 91.0 78.7
Net (gain) loss on sale of property........... 14.3 36.1 (18.0)
Net gain on sale of investments and
businesses................................... (3.6) (50.3) --
Change in deferred income taxes and other*.... (60.1) 207.1 (350.2)
Change in other operating assets and
liabilities
Accounts receivable......................... (238.1) (153.7) 161.9
Contracts in process*....................... 111.4 70.9 46.6
Inventories*................................ (27.5) 104.6 26.8
Prepaid expenses............................ (15.2) 3.4 (10.0)
Accounts payable............................ 25.8 81.5 63.2
Income taxes*............................... (70.7) 30.1 (54.5)
Accrued and other liabilities*.............. (28.2) (143.5) (49.2)
Other*...................................... 20.2 (183.2) (232.8)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES. 1,376.8 1,493.5 1,199.4
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in companies, net of cash acquired... (7.0) (149.3) (69.9)
Expenditures for property and special tools..... (490.5) (448.9) (456.9)
Increase in telecommunications and other
equipment...................................... (351.9) (230.3) (71.6)
Proceeds from disposal of property.............. 90.6 115.0 108.4
Proceeds from sale of investments and
businesses..................................... 3.6 281.6 --
Proceeds from sale and leaseback of satellite
transponders................................... -- -- 314.8
Decrease (increase) in notes receivable......... 206.9 7.6 (45.2)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES........... (548.3) (424.3) (220.4)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in notes and loans payable......... (2.1) (189.4) (525.8)
Increase in long-term debt...................... 7.5 84.0 236.0
Decrease in long-term debt...................... (20.8) (369.8) (46.8)
Cash dividends paid to General Motors........... (320.0) (288.0) (288.0)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES........... (335.4) (763.2) (624.6)
-------- -------- --------
Net increase in cash and cash equivalents....... 493.1 306.0 354.4
Cash and cash equivalents at beginning of the
year........................................... 1,008.7 702.7 348.3
-------- -------- --------
Cash and cash equivalents at end of the year.. $1,501.8 $1,008.7 $ 702.7
======== ======== ========
--------
*1994 and 1992 amounts exclude the effects of accounting changes.
Reference should be made to the Notes to Consolidated Financial Statements.
B-9
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Hughes
Electronics Corporation (formerly GM Hughes Electronics Corporation) (Hughes)
and its domestic and foreign subsidiaries that are more than 50% owned,
principally Hughes Aircraft Company (HAC) and Delco Electronics Corporation
(Delco Electronics). Investments in associated companies in which at least 20%
of the voting securities is owned are accounted for under the equity method of
accounting.
Effective December 31, 1985, General Motors Corporation (General Motors or
GM) acquired HAC and its subsidiaries for $2.7 billion in cash and cash
equivalents and 100 million shares of GM Class H common stock having an
estimated value of $2,561.9 million, which carried certain guarantees.
On February 28, 1989, GM and the Howard Hughes Medical Institute (Institute)
reached an agreement to terminate GM's then-existing guarantee obligations with
respect to the Institute's holding of GM Class H common stock. Under terms of
the agreement as amended, the Institute received put options exercisable under
most circumstances at $30 per share on March 1, 1991, 1992, 1993, and 1995 for
20 million, 10 million, 10.5 million, and 15 million shares, respectively. The
Institute exercised these put options at $30 per share on March 1, 1991, March
2, 1992, and March 1, 1993. GM has the option to call the Institute's remaining
15 million shares until February 28, 1995, at a call price of $37.50 per share.
The acquisition of HAC was accounted for as a purchase. The purchase price
exceeded the net book value of HAC by $4,244.7 million, which was assigned as
follows: $500.0 million to patents and related technology, $125.0 million to
the future economic benefits to GM of the HAC Long-Term Incentive Plan (LTIP),
and $3,619.7 million to other intangible assets, including goodwill. The
amounts assigned to patents and related technology are being amortized on a
straight-line basis over 15 years and other intangible assets, including
goodwill, over 40 years. The amount assigned to the future economic benefits of
the LTIP was fully amortized in 1990.
For the purpose of determining earnings per share and amounts available for
dividends on the common stocks of General Motors, the amortization of these
intangible assets is charged against earnings attributable to GM $1 2/3 par
value common stock.
The earnings of Hughes and its subsidiaries since the acquisition of HAC form
the base from which any dividends on the GM Class H common stock are declared.
These earnings include income earned from sales to GM and its affiliates, but
exclude purchase accounting adjustments (see Notes 2 and 7).
REVENUE RECOGNITION
Outside sales are attributable principally to long-term contracts, primarily
recorded using the percentage-of-completion (cost-to-cost) method of
accounting. Under this method, sales are recorded equivalent to costs incurred
plus a portion of the profit expected to be realized, determined based on the
ratio of costs incurred to estimated total costs at completion.
Profits expected to be realized on contracts are based on estimates of total
sales value and costs at completion. These estimates are reviewed and revised
periodically throughout the lives of the contracts, and adjustments to profits
resulting from such revisions are recorded in the accounting period
B-10
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in which the revisions are made. Estimated losses on contracts are recorded in
the period in which they are identified.
Certain contracts contain cost or performance incentives which provide for
increases in profits for surpassing stated objectives and decreases in profits
for failure to achieve such objectives. Amounts associated with incentives are
included in estimates of total sales values when there is sufficient
information to relate actual performance to the objectives.
Effective January 1, 1992, Hughes changed its revenue recognition policy for
certain commercial long-term contracts from the percentage-of-completion (cost-
to-cost) method to the units-of-delivery method. Hughes believes this method
more appropriately aligns the accounting methods of Hughes' commercial
businesses with other commercial enterprises. The unfavorable effect of this
change was $40.0 million after-tax ($0.10 per share of GM Class H common
stock).
Sales under United States Government contracts were 37.6%, 44.2% and 46.1% of
total sales in 1994, 1993, and 1992, respectively.
CASH FLOWS
For purposes of preparing the Statement of Consolidated Cash Flows, all
highly liquid investments purchased with original maturities of 90 days or less
are considered to be cash equivalents.
Net cash provided by operating activities reflects cash payments for interest
and income taxes as follows:
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Interest............................................. $ 40.7 $ 72.5 $ 75.2
Income taxes......................................... $686.2 $245.0 $333.0
With respect to material noncash transactions, as described more fully in
Note 13, in 1992 Hughes purchased 21,508,563 shares of GM Class H common stock
in exchange for $425.0 million of notes payable to GM and cash of $25.0 million
in connection with the acquisition of the missile business of General Dynamics
Corporation (GD).
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS
Trade receivables are principally related to long-term contracts and
programs. Amounts billed under retainage provisions of contracts are not
significant, and substantially all amounts are collectible within one year.
Contracts in process are stated at costs incurred plus estimated profit, less
amounts billed to customers and advances and progress payments applied.
Engineering, tooling, manufacturing, and applicable overhead costs, including
administrative, research and development, and selling expenses, are charged to
costs and expenses when incurred. Contracts in process include amounts relating
to contracts with long production cycles, and $371.7 million of the 1994 amount
is expected to be billed after one year. Contracts in process in 1994 also
include approximately $96.2 million relating to claims, requests for equitable
adjustments and amounts withheld pending negotiation or settlement with
customers. Under certain contracts with the U.S. Government, progress payments
are received based on costs incurred on the respective contracts. Title to the
inventories related to such contracts (included in contracts in process) vests
with the U.S. Government.
B-11
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market principally using the
first-in, first-out (FIFO) or average cost methods.
MAJOR CLASSES OF INVENTORIES 1994 1993
---------------------------- -------- --------
(DOLLARS IN
MILLIONS)
Productive material, work in process, and supplies...... $ 968.0 $ 957.1
Finished product........................................ 119.9 103.3
-------- --------
Total................................................. $1,087.9 $1,060.4
======== ========
PROPERTY AND DEPRECIATION
Property is carried at cost. Depreciation of property is provided for based
on estimated useful lives (3 to 45 years) generally using accelerated methods.
TELECOMMUNICATIONS AND OTHER EQUIPMENT
Telecommunications and other equipment includes satellite transponders and
other equipment subject to operating leases or service agreements. Such
equipment is carried at Hughes' direct and indirect manufacturing cost and is
amortized over the estimated useful lives (7 to 23 years) using the straight-
line method. The net book value of equipment subject to operating leases was
$572.9 million and $523.8 million at December 31, 1994 and 1993, respectively.
INTANGIBLE ASSETS
Intangible assets, principally the excess of cost over the fair value of
identifiable net assets of purchased businesses, are amortized using the
straight-line method over periods not exceeding 40 years.
INCOME TAXES
The provision (credit) for income taxes is based on reported income (loss)
before income taxes. Deferred income tax assets and liabilities reflect the
impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for tax
purposes, as measured by applying currently enacted tax laws. Provision has
been made for U.S. Federal income taxes to be paid on that portion of the
undistributed earnings of foreign subsidiaries that has not been deemed
permanently reinvested.
Hughes and its domestic subsidiaries join with General Motors in filing a
consolidated U.S. Federal income tax return. The portion of the consolidated
income tax liability recorded by Hughes is generally equivalent to the
liability it would have incurred on a separate return basis.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to costs and expenses
as incurred and amounted to $699.3 million in 1994, $612.1 million in 1993, and
$680.5 million in 1992.
FINANCIAL INSTRUMENTS
Hughes enters into foreign exchange-forward contracts and interest rate swap
agreements in connection with management of its exposure to fluctuations in
foreign exchange rates and interest
B-12
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
rates. Foreign exchange-forward contracts are accounted for as hedges to the
extent they are designated as, and are effective as, hedges of firm foreign
currency commitments. The cash flows from interest rate swaps are accounted for
as interest expense, and gains and losses from terminated contracts are
deferred and amortized over the remaining life of the underlying debt. Open
swap positions are reviewed regularly to ensure that they remain effective.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency transaction net gains (losses) included in consolidated
operating results amounted to ($4.2) million in 1994, $2.4 million in 1993, and
$11.7 million in 1992.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, Hughes adopted Statement of Financial Accounting
Standards (SFAS) No. 112, Employers' Accounting for Postemployment Benefits.
The Statement requires accrual of the costs of benefits provided to former or
inactive employees after employment, but before retirement. The unfavorable
cumulative effect of adopting this Standard was $30.4 million, net of income
taxes of $19.2 million, or $0.08 per share of GM Class H common stock. The
charge is primarily related to extended-disability benefits which, under the
new accounting Standard, are accrued on a service-driven basis.
NOTE 2: RELATED-PARTY TRANSACTIONS
SALES, PURCHASES, AND ADMINISTRATIVE EXPENSES
The amounts due from and to GM and affiliates result from sales of products
to and purchases of materials and services from units controlled by GM.
Purchases from GM and affiliates, including computer systems services provided
by Electronic Data Systems Corporation, a wholly-owned subsidiary of GM, and
common administrative expenses allocated by GM, amounted to approximately
$257.1 million, $285.9 million, and $447.0 million in 1994, 1993, and 1992,
respectively.
INCENTIVE PLANS
Certain eligible employees of Hughes participate in various incentive plans
of GM and its subsidiaries.
OTHER
Delco Electronics employees participate in GM's pension and other
postretirement benefit programs.
NOTE 3: INCENTIVE PLAN
Under the Hughes Incentive Plan (the Plan) as approved by the GM Board of
Directors in 1987 and 1992, shares, rights, or options to acquire up to 20
million shares of GM Class H common stock may be granted through May 31, 1997
(extended an additional two years in 1995).
The GM Executive Compensation Committee may grant options and other rights to
acquire shares of GM Class H common stock under the provisions of the Plan. The
option price is equal to 100% of the fair market value of GM Class H common
stock on the date the options were granted. These nonqualified options
generally expire 10 years from the dates of grant and are subject to earlier
termination under certain conditions.
B-13
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Changes in the status of outstanding options were as follows:
SHARES
GM CLASS H COMMON STOCK OPTION PRICES UNDER OPTION
----------------------- ------------- ------------
Outstanding at January 1, 1992................. $17.07-$30.25 5,061,209
Granted........................................ 23.63- 25.38 1,927,860
Exercised...................................... 17.07- 24.35 (136,764)
Terminated..................................... 17.07- 30.25 (335,550)
----------
Outstanding at December 31, 1992............... 17.07- 30.25 6,516,755
Granted........................................ 28.00- 28.56 2,027,260
Exercised...................................... 17.07- 30.25 (1,960,162)
Terminated..................................... 17.07- 30.25 (217,845)
----------
Outstanding at December 31, 1993............... 17.07- 30.25 6,366,008
Granted........................................ 36.75 1,612,640
Exercised...................................... 17.07- 30.25 (712,107)
Terminated..................................... 17.07- 36.75 (202,220)
----------
Outstanding at December 31, 1994............... $17.07-$36.75 7,064,321
==========
Options for 4,739,664 shares of GM Class H common stock were exercisable at
December 31, 1994, and the maximum number of shares for which additional
options and other rights may be granted under the Plan was 5,472,562 shares.
NOTE 4: PENSION PROGRAMS
Hughes' total pension expense (credit) amounted to $54.9 million in 1994,
($8.1) million in 1993, and ($54.0) million in 1992.
Substantially all the employees of Delco Electronics participate in the
defined benefit pension plans of General Motors. Plans covering 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 salaried employees are generally based on years
of service and the employee's salary history. Certain nonqualified pension
plans covering executives are based on targeted wage replacement percentages
and are unfunded. The accumulated plan benefit obligation and plan net assets
for the employees of Delco Electronics are not determinable separately;
however, GM charged Delco Electronics $93.3 million, $69.8 million, and $30.6
million for benefits provided to these employees in 1994, 1993, and 1992,
respectively.
Hughes also maintains contributory and non-contributory defined benefit
retirement plans covering substantially all of its non-automotive employees.
Benefits are based on years of service and compensation earned during a
specified period of time before retirement. Hughes also has an unfunded,
nonqualified pension plan covering certain executives. The net pension credit
of Hughes included the components shown below.
1994 1993 1992
------- ------- -------
(DOLLARS IN MILLIONS)
Benefits earned during the year............... $ 146.7 $ 121.1 $ 99.9
Interest accrued on benefits earned in prior
years........................................ 377.0 369.1 357.9
Actual return on assets....................... (104.7) (953.7) (647.5)
Net amortization and deferral................. (457.4) 385.6 105.1
------- ------- -------
Net retirement plan credit.................. $ (38.4) $ (77.9) $ (84.6)
======= ======= =======
B-14
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs are actuarially determined using the projected unit credit method and
are funded in accordance with U.S. Government cost accounting standards to the
extent such costs are tax-deductible. SFAS No. 87, Employers' Accounting for
Pensions, requires the recognition of an additional liability to increase the
amounts recorded up to the unfunded accumulated benefit obligation. The
adjustment required to recognize the minimum liability required by SFAS No. 87
is recorded as an intangible asset to the extent of unrecognized prior service
cost and the remainder, net of applicable deferred income taxes, is recorded as
a reduction of Stockholder's Equity. At December 31, 1994 and 1993, the
additional minimum liability recorded was $152.4 million and $208.1 million,
respectively, of which $76.1 million and $120.4 million, respectively, was
recorded as a reduction of Stockholder's Equity.
Plan assets are invested primarily in listed common stock, cash and short-
term investment funds, U.S. Government securities, and other investments.
The weighted average discount rates used in determining the actuarial present
values of the projected benefit obligation shown in the table below were 8.75%
and 7.5% at December 31, 1994 and 1993, respectively. The rate of increase in
future compensation levels was 5.0% in 1994 and 1993. The expected long-term
rate of return on assets used in determining pension cost was 9.75% for 1994
and 10.5% for 1993.
The following table sets forth the funded status of the Hughes plans and the
amounts included in the Consolidated Balance Sheet at December 31, 1994 and
1993.
