-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E1Noknk0PT/A3Gj3BKQREuaMuCpRm7sfoc5gXKZ3BYELsirZIDRJwiOejdJy6127 PNvjm97178jnRAgx+H3HDg== 0000950124-96-005107.txt : 19961118 0000950124-96-005107.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950124-96-005107 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: CSX SROS: NASD SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MOTORS CORP CENTRAL INDEX KEY: 0000040730 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380572515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00143 FILM NUMBER: 96666635 BUSINESS ADDRESS: STREET 1: 767 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10153-0075 BUSINESS PHONE: 3135565000 10-Q 1 10-Q 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549-1004 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-143 GENERAL MOTORS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) STATE OF DELAWARE 38-0572515 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 100 RENAISSANCE CENTER, DETROIT, MICHIGAN 48243-7301 3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202-3091 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (313)-556-5000 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X . NO ___ . AS OF SEPTEMBER 30, 1996, THERE WERE OUTSTANDING 756,035,101 SHARES OF THE ISSUER'S $1 2/3 PAR VALUE COMMON STOCK AND 98,998,839 SHARES OF CLASS H COMMON STOCK, $0.10 PAR VALUE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 GENERAL MOTORS CORPORATION AND SUBSIDIARIES INDEX
PAGE NO. -------- Part I -- Financial Information (Unaudited) Item 1. Financial Statements Consolidated Statement of Income........................................ 3 Consolidated Balance Sheet.............................................. 4 Condensed Consolidated Statement of Cash Flows.......................... 5 Notes to Consolidated Financial Statements.............................. 6 Item 2. Management's Discussion and Analysis.................................... 13 Part II -- Other Information Item 1. Legal Proceedings....................................................... 31 Item 6. Exhibits and Reports on Form 8-K........................................ 32 Signatures ........................................................................ 33 Exhibit 11 Computation of Earnings Per Share Attributable to Common Stocks for the Three and Nine Month Periods Ended September 30, 1996 and 1995.......... 34 Exhibit 12 Computation of Ratios of Earnings to Fixed Charges for the Nine Month Periods Ended September 30, 1996 and 1995............................... 38 Exhibit 99 Hughes Electronics Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis..................... 39 Exhibit 27 Financial Data Schedule (for SEC information only)
2 3 PART I GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ------------------------ 1996 1995 1996 1995 --------- --------- ---------- ---------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net Sales and Revenues Manufactured products............................................... $34,589.5 $31,226.1 $109,415.6 $106,816.7 Financial services.................................................. 3,178.1 2,959.6 9,482.5 8,594.6 Other income (Note 3)............................................... 1,340.9 1,130.6 4,222.7 3,509.6 --------- --------- ---------- ---------- Total Net Sales and Revenues...................................... 39,108.5 35,316.3 123,120.8 118,920.9 --------- --------- ---------- ---------- Costs and Expenses Cost of sales and other operating charges, exclusive of items listed below............................................................. 29,624.3 27,506.8 92,871.6 89,743.8 Selling, general, and administrative expenses....................... 3,581.2 3,005.5 10,279.8 8,975.5 Interest expense.................................................... 1,422.5 1,381.8 4,257.7 4,218.4 Depreciation of real estate, plants, and equipment.................. 2,243.9 1,956.0 6,530.6 5,732.4 Amortization of special tools....................................... 691.2 661.9 2,276.7 2,407.9 Amortization of intangible assets................................... 42.1 15.3 109.2 123.6 Plant closing reserve adjustment (Note 7)........................... (408.9) -- (408.9) -- Other deductions (Note 3)........................................... 383.0 369.5 1,248.7 1,226.1 --------- --------- ---------- ---------- Total Costs and Expenses.......................................... 37,579.3 34,896.8 117,165.4 112,427.7 --------- --------- ---------- ---------- Income from Continuing Operations before Income Taxes................. 1,529.2 419.5 5,955.4 6,493.2 Income taxes........................................................ 