1994 1993
------------------ ------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED ACCUM. EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
Actuarial present value of benefits
based on service to date and present
pay levels
Vested............................... $3,572.5 $ 195.9 $3,936.3 $ 246.4
Non-vested........................... 337.9 0.9 313.6 3.9
-------- ------- -------- -------
Accumulated benefit obligation......... 3,910.4 196.8 4,249.9 250.3
Additional amounts related to projected
pay increases......................... 438.1 22.4 431.5 8.5
-------- ------- -------- -------
Total projected benefit obligation
based on service to date.............. 4,348.5 219.2 4,681.4 258.8
Plan assets at fair value.............. 5,717.4 -- 6,001.4 --
-------- ------- -------- -------
Plan assets in excess of (less than)
projected benefit obligation.......... 1,368.9 (219.2) 1,320.0 (258.8)
Unamortized net amount resulting from
changes in plan experience and
actuarial assumptions................. (152.4) 150.2 (135.8) 209.2
Unamortized net asset at date of
adoption.............................. (217.3) -- (280.0) --
Unamortized net amount resulting from
changes in plan provisions............ (14.2) 24.6 4.5 7.4
Adjustment for unfunded pension
liabilities........................... -- (152.4) -- (208.1)
-------- ------- -------- -------
Net prepaid pension cost (accrued
liability)............................ $ 985.0 $(196.8) $ 908.7 $(250.3)
======== ======= ======== =======
B-15
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: OTHER POSTRETIREMENT BENEFITS
Effective January 1, 1992, Hughes adopted SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. This Statement requires that
the cost of such benefits be recognized in the financial statements during the
period employees provide service to Hughes. Hughes' previous practice was to
recognize the cost of such postretirement benefits when incurred (pay-as-you-
go). The cumulative effect of this accounting change as of January 1, 1992 was
$1,366.6 million, or $832.1 million after-tax ($2.08 per share of GM Class H
common stock). The incremental ongoing effect increased costs and expenses by
$96.8 million, $91.0 million, and $78.7 million in 1994, 1993, and 1992,
respectively.
Hughes has disclosed in the financial statements certain amounts associated
with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, Hughes does not admit or otherwise acknowledge that
such amounts or existing postretirement benefit plans of Hughes (other than
pensions) represent legally enforceable liabilities of Hughes.
Substantially all of the employees of Delco Electronics participate in
various postretirement medical, dental, vision, and life insurance plans of
General Motors. Hughes maintains a program for eligible non-automotive retirees
to participate in health care and life insurance benefits generally until they
reach age 65. Qualified employees who elected to participate in the Hughes
contributory defined benefit pension plans may become eligible for these
benefits if they retire between the ages of 55 and 65.
The total non-pension postretirement benefit cost of Hughes and its
subsidiaries, excluding the cumulative effect of adopting SFAS No. 106 in 1992,
included the components set forth as follows:
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Benefits earned during the year....................... $ 50.1 $ 49.2 $ 42.9
Interest accrued on benefits earned in prior years.... 130.3 127.2 116.8
Net amortization...................................... 7.6 -- --
------ ------ ------
Total non-pension postretirement benefit cost....... $188.0 $176.4 $159.7
====== ====== ======
The following table displays the components of Hughes' obligation recognized
for postretirement benefit plans included in the Consolidated Balance Sheet at
December 31, 1994 and 1993:
1994 1993
-------- --------
(DOLLARS IN
MILLIONS)
Accumulated postretirement benefit obligation
attributable to
Current retirees.................................... $ 816.6 $ 906.8
Fully eligible active plan participants............. 191.9 193.1
Other active plan participants...................... 576.6 844.9
-------- --------
Accumulated postretirement benefit obligation......... 1,585.1 1,944.8
Unrecognized net amount resulting from changes in plan
experience and actuarial assumptions................. 44.7 (392.7)
-------- --------
Net postretirement benefit obligation................. 1,629.8 1,552.1
Less current portion.................................. 88.4 105.8
-------- --------
Net long-term postretirement benefit obligation....... $1,541.4 $1,446.3
======== ========
B-16
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The assumed weighted average discount rates used in determining the actuarial
present value of the accumulated postretirement benefit obligation were 8.57%
and 6.99% at December 31, 1994 and 1993, respectively. The assumed weighted
average rate of increase in future compensation levels related to pay-related
life insurance benefits was 4.6% at December 31, 1994 and 5.3% at December 31,
1993.
The assumed weighted average health care cost trend rate was 7.39% in 1994,
increasing to 9.70% in 1995, and decreasing linearly each successive year until
it reaches 5.68% in 2006, after which it remains constant. A one percentage
point increase in each year of this annual trend rate would increase the
accumulated postretirement benefit obligation at December 31, 1994 by
approximately $165 million, and increase the service and interest cost
components of the 1994 postretirement benefit expense by approximately $21
million.
NOTE 6: INCOME TAXES
The income tax provision (credit) consists of the following:
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Taxes currently payable
U.S. Federal................................... $532.2 $222.0 $319.7
Foreign........................................ 10.3 10.7 4.2
U.S. State and local........................... 100.5 94.3 39.8
------ ------ ------
Total........................................ 643.0 327.0 363.7
------ ------ ------
Deferred tax (assets) liabilities--net
U.S. Federal................................... (62.2) 229.7 (368.0)
Foreign........................................ 1.3 -- 0.1
U.S. State and local........................... (9.3) 15.9 (73.0)
------ ------ ------
Total........................................ (70.2) 245.6 (440.9)
------ ------ ------
Total income tax provision (credit).............. $572.8* $572.6 $(77.2)*
====== ====== ======
--------
*Excluding effect of accounting changes.
The deferred income tax benefit in 1994 includes a $63.0 million credit that
resulted from an adjustment to the beginning of the year valuation allowance
because of a change in circumstances with respect to Hughes' ability to realize
the benefit from a capital loss carryforward.
Income (Loss) before income taxes includes the following components:
1994 1993 1992
-------- -------- -------
(DOLLARS IN MILLIONS)
U.S. income (loss)............................. $1,448.1 $1,286.7 $(225.1)
Foreign income (loss).......................... 80.5 83.7 (25.4)
-------- -------- -------
Total........................................ $1,528.6 $1,370.4 $(250.5)
======== ======== =======
B-17
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The consolidated income tax provision (credit) was different than the amount
computed using the U.S. statutory income tax rate for the reasons set forth in
the following table.
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
Expected tax (credit) at U.S. statutory income
tax rate....................................... $535.0 $479.5 $(85.2)
U.S. State and local income taxes............... 59.3 70.1 (19.8)
Purchase accounting adjustments................. 43.3 43.3 42.1
Foreign tax rate differential................... (17.7) (6.9) (13.1)
Change in valuation allowance................... (63.0) -- --
Deferred tax impact of U.S. Federal income tax
rate change.................................... -- (10.0) --
Other........................................... 15.9 (3.4) (1.2)
------ ------ ------
Consolidated income tax provision (credit).... $572.8* $572.6 $(77.2)*
====== ====== ======
--------
*Excluding effect of accounting changes.
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at December 31, 1994 and 1993 are as follows:
1994 1993
--------------------- ---------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
(DOLLARS IN MILLIONS)
Postretirement benefits other
than pensions................. $ 695.3 $ -- $ 663.7 $ --
Profits on long-term contracts. 259.3 417.3 229.3 437.0
Leveraged leases............... 86.7 -- 99.9 --
Employee benefit programs...... 121.4 372.9 104.0 353.0
Depreciation................... -- 399.4 -- 403.0
Special provision for
restructuring................. 151.8 -- 255.0 --
Other.......................... 408.0 215.6 445.5 287.6
-------- -------- -------- --------
Subtotal....................... 1,722.5 1,405.2 1,797.4 1,480.6
Valuation allowance............ (16.1) -- (76.4) --
-------- -------- -------- --------
Total deferred taxes........... $1,706.4 $1,405.2 $1,721.0 $1,480.6
======== ======== ======== ========
Provision has been made for U.S. Federal income taxes to be paid on that
portion of the undistributed earnings of foreign subsidiaries that has not been
deemed permanently reinvested. At December 31, 1994 and 1993, undistributed
earnings of foreign subsidiaries amounted to approximately $311.4 million and
$446.3 million, respectively. Repatriation of all accumulated foreign earnings
would have resulted in tax liabilities of $90.3 million and $113.8 million,
respectively, for which Hughes has provided deferred tax liabilities of $66.2
million and $75.0 million, respectively.
At December 31, 1994, Hughes had $36.5 million of foreign operating loss
carryforwards which expire in varying amounts between 1995 and 1999. A
valuation allowance has been provided for all of the foreign operating loss
carryforwards.
B-18
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7:EARNINGS (LOSS) ATTRIBUTABLE TO GENERAL MOTORS CLASS H COMMON STOCK ON A
PER SHARE BASIS AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
Earnings (Loss) attributable to General Motors Class H common stock on a per
share basis have been determined based on the relative amounts available for
the payment of dividends to holders of the GM Class H common stock. Holders of
GM Class H common stock have no direct rights in the equity or assets of
Hughes, but rather have rights in the equity and assets of GM (which includes
100% of the stock of Hughes).
Dividends on the GM Class H common stock are declared by GM's Board of
Directors out of the Available Separate Consolidated Net Income (Loss) of
Hughes earned since the acquisition of HAC by GM. The Available Separate
Consolidated Net Income (Loss) of Hughes is determined quarterly and is equal
to the separate consolidated net income (loss) of Hughes, excluding the effects
of GM purchase accounting adjustments arising from the acquisition of HAC
(Earnings (Loss) Used for Computation of Available Separate Consolidated Net
Income (Loss)), multiplied by a fraction, the numerator of which is a number
equal to the weighted average number of shares of GM Class H common stock
outstanding during the period and the denominator of which was 399.9 million
during the fourth quarters of 1994, 1993, and 1992.
The denominator used in determining the Available Separate Consolidated Net
Income (Loss) of Hughes is adjusted as deemed appropriate by the GM Board of
Directors to reflect subdivisions or combinations of the GM Class H common
stock and to reflect certain transfers of capital to or from Hughes. The
Board's discretion to make such adjustments is limited by criteria set forth in
GM's Certificate of Incorporation. In this regard, the GM Board has generally
caused the denominator to decrease as shares are purchased by Hughes, and to
increase as such shares are used, at Hughes' expense, for Hughes employee
benefit plans or acquisitions.
Dividends may be paid on GM Class H common stock only when, as, and if
declared by the GM Board of Directors in its sole discretion. The current
policy of the GM Board with respect to GM Class H common stock is to pay cash
dividends approximately equal to 35% of the Available Separate Consolidated Net
Income of Hughes for the prior year. Notwithstanding the current dividend
policy, the dividends paid on the GM Class H Common Stock during 1994, 1993,
and 1992 exceeded 35% of the Available Separate Consolidated Net Income (Loss)
of Hughes for the preceding year (excluding the effect of the $749.4 million
after-tax special provision for restructuring in 1992).
Consistent with Delaware law, which governs the amount legally available for
the payment of dividends on GM's common stock, the GM Board of Directors has
determined that such amount is materially higher than GM's capital surplus plus
net income retained for use in the business (less accumulated deficit), as
reported in its financial statements.
NOTE 8: PROPERTY--NET
1994 1993
-------- --------
(DOLLARS IN
MILLIONS)
Land and improvements........................................ $ 196.5 $ 208.4
Buildings and unamortized leasehold improvements............. 1,291.2 1,277.9
Machinery and equipment...................................... 2,623.8 2,902.5
Furniture, fixtures, and office machines..................... 81.9 102.3
Construction in progress..................................... 448.9 310.6
-------- --------
Total........................................................ 4,642.3 4,801.7
Less accumulated depreciation................................ 2,047.5 2,200.7
-------- --------
Net real estate, plants, and equipment....................... 2,594.8 2,601.0
Special tools--less amortization............................. 17.0 33.4
-------- --------
Property--net................................................ $2,611.8 $2,634.4
======== ========
B-19
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: NOTES AND LOANS PAYABLE AND LONG-TERM DEBT AND CAPITALIZED LEASES
1994 1993
------ ------
(DOLLARS IN
MILLIONS)
Loans payable to banks........................................... $ 17.6 $ 8.6
Current portion of long-term debt................................ 55.4 5.7
Other............................................................ 52.7 63.5
------ ------
Total notes and loans payable.................................... $125.7 $ 77.8
====== ======
Foreign bank debt................................................ $ 59.8 $ 72.2
Term loans
GM............................................................. 143.8 143.8
Other.......................................................... 200.0 200.0
Other debt....................................................... 3.9 4.8
------ ------
Total............................................................ 407.5 420.8
Less current portion............................................. 55.4 5.7
------ ------
Long-term debt................................................... 352.1 415.1
Capitalized leases............................................... 1.4 1.7
------ ------
Total long-term debt and capitalized leases...................... $353.5 $416.8
====== ======
At December 31, 1994, Hughes had unused credit available of $450.0 million
and $650.0 million under short-term lines of credit and an unsecured revolving
credit loan agreement, respectively.
The unsecured revolving credit loan agreement provides for a commitment of
$250.0 million through January 1995, subject to a facility fee of 0.09% per
annum, and a commitment of $400.0 million through January 1998, subject to a
facility fee of 0.125% per annum. Borrowings under the agreement bear interest
at a rate which approximates the London Interbank Offered Rate plus 0.25%. No
amounts were outstanding under the agreement at December 31, 1994.
At December 31, 1994, foreign bank debt includes $59.8 million denominated in
British pounds sterling, bearing interest at rates ranging from 3.5% to 10.3%,
with maturity dates from 1995 to 2005.
The GM term loans bear interest at rates ranging from 5.7% to 6.1% with
maturity dates in 1996 and 1997. The other term loans consist of notes payable
to an insurance company bearing interest at rates ranging from 7.1% to 8.0%,
with maturity dates in 1995 and 1997.
Annual maturities of long-term debt and capitalized leases are $55.9 million
in 1995, $92.0 million in 1996, $213.7 million in 1997, $4.2 million in 1998,
$4.5 million in 1999 and $38.6 million thereafter.
Property with a net book value of $38.3 million at December 31, 1994 is
pledged as collateral under such debt.
NOTE 10: ACCRUED LIABILITIES
1994 1993
-------- --------
(DOLLARS IN
MILLIONS)
Payrolls and other compensation.............................. $ 540.2 $ 504.4
Provision for losses on contracts............................ 277.0 204.2
Accrual for restructuring.................................... 143.3 222.8
Other........................................................ 925.0 942.6
-------- --------
Total...................................................... $1,885.5 $1,874.0
======== ========
B-20
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11: STOCKHOLDER'S EQUITY
The authorized capital stock of Hughes consists of 1,000 shares of $0.10 par
value common stock. At December 31, 1994 and 1993, 1,000 shares having an
aggregate par value of $100 were issued and outstanding. All of the outstanding
capital stock of Hughes is held by General Motors.
1994 1993 1992
-------- -------- ---------
(DOLLARS IN MILLIONS)
Capital stock and additional paid-in capital
Balance at beginning of the year.............. $6,323.1 $6,314.7 $ 6,365.9
Tax benefit from exercise of GM Class H common
stock options................................ 3.4 8.4 --
GM Class H common stock price guarantee in
connection with the acquisition of General
Dynamics' missile business................... -- -- (51.2)
-------- -------- ---------
Balance at end of the year.................. $6,326.5 $6,323.1 $ 6,314.7
======== ======== =========
Net income retained for use in the business
Balance at beginning of the year.............. $1,138.2 $ 628.4 $ 1,961.8
Net income (loss)............................. 925.4 797.8 (1,045.4)
Cash dividends paid to General Motors......... (320.0) (288.0) (288.0)
-------- -------- ---------
Balance at end of the year.................. $1,743.6 $1,138.2 $ 628.4
======== ======== =========
Minimum pension liability adjustment
Balance at beginning of the year.............. $ (120.4) $ (104.3) $ (101.8)
Change during the year........................ 44.3 (16.1) (2.5)
-------- -------- ---------
Balance at end of the year.................. $ (76.1) $ (120.4) $ (104.3)
======== ======== =========
Accumulated foreign currency translation
adjustments
Balance at beginning of the year.............. $ (12.8) $ (23.8) $ (7.7)
Change during the year........................ (5.4) 11.0 (16.1)
-------- -------- ---------
Balance at end of the year.................. $ (18.2) $ (12.8) $ (23.8)
======== ======== =========
As sole stockholder of Hughes, GM is able to cause Hughes to pay cash
dividends and make advances to or otherwise enter into transactions with GM as
GM deems desirable and appropriate. GM reserves the right to cause Hughes to
pay cash dividends to GM in such amounts as GM determines are desirable under
the then prevailing facts and circumstances. Such amounts may be the same as,
greater than, or less than the cash dividends paid by GM on its Class H common
stock. There is no fixed relationship, on a per share or aggregate basis,
between the cash dividends that may be paid by GM to holders of its Class H
common stock and the cash dividends or other amounts that may be paid by Hughes
to GM.
NOTE 12: SPECIAL PROVISION FOR RESTRUCTURING
The 1992 operating results include a special restructuring charge of $1,237.0
million ($749.4 million after-tax, or $1.87 per share of GM Class H common
stock) for Hughes' non-automotive operations, primarily attributable to
redundant facilities and related employment costs. The special charge
comprehended a reduction of Hughes' worldwide employment, a major facilities
consolidation, and a re-evaluation of certain business lines that no longer met
Hughes' strategic objectives. Restructuring costs of $228.3 million, $527.6
million, and $250.9 million were charged against the reserve during 1994, 1993,
and 1992, respectively. In addition, in 1994 and 1993, the restructuring
reserve was increased by $35.0 million and $78.0 million, respectively,
primarily due to changes in the estimated
B-21
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
loss on disposition of two subsidiaries. The remaining liability of $343.2
million relates primarily to reserves for excess leased facilities and other
site consolidation costs. Approximately $288.2 million of this total will
require future cash outflows. It is expected that these costs will be expended
predominantly over the next three years.
NOTE 13: ACQUISITIONS
In December 1994, Hughes announced that it had reached an agreement with CAE
Inc. of Toronto, Canada to acquire substantially all of the assets of its U.S.
subsidiary, CAE-Link Corporation, for $155 million in cash. CAE-Link is an
established supplier of simulation, training, and technical services, primarily
to the U.S. military and NASA. The transaction is expected to close during the
first quarter of 1995.
In August 1992, Hughes acquired the missile business of GD in exchange for
21,508,563 shares of GM Class H common stock and cash with an aggregate value
of $450.0 million. Hughes had purchased the GM Class H shares from GM in August
1992 principally in exchange for a series of notes. The acquisition was
accounted for as a purchase, and accordingly, the operating results have been
consolidated since the acquisition date. The pro forma effect on 1992 operating
results was not material.
Hughes has acquired several other enterprises with operations that complement
existing technological capabilities at aggregate purchase prices, paid in cash,
of $10.4 million and $9.7 million in 1993 and 1992, respectively. These
acquisitions were accounted for using the purchase method of accounting. The
operating results of the entities acquired, which were not material, were
consolidated with those of Hughes from their respective acquisition dates.
The purchase prices of these acquisitions were allocated to the net assets
acquired, including intangible assets, based upon their estimated fair values
at the dates of acquisition.
NOTE 14: DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Hughes is a party to financial instruments with off-balance sheet risk in the
normal course of business to reduce its exposure to fluctuations in interest
and foreign exchange rates. The primary classes of derivatives used by Hughes
are foreign exchange-forward contracts and interest rate swap agreements. These
instruments involve, to varying degrees, elements of credit risk in the event a
counterparty should default and market risk as the instruments are subject to
rate and price fluctuations. Credit risk is managed through the periodic
monitoring and approval of financially sound counterparties. Market risk is
mitigated because the derivatives are used to hedge underlying transactions.
Cash receipts or payments on these contracts normally occur at maturity, or for
interest swap agreements, at periodic contractually defined intervals. Hughes
holds derivatives only for purposes other than trading.
FOREIGN EXCHANGE-FORWARD CONTRACTS
Foreign exchange-forward contracts are legal agreements between two parties
to purchase and sell a foreign currency, for a price specified at the contract
date, with delivery and settlement in the future. Hughes uses these agreements
to hedge risk of changes in foreign currency exchange rates associated with
certain firm commitments denominated in foreign currency.
The total notional amount of foreign exchange-forward contracts Hughes held
at December 31, 1994 and 1993, was approximately $144 million and $111 million,
respectively. Hughes' open contracts extend for periods averaging nine months.
B-22
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INTEREST RATE SWAP AGREEMENTS
Interest rate swap agreements are contractual agreements between Hughes 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. These instruments are used by Hughes with the objective of
minimizing interest expense while maintaining the desired level of exposure to
the risk of interest rate fluctuations. There were no outstanding interest rate
swap agreements at December 31, 1994. At December 31, 1993, the total notional
amount of outstanding contracts was approximately $200 million. Interest rate
swap agreements used to hedge an underlying debt obligation are not marked to
market, but are recognized as an adjustment to interest expense over the life
of the underlying debt agreement. Gains and losses on terminated swap contracts
are deferred and recognized as a yield adjustment on the underlying debt; such
unamortized gains totaled approximately $10.8 million and $14.9 million at
December 31, 1994 and 1993, respectively.
NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, and SFAS No. 119, Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments, the following
fair value estimates and information about valuation methodologies are
presented. For all financial instruments not described below, fair value
approximates book value.
For notes and loans payable and long-term debt, the estimated fair value
(which approximates book value) was $479.9 million and $506.5 million at
December 31, 1994 and 1993, respectively. Such fair value is based on the
quoted market prices for similar issues or on the current rates offered to
Hughes for debt of similar remaining maturities. The carrying value of debt
with an original term of less than 90 days is assumed to approximate fair
value.
The fair values of derivative financial instruments reflect the estimated
amounts Hughes would receive or pay to terminate the contracts at the reporting
date, which takes into account the current unrealized gains or losses on open
contracts. The fair value of foreign exchange-forward contracts is estimated
based on foreign exchange rate quotes at the reporting date. At December 31,
1994 and 1993, the estimated fair value of open contracts in a loss position
was ($0.1) million and ($0.3) million, respectively, which was approximately
equal to book value.
The fair value of interest rate swap agreements is estimated using pricing
models based upon current interest rates. There were no open interest rate swap
agreements at December 31, 1994. At December 31, 1993, the fair value of open
contracts in a gain position was $12.6 million.
NOTE 16: SEGMENT REPORTING
Hughes operates principally within the field of modern high-technology
electronics for use in Automotive Electronics, Telecommunications and Space,
Defense Electronics, and Commercial Technologies business segments. Radios,
controls for engines and transmissions, monitors and sensors for airbags,
controllers for anti-lock brakes, climate control, dashboard instrumentation,
and other automotive electronic products are included in the Automotive
Electronics segment. The Telecommunications and Space segment includes
satellite construction, ownership and operation, communication services, ground
equipment, and direct-to-home satellite television entertainment services. The
Defense Electronics segment includes missile systems, command and control
systems, electro-optical systems, airborne radar systems, military training and
simulation systems, and guidance and control systems. The Commercial
Technologies segment includes commercial electronics products and services such
as commercial training, air traffic control, aircraft passenger communications
and
B-23
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
entertainment, inertial navigation, information systems, space sensors for
environmental and scientific applications, and entertainment and leisure
products. Intercompany transfers between segments are not material. Information
concerning operations by segment is shown below.
TELECOM-
AUTOMOTIVE MUNICATIONS DEFENSE COMMERCIAL
ELECTRONICS AND SPACE ELECTRONICS TECHNOLOGIES CORPORATE TOTAL
----------- ----------- ----------- ------------ --------- ---------
(DOLLARS IN MILLIONS)
Revenues
1994.................. $5,267.5 $2,528.7 $5,590.7 $ 712.5 -- $14,099.4
1993.................. 4,491.6 2,178.0 6,112.1 735.8 -- 13,517.5
1992.................. 3,985.8 1,927.9 5,547.0 836.4 -- 12,297.1
Operating Profit (Loss)
(1)(2)
1994.................. $ 793.6 $ 266.6 $ 583.6 $ (124.5) $(12.7) $ 1,506.6
1993.................. 626.1 195.9 538.0 (0.4) (23.3) 1,336.3
1992.................. 462.4 33.4 (596.6) (195.1) (22.1) (318.0)
Identifiable Assets at
Year-End (3)
1994.................. $3,466.4 $3,473.2 $6,808.8 $ 970.6 $131.5 $14,850.5
1993.................. 2,840.5 2,797.1 7,385.4 957.7 136.4 14,117.1
1992.................. 2,471.8 2,843.6 7,281.7 1,505.0 107.1 14,209.2
Depreciation and
Amortization (1)
1994.................. $ 143.4 $ 144.4 $ 260.9 $ 45.3 -- $ 594.0
1993.................. 153.2 118.8 298.1 57.2 -- 627.3
1992.................. 124.1 128.8 307.3 50.7 -- 610.9
Capital Expenditures (4)
1994.................. $ 171.9 $ 395.0 $ 152.5 $ 26.9 -- $ 746.3
1993.................. 149.2 264.9 132.9 33.0 -- 580.0
1992.................. 266.1 174.4 99.4 18.6 -- 558.5
--------
(1) 1994 includes $123.8 million ($10.7 million, $102.8 million, and $10.3
million related to Telecommunications and Space, Defense Electronics, and
Commercial Technologies, respectively) and 1993 and 1992 include $123.8
million ($10.8 million, $102.7 million, and $10.3 million related to
Telecommunications and Space, Defense Electronics, and Commercial
Technologies, respectively) of purchase accounting adjustments associated
with GM's purchase of HAC.
(2) 1992 includes $1,237.0 million ($195.3 million, $911.8 million, and $129.9
million related to Telecommunications and Space, Defense Electronics, and
Commercial Technologies, respectively) for the special provision for
restructuring.
(3) Identifiable assets include the unamortized purchase accounting adjustments
associated with the purchase of HAC as detailed below:
TELECOMMUNICATIONS DEFENSE COMMERCIAL
AND SPACE ELECTRONICS TECHNOLOGIES TOTAL
------------------ ----------- ------------ --------
1994................ $261.0 $2,494.5 $249.8 $3,005.3
1993................ 271.7 2,597.3 260.1 3,129.1
1992................ 282.5 2,700.0 270.4 3,252.9
(4) Telecommunications and Space includes expenditures related to
telecommunications and other equipment amounting to $255.8 million, $131.1
million, and $101.6 million, in 1994, 1993, and 1992, respectively.
B-24
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
A reconciliation of operating profit (loss) shown on the previous page to
Income (Loss) before Income Taxes shown in the Statement of Consolidated
Operations and Available Separate Consolidated Net Income (Loss) follows:
1994 1993 1992
-------- -------- -------
(DOLLARS IN MILLIONS)
Operating Profit (Loss)........................... $1,506.6 $1,336.3 $(318.0)
Other Income--net................................. 37.1 67.3 128.1
Interest Expense.................................. (15.1) (33.2) (60.6)
-------- -------- -------
Income (Loss) before Income Taxes............... $1,528.6 $1,370.4 $(250.5)
======== ======== =======
Export sales from the U.S. were as follows:
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
Africa............................................... $ 25.8 $ 28.2 $ 39.5
Asia................................................. 758.2 593.4 424.5
Canada............................................... 876.3 820.7 642.9
Europe 678.6 503.1 524.6
Mexico............................................... 96.9 122.9 199.0
Other Latin America.................................. 90.3 68.3 108.7
Middle East.......................................... 370.1 404.4 274.3
-------- -------- --------
Total.............................................. $2,896.2 $2,541.0 $2,213.5
======== ======== ========
--------
Certain amounts for 1993 have been reclassified to conform with 1994
classifications.
NOTE 17: COMMITMENTS AND CONTINGENT LIABILITIES
In December 1994, Hughes entered into an agreement with Computer Sciences
Corporation (CSC) whereby CSC will provide substantially all of the non-
automotive data processing services required by Hughes. Baseline service
payments to CSC are expected to aggregate approximately $1.5 billion over the
term of the eight-year agreement. The contract is cancelable by Hughes with
substantial early termination penalties.
Minimum future commitments under operating leases having noncancelable lease
terms in excess of one year, primarily for real property and satellite
transponders, aggregating $2,142.4 million, are payable as follows: $233.5
million in 1995, $200.0 million in 1996, $169.5 million in 1997, $157.5 million
in 1998, $158.8 million in 1999, and $1,223.1 million thereafter. Certain of
these leases contain escalation clauses and renewal or purchase options. Rental
expenses under operating leases were $306.2 million in 1994, $296.3 million in
1993, and $277.9 million in 1992.
Hughes and its subsidiaries are subject to potential liability under
government regulations and various claims and legal actions which are pending
or may be asserted against them. The aggregate ultimate liability of Hughes and
its subsidiaries under these government regulations, and under these claims and
actions, was not determinable at December 31, 1994. In the opinion of
management of Hughes, such liability is not expected to have a material adverse
effect on Hughes' consolidated operations or financial position.
B-25
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--------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY GENERAL MOTORS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO BUY SUCH SECURITIES IN
ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF GENERAL MOTORS SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
PAGE
----
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
General Motors and Hughes................................................. 15
Relationship Between General Motors and Hughes............................ 15
Class H Common Stock...................................................... 17
Financial Review of Hughes and its Business Segments...................... 21
Overview of Hughes Business............................................... 30
Automotive Electronics.................................................... 32
Aerospace and Defense Systems............................................. 38
Telecommunications and Space.............................................. 47
Corporate and Other....................................................... 54
Business of Hughes--General............................................... 54
Management................................................................ 58
Selling Stockholder....................................................... 58
Certain United States Federal Tax Considerations For Non-United States
Holders.................................................................. 59
Underwriting.............................................................. 61
Legal Matters............................................................. 61
Experts................................................................... 62
Appendix A: Description of General Motors Capital Stock................... A-1
Appendix B: Hughes Financial Information.................................. B-1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
15,000,000 SHARES
GENERAL MOTORS CORPORATION
CLASS H COMMON STOCK
----------------
PROSPECTUS
----------------
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
COWEN & COMPANY
MORGAN STANLEY & CO.
INCORPORATED
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Following is a list of expenses in connection with this offering. HHMI will
pay all of such expenses. The amounts set forth below, except for the
Securities and Exchange Commission registration fee, are estimated:
Securities and Exchange Commission registration fee............ $ 203,665
Printing and engraving expenses................................ 225,000
Legal fees..................................................... 133,000
Auditors' fees................................................. 185,000
Blue Sky fees and expenses..................................... 20,000
Miscellaneous.................................................. 33,335
---------
Total...................................................... $ 800,000
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, General Motors is
empowered to indemnify its directors and officers in the circumstances therein
provided.
General Motors' Certificate of Incorporation, as amended, provides that no
directors shall be personally liable to General Motors or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to General
Motors or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174, or any successor provision thereto, of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
Under Article V of its By-Laws, General Motors shall indemnify and advance
expenses to every director and officer (and to such person's heirs, executors,
administrators or other legal representatives) in the manner and to the full
extent permitted by applicable law as it presently exists, or may hereafter be
amended, against any and all amounts (including judgments, fines, payments in
settlement, attorneys' fees and other expenses) reasonably incurred by or on
behalf of such person in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative ("a proceeding"), in which such director or officer was or is
made or is threatened to be made a party or is otherwise involved by reason of
the fact that such person is or was a director, officer, employee, fiduciary or
member of any other corporation, partnership, joint venture, trust,
organization or other enterprise. General Motors shall not be required to
indemnify a person in connection with a proceeding initiated by such person if
the proceeding was not authorized by the Board of Directors of General Motors.