258.4 22.8 1,788.4 2,057.2 --------- --------- ---------- ---------- Income from Continuing Operations before Cumulative Effect of Accounting Change................................................... 1,270.8 396.7 4,167.0 4,436.0 Income from discontinued operations (Note 2).......................... -- 245.7 10.0 630.5 Cumulative effect of accounting change (Note 4)....................... -- -- -- (51.8) --------- --------- ---------- ---------- Net Income........................................................ 1,270.8 642.4 4,177.0 5,014.7 Preference shares tender offer premium (Note 9)....................... -- -- -- 153.4 Dividends on preference stocks........................................ 20.2 41.4 60.7 159.5 --------- --------- ---------- ---------- Income on Common Stocks........................................... $ 1,250.6 $ 601.0 $ 4,116.3 $ 4,701.8 ========= ========= ========== ========== Earnings Attributable to Common Stocks (Note 10) $1 2/3 par value from continuing operations before cumulative effect of accounting change.............................................. $ 1,188.3 $ 293.9 $ 3,892.8 $ 3,929.6 Income (Loss) from discontinued operations (Note 2)................. -- 22.8 (5.4) 79.4 Cumulative effect of accounting change (Note 4)..................... -- -- -- (51.8) --------- --------- ---------- ---------- Net earnings attributable to $1 2/3 par value....................... $ 1,188.3 $ 316.7 $ 3,887.4 $ 3,957.2 ========= ========= ========== ========== Income from discontinued operations attributable to Class E (Note 2)................................................................ $ -- $ 222.9 $ 15.4 $ 551.1 ========= ========= ========== ========== Net earnings attributable to Class H................................ $ 62.3 $ 61.4 $ 213.5 $ 193.5 ========= ========= ========== ========== Average number of shares of common stocks outstanding (in millions) $1 2/3 par value.................................................... 756.0 748.2 755.7 749.0 Class E (Note 2).................................................... -- 438.8 470.1 393.0 Class H............................................................. 98.8 95.9 98.2 95.2 Earnings Per Share Attributable to Common Stocks (Note 10) $1 2/3 par value from continuing operations before cumulative effect of accounting change.............................................. $1.57 $0.39 $5.15 $5.21 Income (Loss) from discontinued operations (Note 2)................. -- 0.03 (0.01) 0.11 Cumulative effect of accounting change (Note 4)..................... -- -- -- (0.07) --------- --------- ---------- ---------- Net earnings attributable to $1 2/3 par value....................... $1.57 $0.42 $5.14 $5.25 ========= ========= ========== ========== Income from discontinued operations attributable to Class E (Note 2)................................................................ $ -- $0.51 $0.04 $1.40 ========= ========= ========== ========== Net earnings attributable to Class H................................ $0.63 $0.64 $2.18 $2.03 ========= ========= ========== ========== Cash Dividends Per Share of Common Stocks (Note 10) $1 2/3 par value.................................................... $0.40 $0.30 $1.20 $0.80 Class E............................................................. $ -- $0.13 $0.30 $0.39 Class H............................................................. $0.24 $0.23 $0.72 $0.69
Reference should be made to the Notes to Consolidated Financial Statements. 3 4 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, SEPTEMBER 30, 1996 DECEMBER 31, 1995 (UNAUDITED) 1995 (UNAUDITED) ------------- ------------ ------------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) ASSETS Cash and cash equivalents................................... $ 13,398.2 $ 10,495.4 $ 8,417.5 Other marketable securities................................. 6,421.4 5,522.2 4,808.8 ---------- ---------- ---------- Total cash and marketable securities.................. 19,819.6 16,017.6 13,226.3 Finance receivables -- net.................................. 56,494.7 59,806.5 55,915.1 Accounts and notes receivable -- net........................ 7,379.2 6,979.5 8,535.1 Inventories -- net (Note 5)................................. 12,128.8 11,348.3 11,754.9 Net assets of discontinued operations (Note 2).............. -- 5,054.9 4,847.4 Contracts in process -- net................................. 2,478.6 2,469.2 2,670.5 Net equipment on operating leases........................... 30,308.4 27,702.3 27,135.1 Deferred income taxes....................................... 20,848.0 19,720.0 17,560.5 Property Real estate, plants, and equipment -- at cost............. 69,126.9 67,414.8 67,360.7 Less accumulated depreciation............................. (41,508.2) (41,017.5) (41,687.3) ---------- ---------- ---------- Net real estate, plants, and equipment.................. 