General Motors shall pay the expenses of directors and officers incurred in
defending any proceeding in advance of its final disposition ("advancement of
expenses"); provided, however, that the payment of expenses incurred by a
director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the director or officer to repay
all amounts advanced if it should be ultimately determined that the director or
officer is not entitled to be indemnified under Article V of the By-Laws or
otherwise. If a claim for indemnification or advancement of expenses by an
officer or director under Article V of the By-Laws is not paid in full within
ninety days after a written claim therefor has been received by General Motors,
the claimant may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action General Motors shall have the burden
of proving that the claimant was not entitled to the requested indemnification
or advancement
II-1
of expenses under applicable law. The rights conferred on any person by Article
V of the By-Laws shall not be exclusive of any other rights which such person
may have or hereafter acquire under any statute, provision of General Motors'
Certificate of Incorporation or By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
General Motors is insured against liabilities which it may incur by reason of
Article V of its By-Laws. In addition, directors and officers are insured, at
GM's expense, against some liabilities which might arise out of their
employment and not be subject to indemnification under Article V of the By-
Laws.
Pursuant to a resolution adopted by the Board of Directors on December 1,
1975, General Motors to the fullest extent permissible under law will
indemnify, and has purchased insurance on behalf of, directors or officers of
General Motors, or any of them, who incur or are threatened with personal
liability, including expense, under the Employee Retirement Income Security Act
of 1974, as amended, or any amendatory or comparable legislation or regulation
thereunder.
ITEM 16. EXHIBITS.
The following documents are exhibits to the Registration Statement.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
1(a) Proposed form of Underwriting Agreement.
4(a) Restated Certificate of Incorporation of General Motors Corpora-
tion as amended to May 26, 1994, incorporated by reference to
Exhibit 3(i) to the Current Report on Form 8-K of General Motors
dated May 26, 1994, and Amendment to Article Fourth of the Cer-
tificate of Incorporation--Division III--Preference Stock, by
reason of the Certificates of Designations filed with the Secre-
tary of State of the State of Delaware on September 14, 1987 and
the Certificate of Decrease filed with the Secretary of State of
the State of Delaware on September 29, 1987, incorporated by
reference to Exhibit 19 to the Quarterly Report on Form 10-Q of
General Motors for the quarter ended June 30, 1990 in the Form
SE of General Motors dated August 6, 1990; as further amended by
the Certificate of Designations filed with the Secretary of
State of the State of Delaware on June 28, 1991, incorporated by
reference to Exhibit 4(a) to Form S-8 Registration Statement of
General Motors dated November 6, 1991 (Registration No. 33-
43744) in the Form SE of General Motors dated November 1, 1991;
as further amended by the Certificate of Designations filed with
the Secretary of State of the State of Delaware on December 9,
1991, incorporated by reference to Exhibit 4(a) to Form S-3 Reg-
istration Statement of General Motors dated January 27, 1992
(Registration No. 33-45216) in the Form SE of General Motors
dated January 27, 1992; as further amended by the Certificate of
Designations filed with the Secretary of State of the State of
Delaware on February 14, 1992, incorporated by reference to Ex-
hibit 3(a) to the Annual Report on Form 10-K of General Motors
for the year ended December 31, 1991 in the Form SE of General
Motors dated March 20, 1992; and as further amended by the Cer-
tificate of Designations filed with the Secretary of State of
the State of Delaware on July 15, 1992, incorporated by refer-
ence to Exhibit 3(a)(2) to the Quarterly Report on Form 10-Q of
General Motors for the quarter ended June 30, 1992 in the Form
SE of General Motors dated August 10, 1992 and as further
amended by the Certificate of Designations filed with the Secre-
tary of State of the State of Delaware on December 15, 1992, in-
corporated by reference to Exhibit 4(a) to Form S-3 Registration
Statement of General Motors dated January 25, 1993 (Registration
No. 33-49309) in the Form SE of General Motors dated January 25,
1993.
4(b) By-Laws of General Motors Corporation as amended to December 5,
1994, incorporated by reference to Exhibit 3(ii) to the Current
Report on Form 8-K of General Motors dated December 5, 1994.
II-2
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
5 Opinion of Warren G. Andersen, Esq.
8 Opinion of Anton H. Zidansek, Esq.
23(a) Consent of Deloitte & Touche LLP, independent auditors.
23(b) Consent of KPMG Peat Marwick LLP, independent auditors.
23(c) Consent of Counsel (included in Exhibits 5 and 8 above).
99 Class H Stock Sale Agreement by and between HHMI and General Mo-
tors dated February 15, 1995.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. For purposes of determining any liability under the Securities Act of
1933 (the "Securities Act"), the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rules 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
2. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3. For purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
4. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DETROIT, STATE OF MICHIGAN, ON MARCH 24, 1995
General Motors Corporation
/s/ John F. Smith, Jr.
By: _________________________________
John F. Smith, Jr.
Chief Executive Officer, President
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED ON MARCH 24, 1995 BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED.
SIGNATURE TITLE
--------- -----
/s/ John G. Smale Chairman of the Board of
____________________________________ Directors
John G. Smale
/s/ John F. Smith, Jr. Chief Executive Officer,
____________________________________ President and Director
John F. Smith, Jr.
/s/ J. Michael Losh Executive Vice President and )
____________________________________ Chief Financial Officer )
J. Michael Losh )
)
/s/ Leon J. Krain Vice President and Group ) (Principal
____________________________________ Executive ) Financial
Leon J. Krain ) Officers)
)
/s/ Heidi Kunz Vice President and Treasurer )
____________________________________ )
Heidi Kunz )
/s/ Wallace W. Creek Comptroller )
____________________________________ )
Wallace W. Creek ) (Principal
) Accounting
/s/ James H. Humphrey Chief Accounting Officer ) Officers)
____________________________________ )
James H. Humphrey )
II-4
SIGNATURE TITLE
--------- -----
/s/ Anne L. Armstrong Director
____________________________________
Anne L. Armstrong
/s/ John H. Bryan Director
____________________________________
John H. Bryan
/s/ Thomas E. Everhart Director
____________________________________
Thomas E. Everhart
/s/ Charles T. Fisher, III Director
____________________________________
Charles T. Fisher, III
/s/ J. Willard Marriott, Jr. Director
____________________________________
J. Willard Marriott, Jr.
/s/ Ann D. McLaughlin Director
____________________________________
Ann D. McLaughlin
/s/ Paul H. O'Neill Director
____________________________________
Paul H. O'Neill
/s/ Edmund T. Pratt, Jr. Director
____________________________________
Edmund T. Pratt, Jr.
/s/ Louis W. Sullivan Director
____________________________________
Louis W. Sullivan
/s/ Dennis Weatherstone Director
____________________________________
Dennis Weatherstone
/s/ Thomas H. Wyman Director
____________________________________
Thomas H. Wyman
II-5
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
1(a) Proposed form of Underwriting Agreement.
4(a) Restated Certificate of Incorporation of General Motors
Corporation as amended to May 26, 1994, incorporated by
reference to Exhibit 3(i) to the Current Report on Form
8-K of General Motors dated May 26, 1994, and Amendment
to Article Fourth of the Certificate of Incorporation--
Division III--Preference Stock, by reason of the
Certificate of Designations filed with the Secretary of
State of the State of Delaware on September 14, 1987 and
the Certificate of Decrease filed with the Secretary of
State of the State of Delaware on September 29, 1987,
incorporated by reference to Exhibit 19 to the Quarterly
Report on Form 10-Q of General Motors for the quarter
ended June 30, 1990 in the Form SE of General Motors
dated August 6, 1990; as further amended by the
Certificate of Designations filed with the Secretary of
State of the State of Delaware on June 28, 1991,
incorporated by reference to Exhibit 4(a) to Form S-8
Registration Statement of General Motors dated November
6, 1991 (Registration No. 33-43744) in the Form SE of
General Motors dated November 1, 1991; as further amended
by the Certificate of Designations filed with the
Secretary of State of the State of Delaware on December
9, 1991, incorporated by reference to Exhibit 4(a) to
Form S-3 Registration Statement of General Motors dated
January 27, 1992 (Registration No. 33-45216) in the Form
SE of General Motors dated January 27, 1992; as further
amended by the Certificate of Designations filed with the
Secretary of State of the State of Delaware on February
14, 1992, incorporated by reference to Exhibit 3(a) to
the Annual Report on Form 10-K of General Motors for the
year ended December 31, 1991 in the Form SE of General
Motors dated March 20, 1992; and as further amended by
the Certificate of Designations filed with the Secretary
of State of the State of Delaware on July 15, 1992,
incorporated by reference to Exhibit 3(a)(2) to the
Quarterly Report on Form 10-Q of General Motors for the
quarter ended June 30, 1992 in the Form SE of General
Motors dated August 10, 1992 and as further amended by
the Certificate of Designations filed with the Secretary
of State of the State of Delaware on December 15, 1992,
incorporated by reference to Exhibit 4(a) to Form S-3
Registration Statement of General Motors dated January
25, 1993 (Registration No. 33-49309) in the Form SE of
General Motors dated January 25, 1993.
4(b) By-Laws of General Motors Corporation as amended to
December 5, 1994, incorporated by reference to Exhibit
3(ii) to the Current Report on Form 8-K of General Motors
dated December 5, 1994.
5 Opinion of Warren G. Andersen, Esq.
8 Opinion of Anton H. Zidansek, Esq.
23(a) Consent of Deloitte & Touche LLP, independent auditors.
23(b) Consent of KPMG Peat Marwick LLP, independent auditors.
23(c) Consent of Counsel (included in Exhibits 5 and 8 above).
99 Class H Stock Sale Agreement by and between HHMI and
General Motors dated February 15, 1995.
EX-1.1
2
UNDERWRITING AGREEMENT
EXHIBIT 1.1
15,000,000 Shares
GENERAL MOTORS CORPORATION
(a Delaware corporation)
Class H Common Stock
($0.10 Par Value Per Share)
UNDERWRITING AGREEMENT
----------------------
April , 1995
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
COWEN & COMPANY
MORGAN STANLEY & CO. INCORPORATED
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
General Motors Corporation, a Delaware corporation (the "Company"), and the
Howard Hughes Medical Institute, a Delaware corporation (the "Selling
Stockholder"), confirm their respective agreements with you (collectively, the
"Underwriters") with respect to the sale by the Selling Stockholder of
15,000,000 shares of Class H Common Stock, $0.10 par value, of the Company
("Class H Common Stock"), and the purchase by the Underwriters, acting severally
and not jointly, of the respective number of shares of Class H Common Stock set
forth in Schedule A hereto, except as may otherwise be provided in the Pricing
Agreement, as hereinafter defined. The 15,000,000 shares of Class H Common Stock
are hereinafter called the "Securities."
Prior to the purchase and public offering of the Securities by the several
Underwriters, the Selling Stockholder (after consultation with the Company) and
the Underwriters shall enter into an agreement substantially in the form of
Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the
form of an exchange of any standard form of written telecommunication between
the Selling Stockholder and the Underwriters and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the Securities
will be governed by this Agreement, as supplemented by the Pricing Agreement.
From and after the date of the execution and delivery of the Pricing Agreement,
this Agreement shall be deemed to incorporate the Pricing Agreement. The date of
the Pricing Agreement is referred to as the "Representation Date."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 33-______) and related
preliminary prospectus for the registration of the Securities under the
Securities Act of 1933 (the "1933 Act"), has filed such amendments thereto, if
any, and such amended preliminary prospectus as may have been required to the
date hereof, and will file such additional amendments thereto and such amended
prospectus as may hereinafter be required. Such registration statement (as
amended, if applicable), the prospectus constituting part of the Registration
Statement which relates to the Securities (including the information, if any,
deemed to be part thereof pursuant to Rule 430A(b) of the rules and regulations
of the Commission under the 1933 Act (the "1933 Act Regulations") and all
documents, if any, incorporated by reference thereafter), as from time to time
amended or supplemented pursuant to the 1933 Act, are hereinafter referred to as
the "Registration Statement," and the "Prospectus", and if any revised
prospectus shall be provided to the Underwriters by the Company for use in
connection with the offering of the Securities which differs from the Prospectus
on file at the Commission at the time the Registration Statement becomes
effective (whether or not such revised prospectus is required to be or is filed
by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term "
Prospectus" shall refer to the first prospectus from and after the time it is
first provided to the Underwriters for such use.
I.
On the basis of the representations and warranties herein contained and
subject to the terms and conditions herein set forth, the Selling Stockholder
agrees to sell to each Underwriter, severally and not jointly, and each
2
Underwriter, severally and not jointly, agrees to purchase from the Selling
Stockholder, at the price per share set forth in the Pricing Agreement, that
proportion of the number of Securities which the number of Securities set forth
in Schedule A opposite the name of such Underwriter bears to the total number of
Securities (except as otherwise provided in the Pricing Agreement), subject to
adjustments as the Underwriters in their discretion shall make to eliminate any
sales or purchases of fractional securities.
The purchase price per share to be paid by the several Underwriters for the
Securities shall be an amount equal to the initial public offering price, less
an amount per share to be determined by agreement between the Underwriters and
the Selling Stockholder (after consultation with the Company). The initial
public offering price and the purchase price, when so determined, shall be set
forth in the Pricing Agreement.
II.
The Company and the Selling Stockholder understand that the Underwriters
propose to make a public offering of the Securities as soon as they deem
advisable after the Registration Statement becomes effective and the Pricing
Agreement has been executed and delivered.
III.
Payment of the purchase price for, and delivery of certificates for, the
Securities shall be made at the offices of Davis Polk & Wardwell, New York, New
York, or at such other place as shall be agreed upon by the Company, the
Underwriters and the Selling Stockholder, at 10:00 a.m. on the fifth business
day (unless postponed in accordance with Article VIII herein) following
execution of the Pricing Agreement, or such other time not later than ten
business days after such date as shall be agreed upon by the Underwriters and
the Selling Stockholder (such time and date of payment and delivery being herein
called "Closing Time"). The Selling Stockholder shall not be obligated to
deliver any of the Securities to be delivered at the Closing Time except upon
payment for all the Securities to be purchased at such time as provided herein.
Payment shall be made to the Selling Stockholder by certified or official
bank checks drawn in New York Clearing House funds payable to the order of the
Selling Stockholder against delivery to the Underwriters of certificates for the
Securities to be purchased by them. Certificates for the Securities shall be in
such denominations and registered in such names as the Underwriters may request
in writing at least two business days before Closing Time.
3
The certificates for the Securities will be made available for examination and
packaging by the Underwriters not later than 10:00 a.m. on the last business day
prior to Closing Time.
IV.
The obligations of the Company and the several obligations of the Selling
Stockholder and the Underwriters hereunder are subject to the condition that the
Registration Statement shall have become effective not later than the date
hereof.
The several obligations of the Underwriters hereunder are subject to the
following further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall be in effect, and no proceedings for such purpose shall be
pending before or threatened by the Commission, and there shall have been
no material adverse change or development involving a prospective material
adverse change in the condition of the Company and its subsidiaries, taken
as a whole, or Hughes Electronics Corporation (hereinafter called "HEC")
and its subsidiaries, taken as a whole, from that set forth in the
Registration Statement; and you shall have received, at Closing Time, a
certificate of an officer of the Company (acting on behalf of the Company
and without personal liability), dated the Closing Time, to the foregoing
effect. Such certificate will also provide that the representations and
warranties of the Company contained herein are true and correct as of the
Closing Time. The officer may rely upon the best of his knowledge in making
such certificate. You shall also have received, at Closing Time, a
certificate of an officer of the Selling Stockholder (acting on behalf of
the Selling Stockholder and without personal liability), dated the Closing
Time, providing that the representations and warranties of the Selling
Stockholder contained herein are true and correct as of the Closing Time;
such officer may rely upon the best of his knowledge in making such
certificate.
(b) You shall have received the favorable opinion, dated as of the
Closing Time, of Warren G. Andersen, Attorney, Legal Staff of the Company,
to the effect that:
(i) The Company is a corporation validly existing and in good
standing under the laws of the State of Delaware, is duly qualified to
transact
4
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so
qualified or in good standing would not have a materially adverse
effect on the financial position of the Company and its subsidiaries
taken as a whole,
(ii) each of HEC, Hughes Aircraft Company and Delco Electronics
Corporation is a corporation validly existing and in good standing
under the laws of its state of incorporation, is duly qualified to
transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of
property requires such qualification and has all requisite corporate
power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure
to be so qualified or in good standing would not have a materially
adverse effect on the financial position of HEC and its subsidiaries
taken as a whole,
(iii) the authorized, issued and outstanding capital stock of the
Company conforms as to legal matters to the description thereof
contained in the Prospectus,
(iv) the Securities sold by the Selling Stockholder hereunder have
been duly authorized and validly issued and are fully paid and non-
assessable,
(v) this Agreement has been duly authorized, executed and
delivered by the Company,
(vi) the execution, delivery and performance of this Agreement will
not contravene any provision of applicable law or the Certificate of
Incorporation or By-laws of the Company or any agreement or other
instrument known to such counsel and binding upon the Company, and no
consent, approval or authorization of any governmental body or agency
is required for the performance of this Agreement other than the
registration of the Securities under the 1933 Act and compliance with
the securities or Blue
5
Sky Laws of various jurisdictions (as to which no opinion is
expressed),
(vii) the statements in the Prospectus under "Description of
Capital Stock" and "Underwriting" insofar as such statements
constitute a summary of the legal matters or documents referred to
therein, fairly summarize the information called for with respect to
such legal matters and documents, and
(viii) after due inquiry, such counsel does not know of any legal
or governmental proceeding or investigation pending or threatened to
which the Company or any of its subsidiaries is a party or to which
any of the properties of the Company or of HEC is subject which is
required to be described in the Registration Statement or the
Prospectus and is not so described or of any contract or other
document which is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed as required.
(c) You shall have received the favorable opinion, dated as of the
Closing Time, of Kirkland & Ellis, counsel for the Company, covering the
matters referred to in (iii) (as to authorized capital stock only), (iv),
(v) and (vii) above.
(d) You shall have received the favorable opinion, dated as of the
Closing Time, of Davis Polk & Wardwell, counsel for the Underwriters,
covering the matters referred to in (iii) (as to authorized capital stock
only), (v) and (vii) above.
(e) You shall have received the favorable opinion, dated as of the
Closing Time, of Skadden, Arps, Slate, Meagher & Flom, counsel for the
Selling Stockholder, to the effect that:
(i) the Selling Stockholder is a corporation validly existing and
in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to consummate the transactions
contemplated hereby,
(ii) this Agreement has been duly authorized, executed and
delivered by the Selling Stockholder and is a valid and binding
obligation of the Selling Stockholder enforceable in accordance with
its terms, except as may be limited by bankruptcy,
6
insolvency, reorganization or similar laws affecting the enforcement
of creditors' rights in general and by general principles of equity,
regardless of whether such enforceability is considered in a
proceeding in equity or at law and except as rights to indemnity and
contribution hereunder may be limited by applicable law, and
(iii) upon the delivery of and payment for the Securities as
herein contemplated, the Underwriters who has acquired Securities from
the Selling Stockholder in good faith and without notice of any
adverse claim within the meaning of the Uniform Commercial Code will
acquire such Securities free of any adverse claim.
(f) Each counsel referred to in (b), (c) and (d) above shall
additionally state that, based upon the participation of such counsel in
the preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto (but not including, with respect to
counsel referred to in (c) and (d) above, documents incorporated therein by
reference) and review and discussion of the contents thereof (including
documents incorporated therein by reference), nothing has come to the
attention of such counsel that would lead such counsel to believe that the
Registration Statement, at the time it became effective or at the
Representation Date, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus, at
the Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the Company for
use in connection with the offering of the Securities which differs from
the Prospectus on file at the Commission at the Representation Date, in
which case at the time it is first provided to the Underwriters for such
use) or at Closing Time, included an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that such counsel need not make such
statement with respect to the financial statements and supporting schedules
and other financial information contained or incorporated by reference into
the Registration Statement and the Prospectus.
(g) You shall have received the favorable opinion, dated as of the
Closing Time, of Anton H. Zidansek,
7
Assistant General Tax Counsel, Tax Staff of the Company to the effect that
the discussion set forth under the caption "Certain Federal Tax
Considerations for Non-United States Holders" in the Prospectus accurately
reflects such counsel's views on the matters discussed therein and is based
on reasonable interpretations of existing law.
(h) You shall have received on the date of this Agreement a letter
dated such date and also at the Closing Time a letter dated as of the
Closing Time, in each case in form and substance satisfactory to you, from
each of Deloitte & Touche and KPMG Peat Marwick, independent auditors,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in or
incorporated by reference into the Registration Statement and the
Prospectus.
(i) At Closing Time counsel for the Underwriters shall have been
furnished with such documents and opinions as they may reasonably require
for the purpose of enabling them to pass upon the sale of the Securities as
contemplated herein and related proceedings, or in order to evidence the
accuracy of any of the representations or warranties, or the fulfillment of
any of the conditions, herein contained; and all proceedings taken by the
Company and the Selling Stockholder in connection with the sale of the
Securities as herein or therein contemplated shall be reasonably
satisfactory in form and substance to you and your counsel.
If any condition specified in this Article shall not have been fulfilled when
and as required to be fulfilled, this Agreement may be terminated by you by
notice to the Company and the Selling Stockholder at any time at or prior to
Closing Time, and such termination shall be without liability of any party to
any other party except as provided in Article VIII.
V.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
(a) To furnish you, without charge, three copies of the Registration
Statement as filed with the Commission (including exhibits thereto and
documents incorporated therein by reference) and, during the period
mentioned in paragraph (c), any supplements and amendments thereto as you
may reasonably request. The terms "supplement" and
8
"amendment" or "amend" as used in this Agreement shall include all
documents subsequently filed by the Company with the Commission pursuant to
the Securities Exchange Act of 1934, as amended (the "1934 Act"), which are
deemed to be incorporated by reference in the Prospectus.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish you a copy of each such proposed amendment or
supplement.
(c) If, during such period after the first date of the public offering
of the Securities as in the opinion of your counsel the Prospectus is
required by law to be delivered in connection with sales by an Underwriter
or dealer, any event shall occur as a result of which it is necessary to
amend or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it is necessary to amend or supplement the
Prospectus to comply with law, forthwith to prepare and furnish, at its own
expense, to the Underwriters and to the dealers (whose names and addresses
you will furnish to the Company) to which Securities may have been sold by
you and to any other dealers upon request, either amendments or supplements
to the Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus will comply with law.
(d) To endeavor to qualify the Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all expenses (including reasonable fees and
disbursements of counsel) in connection therewith.
(e) To make generally available to the Company's security holders as
soon as practicable an earnings statement covering the twelve month period
ending December 31, 1995, which shall satisfy the provisions of Section
11(a) of the 1933 Act and the 1933 Act Regulations.
(f) Not to offer or sell, or solicit offers to purchase, or file any
registration statement under the 1933 Act (other than any registration
statement filed pursuant to Rule 415 under the 1933 Act) with respect to,
any shares of Class H Common Stock (or securities convertible into or
exchangeable for such shares) during
9
the period from the Representation Date until 90 days thereafter without
the prior written consent of Goldman, Sachs & Co. and Salomon Brothers Inc;
provided that the Company shall not be precluded from (i) the issuance of
shares of Class H Common Stock upon the conversion, exercise or exchange,
by the holder thereof, of options, warrants or other securities convertible
into or exercisable for the Class H Common Stock pursuant to the terms of
such options, warrants or other securities, (ii) transfers pursuant to the
terms of any other agreement to issue shares of Class H Common Stock (or
any securities convertible into or exchangeable or exercisable for the
Class H Common Stock) in effect on the date of the original filing of the
Registration Statement with the Commission, including any such agreement in
connection with any previously disclosed acquisition, merger, consolidation
or other business combination, (iii) transfers in connection with dividend
reinvestment plans or employee benefit plans of the Company (or a
subsidiary of the Company) and (iv) making any offer or sale of shares of
Class H Common Stock (or securities convertible into or exchangeable for
such shares) as consideration in any merger or consolidation or the
acquisition by General Motors or any subsidiary of General Motors of the
capital stock or a substantial portion of the assets of any other entity in
a transaction that would not constitute a "public offering" of such shares
(or such other securities) within the meaning of the 1933 Act, provided
--------
that the recipient of such shares (or such other securities) agrees in
writing not to offer or sell such shares for a period ending on the date
that is 90 days after the Representation Date without the prior written
consent of Goldman, Sachs & Co. and Salomon Brothers Inc.
In further consideration of the agreements of the Underwriters herein
contained, the Selling Stockholder covenants not to offer or sell, or solicit
offers to purchase, any shares of Class H Common Stock (or securities
convertible into or exchangeable for such shares) during the period from the
Representation Date until 90 days thereafter without the prior written consent
of Goldman, Sachs & Co. and Salomon Brothers Inc; provided, that nothing
contained in this Article V shall prevent the sale of the Securities hereunder
or the sale of Class H Common Stock to the Company upon the exercise of any put
rights by the Selling Stockholder.
VI.
The Company represents and warrants to each Underwriter that (i) each
document filed or to be filed pursuant to the 1934 Act and incorporated by
reference in the Prospectus complied or will comply when so filed in all
material respects with the 1934 Act and the rules and regulations of the
Commission thereunder, (ii) each preliminary Prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all
material respects with the 1933 Act and the 1933 Act Regulations, (iii) the
Registration Statement and Prospectus complied on the date the Registration
Statement became effective, and will comply on the Representation Date, in all
material respects with the 1933 Act and the 1933 Act Regulations and, as of such
dates did not
10
and will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (iv) none of the Company or any material
subsidiary does business with the government of Cuba or with any person or
affiliate located in Cuba and the Company and each material subsidiary has
complied to the extent necessary with all provisions of Florida H.B. 1771;
except that these representations and warranties do not apply to statements or
omissions in the Registration Statement or the Prospectus or any preliminary
Prospectus based upon information furnished to the Company in writing by the
Selling Stockholder or by any Underwriter expressly for use therein.
The Selling Stockholder represents and warrants to the Company and
each Underwriter that (i) this Agreement has been and the Pricing Agreement,
when executed and delivered by the Selling Stockholder, will have been duly
authorized, executed and delivered by the Selling Stockholder, (ii) the Selling
Stockholder has good and marketable title to the Securities to be sold by the
Selling Stockholder hereunder and full power, right and authority to sell such
Securities, and upon the delivery of and payment for the Securities as herein
contemplated, each of the Underwriters will receive good and marketable title to
the Securities purchased by it from the Selling Stockholder, free and clear of
any mortgage, pledge, lien, security interest, encumbrance, claim or equity,
(iii) any written information furnished to the Company by the Selling
Stockholder for use in the Registration Statement, the Prospectus, any
amendments or supplements thereto, or any preliminary Prospectus does not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading and (iv) the
Selling Stockholder has not taken and will not take, directly or indirectly, any
action designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Class H Common Stock.
The Company agrees to indemnify and hold harmless each Underwriter,
the directors and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary Prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
11
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished to the
Company in writing by any Underwriter or the Selling Stockholder through you
expressly for use therein, and agrees to reimburse each such indemnified party,
as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such losses, claims, damages or
liabilities promptly after receipt of adequate documentation relating thereto;
provided that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Securities, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Securities to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage or liability. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
The Selling Stockholder agrees to indemnify and hold harmless the
Underwriters, their directors and each person, if any, who controls the
Underwriters within the meaning of either Section 15 of the 1933 Act or Section
20 of the 1934 Act to the same extent as the foregoing indemnity from the
Company to each Underwriter, but only with reference to information furnished to
the Company in writing by the Selling Stockholder expressly for use in the
Registration Statement, the Prospectus, any amendment or supplement thereto, or
any preliminary prospectus. This indemnity agreement will be in addition to any
liability which the Selling Stockholder may otherwise have.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, each of its officers who signs the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act,
HEC and the Selling Stockholder, its trustees, directors and each person, if
any, who controls the Selling Stockholder within the meaning of either Section
15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to information furnished to the Company in writing by such Underwriter
expressly for use in the Registration Statement, the Prospectus, any amendment
or supplement thereto, or any preliminary prospectus. This indemnity agreement
will be in addition to any liability which any Underwriter may otherwise have.
12
In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to any of the three preceding paragraphs, such person
(hereinafter called the indemnified party) shall promptly notify the person
against whom such indemnity may be sought (hereinafter called the indemnifying
party) in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party shall have agreed in writing to pay such fees and expenses,
(ii) the indemnifying party shall have failed to assume the defense of such
proceeding and employ counsel reasonably satisfactory to the indemnified person
in such proceeding or (iii) the named parties to any such proceeding (including
any impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm (in addition to any
local counsel) for all such indemnified parties, and that all such fees and
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters and such control persons of Underwriters,
such firm shall be designated in writing jointly by Goldman, Sachs & Co. and
Salomon Brothers Inc. In the case of any such separate firm for the Selling
Stockholder and such control persons of the Selling Stockholder, such firm shall
be designated in writing by the Selling Stockholder. In the case of any such
separate firm for the Company, and such directors, officers and control persons
of the Company, such firm shall be designated in writing by the Company. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
If the indemnification provided for in the third, fourth or fifth
paragraph of this Article VI is unavailable to hold harmless an indemnified
party in respect of any losses, claims, damages or liabilities referred
13
to therein, then each indemnifying party under such paragraph shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Selling Stockholder on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholder on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company and the
Selling Stockholder bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth on the cover of the
Prospectus. The relative fault of the Company, the Selling Stockholder and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, by the Selling Stockholder or by the Underwriters and the parties'
relative interest, knowledge, access to information and opportunity to correct
or prevent such statement or omission.
The Company, the Selling Stockholder and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Article VI
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Article VI, no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount or commission applicable to the Securities purchased by
such Underwriter hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such
14
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Article VI are several in proportion to the respective number
of Securities purchased by each Underwriter, and not joint.
The indemnity and contribution agreements contained in this Article VI
and the representations and warranties of the Company and the Selling
Stockholder contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by on behalf of the Company, its officers and directors or
any other person controlling the Company and (iii) acceptance of any payment for
any of the Securities.
VII.
This Agreement shall be subject to termination in your absolute
discretion, by notice given to the Company and the Selling Stockholder, if prior
to the Closing Time (i) trading in securities generally or trading in the Class
H Common Stock on the New York Stock Exchange or the American Stock Exchange
shall have been suspended or materially limited, (ii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iii) there shall have occurred any
material outbreak or escalation of hostilities or other calamity the effect of
which on the financial markets is such as to make it, in your reasonable
judgment, impracticable to market the Securities.
VIII.
This Agreement shall become effective when notification of the
effectiveness of the Registration Statement has been released by the Commission
and you and the Selling Stockholder (after consultation with the Company) shall
have agreed upon the public offering price. If the public offering price and the
purchase price of the Securities shall not have been agreed upon, the Pricing
Agreement shall not have been executed and delivered by all parties thereto,
prior to 5:00 p.m., New York Time, on the seventh full business day after the
Registration Statement shall have become effective, this Agreement shall
thereupon terminate without liability on the part of the Underwriters, the
Company or the Selling Stockholder, except as set forth herein.
15
If as of the Closing Time, any one or more of the Underwriters shall
fail or refuse to purchase the Securities which it or they have agreed to
purchase hereunder on such date, the other Underwriters shall have the right,
but not the obligation, severally in the proportions which the number of
Securities set forth opposite their names in Schedule A bear to the aggregate
number of Securities set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase
theSecurities which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date. If arrangements satisfactory to you
and the Selling Stockholder (after consultation with the Company) for the
purchase of such Securities are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any non-
defaulting Underwriter, the Company or the Selling Stockholder. In any such case
you or the Selling Stockholder (after consultation with the Company) shall have
the right to postpone the Closing Time, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and in the Prospectus or in any other documents or arrangements may be effected.
Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company or the Selling Stockholder shall be unable to perform its
obligations under this Agreement, the Underwriters or such Underwriters as have
so terminated this Agreement with respect to themselves, severally, shall be
reimbursed for all out-of-pocket expenses (including the fees and disbursements
of their counsel) reasonably incurred by such Underwriters in connection with
this Agreement or the offering contemplated hereunder by either the Company or
the Selling Stockholder, whichever party is responsible for such expenses
pursuant to Section 4 of the Class H Stock Sale Agreement between the Selling
Stockholder and the Company dated February 15, 1995.
This Agreement may be signed in two or more counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
* * * * * *
16
Very truly yours,
GENERAL MOTORS CORPORATION
By____________________________
Title_________________________
HOWARD HUGHES MEDICAL INSTITUTE
By____________________________
Title_________________________
CONFIRMED AND ACCEPTED,
as of the date first above written
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
COWEN & COMPANY
MORGAN STANLEY & CO. INCORPORATED
By __________________________
Goldman, Sachs & Co.
SALOMON BROTHERS INC
By __________________________
Title:
17
EXHIBIT A
15,000,000 Shares
GENERAL MOTORS CORPORATION
(a Delaware corporation)
Class H Common Stock
($0.10 Par Value Per Share)
PRICING AGREEMENT
-----------------
April , 1995
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
COWEN & COMPANY
MORGAN STANLEY & CO. INCORPORATED
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Reference is made to the Underwriting Agreement, dated April , 1995
(the "Underwriting Agreement"), relating to the purchase by the several
Underwriters named in Schedule A thereto (the "Underwriters"), of the above
shares of Class H Common Stock (the "Securities") of General Motors Corporation
(the "Company").
Pursuant to Article I of the Underwriting Agreement, the Selling
Stockholder agrees with each Underwriter as follows:
(1) The initial public offering price per share for the Securities,
determined as provided in said Article I, shall be _________.
(2) The purchase price per share for the Securities to be paid by the
several Underwriters shall be ________, being an amount equal to the initial
public offering price set forth above less ________ per share.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Selling Stockholder a
counterpart hereof, whereupon this instrument, along with all counterparts, will
become a binding agreement among the Underwriters, the Company and the Selling
Stockholder in accordance with its terms.
* * * * * *
2
Very truly yours,
HOWARD HUGHES MEDICAL INSTITUTE
By____________________________
Title_________________________
CONFIRMED AND ACCEPTED,
as of the date first above written
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
COWEN & COMPANY
MORGAN STANLEY & CO. INCORPORATED
GOLDMAN, SACHS & CO.
By __________________________
Goldman, Sachs & Co.
SALOMON BROTHERS INC
By __________________________
Title
3
SCHEDULE A
Number of
Name of Underwriter Securities
------------------- ------------
Goldman, Sachs & Co. . . . . . . . . . . . . . .
Salomon Brothers Inc . . . . . . . . . . . . . .
Cowen & Company . . . . . . . . . . . . . . . .
Morgan Stanley & Co. Incorporated . . . . . . . __________
__________
Total 15,000,000
==========
1
EX-5
3
OPINION OF ANDERSEN
EXHIBIT 5
March 24, 1995
General Motors Corporation
3044 West Grand Boulevard
Detroit, Michigan 48202
Ladies and Gentlemen:
I refer to the proposed sale by Howard Hughes Medical Institute ("HHMI") of
15,000,000 shares of Class H Common Stock, $0.10 par value per share (the
"Class H Common Stock"), of General Motors Corporation, a Delaware corporation
("General Motors"), as described in a Registration Statement on Form S-3 (the
"Registration Statement") filed on the date hereof with the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
I, in my capacity as an attorney on the Legal Staff of General Motors, am
familiar with the proceedings to date with respect to the proposed sale of the
Class H Common Stock to be sold by HHMI pursuant to the Registration Statement
and have examined such records, documents and matters of law and satisfied
myself as to such matters of fact as I have considered relevant for the
purposes of this opinion.
I am of the opinion that:
1. General Motors is a corporation validly existing under the laws of the
State of Delaware.
2. The issuance of the shares of Class H Common Stock to be sold by HHMI
pursuant to the Registration Statement was duly authorized by all
necessary corporate action of General Motors and such shares were
legally issued and are fully paid and nonassessable.
I do not find it necessary for the purposes of this opinion, and accordingly
I do not purport to cover herein, the application of the securities or "Blue
Sky" laws of the various states to the sale of the Class H Common Stock.
I am admitted to practice in the State of Michigan, and express no opinion
with respect to the laws of any jurisdiction other than the laws of the State
of Michigan, the General Corporation Law of the State of Delaware, and the
federal laws of the United States.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Warren G. Andersen
Warren G. Andersen
EX-8
4
OPINION OF ZIDANSEK
EXHIBIT 8
March 24, 1995
General Motors Corporation
3044 West Grand Boulevard
Detroit, Michigan 48202
Dear Sirs/Mesdames:
In connection with the proposed sale by Howard Hughes Medical Institute of
General Motors Corporation's Class H Common Stock (the "Shares"), pursuant to
this Registration Statement filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, you have requested my legal
opinion concerning certain United States Federal income tax consequences of
ownership of the Shares to holders of the Shares who are nonresident alien
individuals, foreign corporations, foreign partnerships, or nonresident
fiduciaries of a foreign estate or trust ("Non-United States Holders"). I have
examined the Registration Statement and such other documents and such legal
authorities as I have deemed relevant for purposes of expressing the opinions
contained herein.
My opinion is based upon the applicable provisions of the Internal Revenue
Code of 1986, as amended through the date hereof, Treasury regulations
promulgated and proposed thereunder, current positions of the Internal Revenue
Service (the "IRS") contained in published Revenue Rulings and Revenue
Procedures and existing judicial decisions. No tax rulings have been or will be
sought from the IRS with respect to any of the matters discussed herein.
Based on the foregoing, and subject to the discussion set forth under the
caption "Certain United States Federal Income Tax Considerations for Non-United
States Holders" in the Prospectus forming part of the Registration Statement,
my opinion as to the material Federal income tax consequences of the purchase,
ownership and disposition of the Shares to Non-United States Holders is as
follows:
1. Dividends paid on the Shares will be subject to withholding tax at a 30%
rate (or such lower rate as may be specified by an applicable income tax
treaty), unless such dividends are effectively connected with the Non-
United States Holder's conduct of a trade or business within the United
States.
2. Dividends which are effectively connected with the Non-United States
Holder's conduct of a trade or business within the United States will be
subject to regular United States income tax in the same manner as if the
Non-United States Holder were a United States resident. Such dividends
received by a non-United States corporation also may be subject to an
additional "branch profits tax" at a 30% rate (or such lower rate as may
be specified by an applicable income tax treaty) of its effectively
connected earnings and profits, subject to certain adjustments.
3. A Non-United States Holder generally will not be subject to United
States Federal income tax with respect to gain realized on a sale or
other disposition of the Shares, unless (i) the gain is effectively
connected with the Non-United States Holder's conduct of a trade or
business within the United States, or (ii) in the case of certain Non-
United States Holders who are nonresident alien individuals and hold
such Shares as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year of the disposition.
4. An individual Non-United States Holder who is treated as the owner of
Shares or has made certain lifetime transfers of Shares will be required
to include the value thereof in his gross estate for United States
Federal estate tax purposes, and may be subject to United States Federal
estate tax unless an applicable estate tax treaty provides otherwise.
5. The discussion set forth under the caption "Certain United States
Federal Income Tax Considerations for Non-United States Holders" in the
Prospectus forming part of the Registration Statement is based upon
reasonable interpretations of existing law.
There can be no assurance that these views will not be successfully
challenged by the IRS or significantly altered by new legislation, changes in
IRS positions or judicial decisions, any of which challenges or alterations may
be applied retroactively with respect to completed transactions.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of my name under the caption "Legal Matters"
in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Anton H. Zidansek
Anton H. Zidansek
Assistant Tax Counsel
2
EX-23.A
5
CONSENT OF DELOITTE
EXHIBIT 23(A)
CONSENT OF INDEPENDENT AUDITORS
GENERAL MOTORS CORPORATION:
We consent to the use in this Registration Statement on Form S-3 of our
report dated January 30, 1995 appearing in Appendix B of the Prospectus, which
is part of this Registration Statement, and to the incorporation by reference
of our reports dated January 30, 1995 appearing in the Annual Report of General
Motors Corporation on Form 10-K for the year ended December 31, 1994 and to the
reference to us under the heading "Experts" in the Prospectus.
/s/ Deloitte & Touche LLP
Detroit, Michigan
March 23, 1995
EX-23.B
6
CONSENT OF KPMG
EXHIBIT 23(B)
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
ELECTRONIC DATA SYSTEMS CORPORATION:
We hereby consent to the use of our report incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
March 23, 1995
EX-99
7
STOCK SALE AGREEMENT
EXHIBIT 99
CLASS H STOCK SALE AGREEMENT
This Agreement is entered into on February 15, 1995, by and between Howard
Hughes Medical Institute, a Delaware corporation (the "Institute"), and General
Motors Corporation, a Delaware corporation ("General Motors").
Whereas, the Institute is the owner of 17,503,800 shares of the Class H
Common Stock, par value $0.10 per share, of General Motors (the "Class H Common
Stock");
Whereas, the Institute and General Motors are parties to the Class H Stock
Agreement dated as of February 27, 1989 (as amended by Amendment to Class H
Stock Agreement dated as of October 15, 1992, the "1989 Class H Agreement");
and
Whereas, the Institute and General Motors desire to make certain arrangements
with respect to a proposed offering and sale of that number of shares of Class
H Common Stock which the Institute determines it wishes to sell.
Now, therefore, in consideration of the foregoing and the mutual agreements
hereinafter contained, the Institute and General Motors agree as follows:
1. The Distribution.
(a) The proposed offering and sale of shares of Class H Common Stock by the
Institute to which this Agreement relates (the "Distribution") shall be a
customary firm commitment underwriting, which shall be registered under the
Securities Act of 1933, as amended (the "Act"), for that number of shares of
Class H Common Stock which the Institute determines it wishes to sell. The
Institute will select the investment banker or investment bankers that will
manage the Distribution; provided that the investment banker or investment
bankers selected by the Institute shall be reasonably acceptable to General
Motors.
(b) The Institute may determine not to proceed with the Distribution at any
time for any reason; provided that if the Institute so determines it shall
immediately abandon and terminate all activities in connection with the
Distribution and immediately notify General Motors of such determination.
(c) The parties acknowledge that the provisions of this agreement are
intended to reflect the mutual interest of the Institute and General Motors in
having any shares of Class H Common Stock that the Institute desires to sell
offered and sold in an orderly manner which does not materially adversely
affect the market price of the Class H Common Stock and, to this end, the
parties agree to consult with each other with respect to the Institute's
distribution plans and the views of General Motors with respect to the types of
distribution which, in General Motors' opinion, would materially adversely
affect the market price of the Class H Common Stock.
2. Distribution Procedures.
(a) In connection with the Distribution, General Motors agrees:
(i) as soon as practicable to prepare (in conjunction with the Institute)
and file with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form S-3 (the "Registration Statement");
(ii) to use its best efforts, subject to receipt of necessary information
from the Institute, to cause the Registration Statement to become effective
as soon as practicable after the filing thereof; provided that a reasonable
time before filing a Registration Statement or prospectus or any
1
amendments or supplements thereto, General Motors shall furnish copies of
all such documents proposed to be filed to the Institute and to one counsel
for the Institute;
(iii) to prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep the Registration Statement
effective for a period of sixty days (as extended by any period during
which (A) offers and sales are suspended pending receipt of a supplemented
or amended prospectus following the occurrence of an event of the kind
described in Section 2(a)(vi), or (B) the Distribution is postponed or
suspended pursuant to the provisions of Section 2(f) or otherwise suspended
or delayed for any reason (other than the exercise by the Institute of its
reasonable business judgment or market conditions)) or such shorter period
which shall terminate when all shares of Class H Common Stock covered by
the Registration Statement (other than any shares subject to any
underwriter's over-allotment option to the extent that such option has
expired unexercised) have been sold, but in no event shorter than any
period required to comply with the provisions of the Act with respect to
the disposition of shares of Class H Common Stock covered thereby in
accordance with the method of disposition set forth in the Registration
Statement;
(iv) to furnish to the Institute (and to each underwriter, if any) such
number of copies of prospectuses and preliminary prospectuses included in
the Registration Statement and such other documents as the Institute may
reasonably request, in order to facilitate the Distribution; provided,
however, that the obligation of General Motors to deliver such copies to
the Institute shall be subject to the receipt by General Motors of
reasonable assurances from the Institute that the Institute shall comply
with the applicable provisions of the Act and of such other securities or
blue sky laws as may be applicable in connection with any use thereof;
(v) to file documents (if any) required of General Motors for normal blue
sky clearance in states reasonably specified in writing by the Institute;
provided that General Motors shall not be required to (a) qualify generally
to do business in any jurisdiction where it would not otherwise be required
to qualify but for this subparagraph, (b) subject itself to taxation in any
such jurisdiction where it would not otherwise be subject to taxation or
(c) consent to general service of process in any such jurisdiction where it
would otherwise not be subject thereto;
(vi) to notify the Institute, at any time when a prospectus relating to
the Registration Statement is required to be delivered under the Act, of
the occurrence of an event relating to General Motors which requires the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of shares of Class H Common Stock,
such prospectus shall not contain an untrue statement of a material fact or
an omission to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and promptly make available to
the Institute any such supplement or amendment;
(vii) to make available members of the management of GM Hughes
Electronics Corporation and, if appropriate, of General Motors, in each
case selected by General Motors, for reasonable assistance in the selling
effort relating to the shares of Class H Common Stock covered by the
Registration Statement;
(viii) to enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of the shares
of Class H Common Stock in the Distribution; and
(ix) to use its best efforts to obtain a comfort letter or letters from
General Motors' independent certified public accountants and to provide
opinions from General Motors (or General Motors' outside counsel), in each
case, in customary form and covering such matters of the type customarily
covered as the managing underwriter for the Distribution reasonably
requests.
(b) In the event General Motors has notified the Institute that (i) the
Registration Statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not
2
misleading, then the Institute shall not deliver the related prospectus to any
purchaser until a supplement or amendment thereto has been prepared as set
forth in Section 2(a)(vi) or until General Motors advises the Institute in
writing that the use thereof may be resumed. General Motors may require the
Institute to furnish to General Motors such information regarding the
distribution of shares of Class H Common Stock and such other information as
may be required in connection with the Distribution. The Institute shall
promptly take any and all actions reasonably requested by General Motors to
enable General Motors to comply with its obligations under this Section 2.
(c) The Institute agrees that it shall proceed in good faith, subject to the
exercise of reasonable business judgment, market conditions and the provisions
of this Agreement (including Section 1(b) hereof) to commence and complete the
Distribution as promptly as practicable after the date hereof. The Institute
shall keep General Motors reasonably informed as to the status of the
Distribution and shall notify General Motors promptly upon completion of the
Distribution. The Institute acknowledges and agrees that General Motors will
participate and assist, and the Institute will afford General Motors
opportunities to participate and assist, in the offering process and the
selling effort related to the Distribution. Without limiting the generality of
the foregoing, General Motors, the Institute and the underwriters for the
Distribution shall cooperate and work together in planning the selling efforts,
including the presentations to be made to potential purchasers and the
determination of which potential investors to contact with respect to the
Distribution.
(d) The Institute shall comply with the applicable provisions of the Act and
of such other securities or blue sky laws as may be applicable in connection
with the Distribution. Without limiting the generality of the foregoing, the
Institute agrees that it shall not use any offering document, offering circular
or other offering materials with respect to the offer or sale of shares of
Class H Common Stock in the Distribution other than the prospectuses provided
by General Motors hereunder and any documents incorporated by reference
therein.
(e) The Institute shall notify General Motors promptly at any time when a
prospectus related to the Registration Statement is required to be delivered
under the Act of the occurrence of any event relating to the Institute which
requires the preparation of an appropriate supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of shares of
Class H Common Stock, such prospectus shall not contain an untrue statement of
a material fact or an omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading relating to the
Institute, and General Motors shall promptly make available to the Institute
any such supplement or amended prospectus. The Institute also agrees that, upon
the occurrence of any such event, the Institute shall forthwith discontinue
disposition of shares of Class H Common Stock until the Institute's receipt of
the copies of the supplement or amended prospectus contemplated by this
paragraph.
(f) General Motors shall be entitled to postpone or suspend the Distribution
(including to postpone the filing or effectiveness of the Registration
Statement or the use of any related prospectus) if General Motors determines,
in its reasonable judgment, that the Distribution or such filing, effectiveness
or use would (i) materially interfere with any proposal or plan by General
Motors or any of its affiliates to engage in any material acquisition, merger,
consolidation, tender offer, securities offering or other material transaction
(other than an equity offering for cash proceeds) or (ii) require General
Motors to make public disclosure of information the disclosure of which would
have a material adverse effect on Delco Electronics Corporation, Hughes
Aircraft Company, GM Hughes Electronics Corporation or General Motors. If
General Motors makes such a determination, it shall promptly give the Institute
a certificate signed by an officer of General Motors setting forth such
determination. General Motors agrees that it shall terminate any such
postponement or suspension as promptly as reasonably practicable and shall
promptly notify the Institute of such termination. In making any such
determination to initiate or terminate a postponement or suspension, General
Motors shall not be required to consult with or obtain the consent of the
Institute, and any such determination shall be General Motors, responsibility
alone, and the Institute shall not be responsible or have any liability
therefor.
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3. Confidentiality.
(a) Subject to the compliance with legal requirements in the reasonable
business judgment of each party, each of the parties shall treat all non-public
information relating to the Distribution received from the other party
(including the existence of and any reasons for any postponement or suspension
thereof under Section 2(f)) with the strictest confidence and shall not
disclose or disseminate such information; provided that, if the Institute has
determined not to proceed with the Distribution or if offers and sales by the
Institute are not then prohibited by Section 6(b), the foregoing shall not
prevent the Institute from disclosing such information as it reasonably
determines it is required to disclose in connection with any offer, sale or
other disposition by the Institute of General Motors' securities; and provided,
further, that the Institute shall not disclose any non-public information
(including any information disclosed to the Institute pursuant to Section 3(b))
prior to three Business Days after the Institute gives notice to General Motors
that it intends to disclose such information. Except as required by law in the
Registration Statement and any related prospectus (and subject to the
provisions of Section 2(f)), nothing herein shall be construed to require
General Motors or any of its subsidiaries or affiliates at any time to make any
public disclosure of information or to make any disclosure of non-public
information to the Institute.
(b) If the Institute is advised by its legal counsel to obtain information
from General Motors regarding matters which (i) federal securities laws require
to be included in the Registration Statement or (ii) relates to the
preservation by the Institute of legal defenses associated with the Institute's
federal securities laws responsibilities with respect to the Distribution, it
shall do so through outside legal counsel and other outside advisors who have
agreed to be bound by the provisions of Section 3 selected by the Institute and
in the manner advised by legal counsel. Such legal counsel and advisors may
provide any such information obtained by them to the Institute if they
determine that doing so is reasonably necessary, in the view of legal counsel,
in order for the Institute to satisfy any disclosure requirements applicable to
it or preserve any defenses of the Institute under the federal securities laws
in connection with the Distribution. Legal counsel to the Institute shall
advise General Motors in advance if and to the extent any such information is
to be provided to the Institute. The Institute shall limit the disclosure of
any information which it has obtained pursuant to this Section 3(b) in the
manner contemplated by Section 3(a).
(c) Notwithstanding the provisions of this Section 3, if General Motors shall
disclose any non-public information to the Institute in connection with its
exercise of the Put Right (as defined below) or the Over-Allotment Put (as
defined below), the Institute shall treat such information with the strictest
confidence and shall not disseminate such information until 21 days following
the date on which it received such information.
4. Payment of Distribution Expenses. All Distribution Expenses (as defined
below) incident to General Motors' performance of its obligations with respect
to the Distribution under Section 2 hereof shall be paid by the Institute
promptly upon demand by General Motors for payment regardless of whether the
Distribution has been commenced or completed; provided that the Institute shall
not be obligated to pay such Distribution Expenses in the event that the
Institute determines not to proceed with the Distribution as a result of the
exercise by General Motors of its rights to postpone the Distribution under
Section 2(f) hereof. The term "Distribution Expenses" means expenses reasonably
incurred in order to effect the Distribution which would not have been incurred
but for the Distribution, including, without limitation, all registration and
filing fees, fees and expenses of compliance with federal and state securities
or blue sky laws (including reasonable fees and disbursements of counsel),
reasonable printing expenses, messenger and delivery expenses, reasonable fees
and disbursements of counsel for General Motors and its independent certified
public accountants, reasonable fees and expenses of any special experts or
others retained by General Motors (as being necessary or advisable) in
connection with the Distribution, reasonable travel expenses and other out-of-
pocket costs incurred by General Motors in carrying out its agreements
hereunder, any underwriting discounts, commissions or fees attributable to the
sale of securities, reasonable fees and disbursements of counsel to the
Institute and other expenses incurred in connection with the Distribution.
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5. Indemnification.
(a) General Motors agrees to indemnify and hold harmless the Institute, its
trustees, directors, officers, employees and agents and each person who would
be an underwriter, its trustees, officers, directors, employees and agents, and
each person, if any, who controls within the meaning of either Section 15 of
the Act or Section 20 of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), the Institute or any such underwriter, from and against
any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any related prospectus, or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to General Motors by or on behalf of the
Institute expressly for use therein; provided that with respect to any untrue
statement or omission or alleged untrue statement or omission made in the
Registration Statement or any such prospectus, or in any amendment or
supplement thereto, the indemnity agreement provided for in this paragraph
shall not apply to the extent that any such loss, claim, damage, liability or
expense results from the fact that a copy of the Registration Statement or such
related prospectus, or in any amendment or supplement thereto, was not sent or
given to the person asserting any such losses, claims, damages, liabilities or
expenses at or prior to the written confirmation of the sale of the shares of
Class H Common Stock concerned to such person.
(b) The Institute agrees, and each underwriter selected shall agree, to
indemnify and hold harmless General Motors and its subsidiaries and their
respective directors, officers, employees and agents and each person, if any,
who controls General Motors or any of its subsidiaries within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from General Motors, but only with respect to
information furnished in writing by or on behalf of the Institute or such
underwriter, as the case may be, expressly for use in the Registration
Statement or related prospectus or any amendment or supplement thereto. Each
underwriter selected shall agree to indemnify the Institute, its trustees,
directors, officers, employees, agents and each person, if any, who controls
the Institute within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, to the same extent that each underwriter indemnifies General
Motors. The Institute agrees to indemnify and hold harmless the underwriters of
the shares of Class H Common Stock, their officers and directors and each
person who controls such underwriters on substantially the same basis as that
of the indemnification of General Motors provided in this Section 5.
(c) If any action or proceeding (including any governmental investigation)
shall be brought or asserted against any person indemnified hereunder in
respect of which indemnity may be sought from an indemnifying party, the
indemnifying party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to the indemnified person, and shall assume
the payment of all expenses. The indemnified person shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such separate counsel shall be at the
expense of the indemnified person unless (i) the indemnifying party has agreed
in writing to pay such fees and expenses, (ii) the indemnifying party shall
have failed to assume the defense of such action or proceeding and employ
counsel reasonably satisfactory to the indemnified person in such action or
proceeding or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both an indemnified person and the
indemnifying party, and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in connection
with any proceeding or related actions or proceedings in the same jurisdiction
be liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for the indemnified
persons, which firm shall be designated in writing by whichever of General
5
Motors or the Institute is an indemnified person. No indemnifying party shall
be liable for any settlement of any such action or proceeding effected without
its written consent, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action or proceeding, the
indemnifying party agrees to indemnify and hold harmless the indemnified person
from and against any loss or liability (to the extent stated above) by reason
of such settlement or judgment.
(d) If the indemnification provided for in this Section 5 is unavailable in
respect of any losses, claims, damages, liabilities or judgments referred to
therein, then each such indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
judgments (i) as between General Motors and the Institute on the one hand and
the underwriters on the other, in such proportion as is appropriate to reflect
the relative benefits received by General Motors and the Institute on the one
hand and the underwriters on the other from the offering of the shares of Class
H Common Stock, or if such allocation is not permitted by applicable law, in
such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of General Motors and the Institute on the one hand
and of the underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations and (ii) as
between General Motors, on the one hand, and the Institute on the other, in
such proportion as is appropriate to reflect the relative fault of General
Motors and of the Institute in connection with such statements or omissions, as
well as any other relevant equitable considerations. The relative benefits
received by General Motors and the Institute on the one hand and the
underwriters on the other shall be deemed to be in the same proportion as the
total proceeds from the Distribution (net of underwriting discounts and
commissions but before deducting expenses) received by General Motors and the
Institute bear to the total underwriting discounts and commissions received by
the underwriters, in each case as set forth in the table on the cover page of
the prospectus. The relative fault of General Motors and the Institute on the
one hand and of the underwriters on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by General Motors and the Institute or by the
underwriters and the parties' relative interest, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The relative fault of General Motors on the one hand and of the Institute on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such party, and the parties, relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
(e) General Motors and the Institute agree that it would not be just and
equitable if contribution pursuant to this section were determined by pro rata
allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities, or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5, the
Institute shall not be required to contribute any amount in excess of the
amount by which the total price at which the shares of Class H Common Stock
sold by it exceeds the amount of any damages which the Institute has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) For purposes of this Section 5, any reference to an underwriter shall
include any person that would be deemed to be an underwriter within the meaning
of the Act if the Institute were deemed to be an issuer within the meaning of
the Act.
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6. Hold Back Agreements.
(a) General Motors agrees (and will directly agree with the underwriters for
the Distribution) that, unless the underwriter or underwriters administering
the Distribution otherwise agree, and except as specifically contemplated by
this Agreement in connection with the Distribution, it shall not offer or sell,
or solicit offers to purchase, or file any registration statement under the Act
(other than any registration statement filed pursuant to Rule 415 under the
Act) with respect to, any shares of Class H Common Stock (or securities
convertible into or exchangeable for such shares) during the period from the
date hereof until 90 days after the Pricing Date; provided that General Motors
shall not be precluded from (i) the issuance of shares of Class H Common Stock
upon the conversion, exercise or exchange, by the holder thereof, of options,
warrants or other securities convertible into or exercisable or exchangeable
for the Class H Common Stock pursuant to the terms of such options, warrants or
other securities, (ii) transfers pursuant to the terms of any other agreement
to issue shares of Class H Common Stock (or any securities convertible into or
exchangeable or exercisable for the Class H Common Stock) in effect on the date
of the commencement of the Distribution, including any such agreement in
connection with any previously disclosed acquisition, merger, consolidation or
other business combination, (iii) transfers in connection with dividend
reinvestment plans or employee benefit plans of General Motors (or a subsidiary
of General Motors) and (iv) making any offer or sale of shares of Class H
Common Stock (or securities convertible into or exchangeable for such shares)
as consideration in any merger or consolidation or the acquisition by General
Motors or any subsidiary of General Motors of the capital stock or a
substantial portion of the assets of any other entity.
(b) The Institute agrees that, except as specifically contemplated by this
Agreement in connection with the Distribution, it shall not offer or sell, or
solicit offers to purchase, any shares of Class H Common Stock (or securities
convertible into or exchangeable for such shares (whether Core Shares (as
defined in the 1989 Class H Agreement) or otherwise) during the period from the
date hereof until the Pricing Date (as defined below); provided that, if the
Registration Statement has not been filed by the date which is 40 days after
the date hereof, this sentence shall not apply during the period from such 40th
day until the date on which the Registration Statement is filed. The Institute
will directly agree with the underwriters for the Distribution that, unless the
underwriters administering the Distribution otherwise agree, and except as
specifically contemplated by this Agreement in connection with the
Distribution, it shall not offer or sell, or solicit offers to purchase, any
shares of Class H Common Stock (or securities convertible into or exchangeable
for such shares) (whether Core Shares or otherwise) during the period from the
Pricing Date until 90 days thereafter. Nothing in this Section 6(b) shall
prohibit the Institute from selling shares of Class H Common Stock to General
Motors upon the exercise of any put rights by the Institute or any call rights
by General Motors.
(c) The provisions of this Section 6 shall terminate and have no further
force or effect upon the giving of a notice by the Institute to General Motors
that the Institute has determined not to proceed with the Distribution as
described in Section 1(b).
7. Termination of 1989 Class H Agreement. Effective as of the date hereof and
without further action by either party, except for (i) General Motors' right to
purchase the Institute's Series IV Call Shares (as defined in the 1989 Class H
Agreement) (or any portion thereof) pursuant to the call right set forth in
Section 6 of the 1989 Class H Agreement and all rights and obligations of the
parties set forth in the 1989 Class H Agreement related to effecting such call
right and (ii) the Institute's right to require General Motors to purchase the
1995 Put Shares (as defined in the 1989 Class H Agreement) (or any portion
thereof) pursuant to the put right set forth in Section 5 of the 1989 Class H
Agreement and all rights and obligations of the parties set forth in the 1989
Class H Agreement related to effecting such put right, General Motors and the
Institute hereby terminate the 1989 Class H Agreement and mutually waive all
rights and release all obligations thereunder and such agreement shall be of no
further force or effect. General Motors agrees to cause the restrictive legend
required by the 1989 Class H Agreement on certificates of Class H Common Stock
held by the Institute to be removed promptly
7
from each such certificate following execution of this Agreement and to issue a
certificate or certificates for shares of Class H Common Stock without such
legend in the names and denominations specified in writing by the Institute.
8. Mandatory Purchase of Shares.
(a) So long as the Institute shall not have exercised its right to require
General Motors to purchase any of the 1995 Put Shares pursuant to Section 5 of
the 1989 Class H Agreement, on the Put Date (as defined below), the Institute
shall have the right to require General Motors, upon the terms and subject to
the conditions set forth in this Section 8, to purchase from the Institute (the
"Put Right") a number of shares of Class H Common Stock (the "Put Shares") (as
determined by the Institute) not to exceed (i) 15,000,000 minus (ii) if the
Institute shall have entered into the Underwriting Agreement (as defined
below), the sum of (x) the number of shares (other than any shares being
offered by the Institute that are subject to any underwriter's over-allotment
options, which are separately addressed in Section 8(h) below) actually sold
pursuant to such Agreement and (y) the number of shares being offered by the
Institute that are subject to any underwriters' over-allotment options.
For all purposes of this Agreement:
(v) the "Underwriting Agreement" shall mean any underwriting agreement
entered into in connection with the Distribution and the "Pricing
Agreement" shall mean any related pricing agreement with underwriters;
(w) a "Distribution Closing" shall mean a closing (including any delayed
closing with respect to an underwriters' over-allotment option) under the
Underwriting Agreement;
(x) the "Pricing Date" shall mean the date on which the Institute enters
into the Underwriting Agreement or, if such agreement does not specify the
price at which shares will be sold, the Pricing Agreement;
(y) a "Business Day" shall mean any day on which The New York Stock
Exchange, Inc. (the "NYSE") is open for trading, except in each year the
day following Thanksgiving Day and each day during the period from and
including December 24 through January 1; and
(z) the "Put Date" shall mean the earlier of (A) the first Business Day
after the Pricing Date, provided that, if the related Underwriting
Agreement is terminated without any Distribution Closing having occurred,
the Put Date shall not be deemed to have occurred pursuant to this clause
(A) and any Put Notice (as defined below) delivered prior to such
termination shall be null and void, except that, if the Pricing Date is on
or before June 30, 1995 and the related Underwriting Agreement is
terminated on June 30, 1995 or thereafter without any Distribution Closing
having occurred, the Put Date shall be the first Business Day after the
date such Underwriting Agreement so terminates, and (B) June 30, 1995 (or
such later date (the "Clause (A) Extended Put Date") as is determined to be
the Put Date pursuant to the exception set forth in the proviso to clause
(A) above), provided that, if for any reason (other than the exercise by
the Institute of its reasonable business judgment or market conditions)
there has not been a Distribution Closing by June 30, 1995, so long as,
prior to June 30, 1995, the Institute has not abandoned the Distribution as
described in Section 1(b) hereof, the Put Date as determined pursuant to
this clause (B) shall be, at the option of the Institute, June 30, 1995
(or, if later, the Clause (A) Extended Put Date) or September 30, 1995.
(b) The Institute may exercise the Put Right by delivering to General Motors
on or before the close of business (5:00 p.m., New York City time) on the Put
Date a written notice (the "Put Notice") setting forth the Institute's
intention to exercise the Put Right and the number of Put Shares to be
purchased at the Put Closing; provided, however, that the Put Notice may simply
specify that the Institute is exercising the Put Right with respect to the
maximum number of shares as to which it is permitted to exercise the Put Right
in the case of a Put Notice delivered on the first Business Day after the
Pricing
8
Date. The Put Right shall expire at the close of business on the Put Date (as
specified in Section 8(a)(z)) if it has not been exercised prior to that time.
The closing (the "Put Closing") of the sale and purchase of Put Shares pursuant
to this Section 8 shall take place at the New York offices of General Motors on
a date and at a time selected by General Motors which shall be not later than
ten Business Days after the Put Date and which, in the case of the Put Date
occurring on the first Business Day after the Pricing Date, shall be on or
after the first Distribution Closing. General Motors shall promptly notify the
Institute of the date of the Put Closing. If the Put Closing is prohibited by
the terms of any injunction or court order, the Institute and General Motors
will use their best efforts to have such prohibition lifted and to consummate
the sale and purchase of the related Put Shares as soon as practicable
thereafter.
(c) The purchase price for each Put Share purchased by General Motors
pursuant to the exercise of the Put Right (the "Put Purchase Price") shall be
$30.00; provided, that if the Put Share Market Value (as defined below) is less
than $10.00, then the Put Purchase Price shall be the sum of (i) the Put Share
Market Value and (ii) $20.00.
(d) At the Put Closing, the aggregate Put Purchase Price for all Put Shares
being purchased on such date, plus interest on such aggregate amount calculated
on a daily basis at a rate equal to the Applicable Treasury Rate (as defined
below) for such day, which interest shall accrue from the Business Day
following the Put Date to and including the date of the Put Closing (including
any period during which the Put Closing is prohibited by the terms of an
injunction or court order), shall be payable to the Institute by wire transfer
of immediately available funds to such account as the Institute shall have
previously designated in writing against the receipt of certificates
representing such Put Shares. After the Put Closing, the Institute shall have
no rights in respect of the Put Shares sold at the Put Closing, except the
right to receive (at the time paid to other stockholders of record) payments of
dividends on such Put Shares payable after the Put Closing to holders of record
of shares of Class H Common Stock on a date prior to the date of the Put
Closing. In the event that for any reason the Put Closing occurs after the
closing date selected by General Motors pursuant to Section 8(b), any dividend
received by the Institute on each Put Share being purchased which is payable to
holders of record of shares of Class H Common Stock on a date subsequent to
such date selected by General Motors shall be for the account of General Motors
and the Institute shall pay over the amount of such dividend to General Motors
at the Put Closing or, if the dividend payment date is after than the Put
Closing, promptly upon the Institute's receipt of such dividend.
(e) At the Put Closing, the Institute shall deliver to General Motors
certificates representing the Put Shares being purchased, duly endorsed, or
accompanied by stock power(s) duly executed in blank. The Institute shall also
deliver to General Motors a representation and warranty, duly executed on
behalf of the Institute, that at the Put Closing the Institute has valid and
marketable title to the Put Shares being purchased, free and clear of all
claims, liens, charges, encumbrances and security interests and that upon
delivery of and payment for such Put Shares at the Put Closing General Motors
will acquire good and marketable title to such Put Shares, free and clear of
any claims, liens, charges, encumbrances or security interests.
(f) The "Put Share Market Value" for purposes of this Section 8 shall be the
average of the daily high and low sales prices for the Class H Common Stock for
the 10 consecutive Business Days ending on and including the Business Day
immediately prior to the Put Date. The high and low sales prices for each day
shall be the high and low sales prices as reported in The Wall Street Journal
or, if not so reported, as reported in another newspaper of national
circulation selected by General Motors or, in case no such sale takes place on
such day, the average of the closing bid and asked prices regular way on the
NYSE, or if the Class H Common Stock is not then listed or admitted to trading
on the NYSE, on the largest principal national securities exchange (as
determined by total volume of trades during the preceding six months) on which
such stock is then listed or admitted to trading, or if not listed or admitted
to trading on any principal national securities exchange, then the average of
the last reported sales prices for such shares in the over-the-counter market,
as reported on the National
9
Association of Securities Dealers Automated Quotation System, or, if such sales
prices shall not be reported thereon, the average of the closing bid and asked
prices as reported thereon, or if such bid and asked prices shall not be
reported thereon, as the same shall be reported by the National Quotation
Bureau Incorporated, or, in all other cases, an appraised fair market value of
such stock furnished by any NYSE member selected from time to time by General
Motors and satisfactory to the Institute for such purpose.
(g) The "Applicable Treasury Rate" for purposes of this Agreement shall mean,
with respect to any day, the rate converted to a bond equivalent basis listed
for such day (or if no rate is listed for such day, the rate listed for the
last previous day for which a rate is listed) on the appropriate Federal
Reserve Statistical Release H.15 "Selected Interest Rates" as the Secondary
Market rate for 3-Month Treasury Bills. If such release ceases to be published
or otherwise is not available for any period, the Applicable Treasury Rate
shall be determined in a manner agreed upon by General Motors and the Institute
as being an appropriate means of determining the rate that would have been
listed on such release as the Secondary Market rate for 3-Month Treasury Bills.
(h) So long as the Institute shall not have exercised its right to require
General Motors to purchase any of the 1995 Put Shares pursuant to Section 5 of
the 1989 Class H Agreement, if the Underwriting Agreement includes an
underwriters' over-allotment option, on the Over-Allotment Put Date (as defined
below), the Institute shall have an additional right (the "Over-Allotment Put")
to require General Motors to purchase from the Institute, upon the terms and
subject to the conditions of this Agreement, a number of shares of Class H
Common Stock (as determined by the Institute) not to exceed (i) the number of
shares covered by such over-allotment option minus (ii) the number of shares
sold by the Institute to the underwriters pursuant to the exercise of such
option (including those sold on or prior to the Put Closing), provided that in
no event shall the sum of the number of shares covered by the Put Right and the
number of shares covered by the Over-Allotment Put exceed 15,000,000. The terms
and conditions of the Over-Allotment Put shall in all respects be as nearly
identical as practicable to the terms and conditions set forth in this Section
8 with respect to the Put Right, except that the Over-Allotment Put shall be
exercisable by delivery of notice to General Motors only on or before the close
of business (5:00 p.m. New York City time) on the Over-Allotment Put Date. For
all purposes of this Agreement, the "Over-Allotment Put Date" shall mean the
earlier of (x) the first Business Day after the date on which the underwriters'
over-allotment option expires, provided that such over-allotment expiration
date shall in no event be more than 30 days after the Pricing Date, and (y) the
date on which all shares subject to the option have been sold pursuant to the
exercise thereof.
9. Cash Settlement. If the Net Proceeds (as defined below) to the Institute
from the Distribution exceed the amount that is the product of (x) the number
of shares of Class H Common Stock sold by the Institute in the Distribution
(including any shares sold pursuant to the exercise of an underwriters' over-
allotment option) and (y) $37.50, then the Institute shall pay such excess
(plus interest on such excess calculated on a daily basis at a rate equal to
the Applicable Treasury Rate for the day of payment, which interest shall
accrue from the Business Day following the last Distribution Closing to and
including the date on which such excess is paid to General Motors) to General
Motors in immediately available funds. The Institute shall pay the amount of
such excess (to the extent theretofore not paid) no later than ten days
following the last Distribution Closing. "Net Proceeds" shall mean the proceeds
received by the Institute in the Distribution less any Distribution Expenses
(including underwriting discounts and commissions) (as the amount of
Distribution Expenses other than underwriting discounts and commissions shall
be determined by mutual agreement between General Motors and the Institute).
10. Miscellaneous.
(a) Business Days. If this Agreement requires that an action be taken on any
day which is not a Business Day, such action shall be taken on the next
succeeding Business Day. Any action which may
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or is required to be taken on any Business Day shall be valid only if it is
taken not later than 5:00 p.m. New York City time on such Business Day. When a
provision of this Agreement provides that a notice may or shall be given or
other action taken within a specified number of Business Days following a
certain event, the calculation of such number of Business Days shall begin with
the Business Day next following the day on which such event occurs. For
example, if notice is required to be given within five Business Days following
the receipt of another notice, such five Business Day period shall commence
with the first Business day following the day such other notice was received.
(b) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented
except by a writing signed by General Motors and the Institute.
(c) Notices. All notices and other communications provided for or permitted
hereunder shall be in writing and shall be made by hand delivery, by registered
or certified first-class mail, return receipt requested, or by facsimile
transmission:
(i) if to the Institute:
Howard Hughes Medical Institute
4000 Jones Bridge Road
Chevy Chase, Maryland 20815-6789
Attention: Vice President and General Counsel
Telephone: 301-215-8843
Facsimile: 301-215-8848
with a copy to:
Vice President and Chief Investment Officer
Howard Hughes Medical Institute
4000 Jones Bridge Road
Chevy Chase, Maryland 20815-6789
Telephone: 301-215-8686
Facsimile: 301-215-8691
(ii) if to General Motors:
General Motors Corporation
767 Fifth Avenue
New York, New York 10153
Attention: Treasurer
Telephone: 212-418-3500
Facsimile: 212-418-3695
with a copy to:
General Motors Corporation
3031 West Grand Boulevard
Detroit, Michigan 48202
Attention: Warren G. Andersen
Telephone: 313-974-1528
Facsimile: 313-974-0685
All notices and communications shall be deemed to have been duly given and
received: when delivered by hand, if hand delivered; the third Business Day
after being deposited in the mail, registered or certified, return receipt
requested, first class postage prepaid, or earlier Business Day actually
received, if mailed; upon oral confirmation of receipt, if by facsimile
transmission. Each party agrees promptly to confirm receipt of all notices. The
validity or effectiveness of any notice or other communication provided for or
permitted under this Agreement shall not be affected by the failure to deliver
the copies referred to above.
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(d) Third Party Rights and Obligations. Nothing in this Agreement shall be
construed to give any person or entity other than the Institute and General
Motors and other than subsidiaries of General Motors and the respective
directors, trustees, officers, employees, agents and controlling persons of
General Motors and its subsidiaries and the Institute indemnified hereunder,
any legal or equitable right, remedy or claim under this Agreement, and this
Agreement shall be for the sole and exclusive benefit of such persons.
(e) Descriptive Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not constitute a part hereof.
(f) Cooperation. Each party hereto shall take such further action, and
execute such additional documents, as may be reasonably requested by the other
party hereto in order to facilitate the Distribution as described herein.
(g) Binding Effect; Assignment. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by each of the parties and
their successors and permitted assigns. None of the rights or obligations under
this Agreement shall be assigned by the Institute without the consent of
General Motors or by General Motors without the consent of the Institute.
(h) Counterparts. This Agreement may be executed in any number of
counterparts, and shall be deemed to have been duly executed and delivered by
all parties when each party has executed a counterpart hereof and delivered an
original or facsimile copy thereof to the other party. Each such counterpart
hereof shall be deemed to be an original, and all of which together shall
constitute one and the same instrument.
(i) Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by and construed in
accordance with the internal law, and not the law of conflicts, of the State of
Delaware.
(j) Remedies. The Institute and General Motors agree that in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, each party shall be entitled to specific performance of its rights
under this Agreement. Each party agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(k) Effect of Automatic Exchange of Class H Common Stock for $1 2/3 Par Value
Common Stock. If, pursuant to subparagraph (6) of paragraph (c) of Division I
of Article FOURTH of the Certificate of Incorporation of General Motors (the
"Exchange Provision"), there is a recapitalization of General Motors pursuant
to which all the outstanding shares of Class H Common Stock are exchanged for
shares of General Motors Common Stock $1 2/3 par value per share at the
applicable Exchange Rate as more particularly described in said Certificate of
Incorporation, the Put Right and the Over-Allotment Put provided for herein
shall be adjusted such that each of the Put Shares shall be converted into an
Exchange Adjusted Put Share, expressed as that number (calculated to the
nearest five decimal places) which is the number of shares of $1 2/3 Par Value
Common Stock which each share of Class H Common Stock is exchangeable into
pursuant to the Exchange Provision and each such Exchange Adjusted Put Share
shall be putable to General Motors at the time, Put Purchase Price and manner
provided for in Section 8 of this Agreement with respect to the Put Share which
was converted into such Exchange Adjusted Put Share.
(l) Adjustments. If General Motors shall in any manner subdivide (by stock
split, stock dividend or otherwise) or combine (by reverse stock split or
otherwise) the number of shares of Class H Common Stock (or, after an exchange
pursuant to the Exchange Provision, shares of General Motors Common
12
Stock, $1 2/3 par value per share), General Motors shall appropriately adjust
all share amounts and dollar amounts related thereto set forth in this
Agreement. Issuance of shares of any class of General Motors common stock as a
dividend on or as part of a reclassification or recapitalization of any other
class of General Motors common stock shall not require an adjustment pursuant
to this Section 10(l). All such adjustments shall be made by General Motors in
good faith. No later than ten days after any such adjustment General Motors
will provide to the Institute a written notice setting forth such adjustment
and the basis therefor.
(m) Termination. This Agreement and all rights, restrictions and obligations
of General Motors and the Institute pursuant hereto shall terminate and shall
have no further force and effect as of 5:00 p.m., New York City time, on the
Put Date (as specified in Section 8(a)(z)), except that (a) the obligation of
the Institute to pay Distribution Expenses upon demand by General Motors under
Section 4 and the provisions of Sections 2(d), 3, 5, 7 and 9 shall survive, (b)
if any Distribution Closing has occurred, the provisions of Section 6 shall
survive, (c) so long as any prospectus relating to the Registration Statement
is required to be delivered, the provisions of Sections 2(a)(vi), 2(b) and 2(e)
shall survive, (d) if the Put Right has been exercised, any rights and
obligations with respect to the purchase and sale of Put Shares to be purchased
upon such exercise shall survive until the Put Closing, (e) if the Institute
has entered into an underwriters' over-allotment option, the Over-Allotment Put
shall survive until the Over-Allotment Put terminates pursuant to Section 8(h),
the Underwriting Agreement containing such option is terminated, or the closing
with respect to the exercise of the Over-Allotment Put, whichever occurs first,
and (f) any rights and obligations hereunder arising prior to or on the Put
Date (as specified in Section 8(a)(z)) and not discharged prior to or on such
date shall continue until fully discharged.
(n) Limitation on Termination and Performance. No action or failure to act by
either party hereto shall constitute a breach or failure of performance
sufficient to permit the other party to terminate this Agreement or fail to
continue to be obligated to perform hereunder unless such action or failure to
act is intentional, constitutes a clear and demonstrable failure to satisfy an
obligation imposed by this Agreement and imposes a substantial disadvantage on
the other party not remediable by monetary damages, which shall continue as a
remedy for any such breach or failure of performance hereunder.
* * * * *
In Witness Whereof, the parties hereto have executed this Agreement as of the
date first above written.
Howard Hughes Medical Institute
Carter F. Wolfe
By: _________________________________
Carter F. Wolfe
Vice President and Chief
Investment Officer
General Motors Corporation
Heidi Kunz
By: _________________________________
Heidi Kunz
Vice-President & Treasurer
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