27,618.7 26,397.3 25,673.4 Special tools -- net...................................... 8,555.6 8,170.7 7,847.4 ---------- ---------- ---------- Total property........................................ 36,174.3 34,568.0 33,520.8 Intangible assets -- net.................................... 10,251.4 10,273.2 10,761.6 Other assets -- net......................................... 20,005.9 19,723.2 20,431.1 ---------- ---------- ---------- Total Assets.......................................... $ 215,888.9 $213,662.7 $ 206,358.4 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable............................................ $ 13,206.1 $ 12,685.3 $ 12,314.8 Notes and loans payable..................................... 81,327.9 81,221.7 75,755.1 Income taxes -- deferred and payable........................ 3,521.5 3,107.7 2,326.5 Postretirement benefits other than pensions (Note 6)........ 42,775.6 41,595.1 41,227.7 Pensions.................................................... 6,689.9 6,691.3 5,283.2 Other liabilities and deferred credits...................... 46,567.9 45,016.1 46,644.5 ---------- ---------- ---------- Total Liabilities..................................... 194,088.9 190,317.2 183,551.8 ---------- ---------- ---------- Stockholders' Equity Preference stocks Series B 9 1/8% Depositary Shares, $0.5, $0.5, and $0.5; Series C Depositary Shares, $--, $0.3, and $0.3; Series D 7.92% Depositary Shares, $0.1, $0.1, and $0.1; and Series G 9.12% Depositary Shares, $0.3, $0.3, and $0.3 in September 1996, and in December and September 1995 (Note 9)......................................... 0.9 1.2 1.2 Common stocks $1 2/3 par value (issued, 756,622,676; 753,008,273; and 749,945,166 shares)................................... 1,261.0 1,255.0 1,249.9 Class E (issued, --; 442,812,166; and 442,811,864 shares)............................................... -- 44.3 44.3 Class H (issued, 99,197,196; 97,152,014; and 96,308,464 shares)............................................... 9.9 9.7 9.6 Capital surplus (principally additional paid-in capital)................................................ 19,133.3 18,870.9 18,702.4 Net income retained for use in the business............... 5,697.4 7,185.4 5,674.8 ---------- ---------- ---------- Subtotal.............................................. 26,102.5 27,366.5 25,682.2 Minimum pension liability adjustment........................ (4,742.4) (4,736.3) (3,548.4) Accumulated foreign currency translation adjustments........ 51.1 222.5 230.2 Net unrealized gains on investments in certain debt and equity securities......................................... 388.8 492.8 442.6 ---------- ---------- ---------- Total Stockholders' Equity............................ 21,800.0 23,345.5 22,806.6 ---------- ---------- ---------- Total Liabilities and Stockholders' Equity............ $ 215,888.9 $213,662.7 $ 206,358.4 ========== ========== ==========
Reference should be made to the Notes to Consolidated Financial Statements. 4 5 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 1996 1995 ------------ ------------ (DOLLARS IN MILLIONS) Net Cash Provided by Operating Activities........................ $ 14,827.6 $ 9,447.7 ----------- ----------- Cash Flows from Investing Activities Investment in companies, net of cash acquired.................. (125.6) (154.9) Expenditures for real estate, plants, and equipment............ (4,058.0) (3,442.8) Expenditures for special tools................................. (2,681.3) (2,595.4) Proceeds from disposals of real estate, plants, and equipment................................................... 308.3 467.8 Special Inter-Company Payment from EDS (Note 2)................ 500.0 -- Expenditures related to the sale of NCRS' net assets........... -- (197.0) Change in other investing assets Investments in other marketable securities -- acquisitions..... (16,932.6) (13,508.4) Investments in other marketable securities -- liquidations..... 16,081.1 13,571.3 Finance receivables -- acquisitions............................ (118,786.6) (121,008.7) Finance receivables -- liquidations............................ 92,875.2 103,713.2 Finance receivables -- other................................... 113.0 33.4 Proceeds from sales of finance receivables..................... 28,675.2 18,160.8 Operating leases -- acquisitions............................... (17,743.4) (11,534.1) Operating leases -- liquidations............................... 10,986.1 4,320.9 Other.......................................................... (504.9) 256.4 ----------- ----------- Net Cash Used in Investing Activities............................ (11,293.5) (11,917.5) ----------- ----------- Cash Flows from Financing Activities Net (decrease) increase in short-term loans payable............ (2,941.9) 1,098.3 Increase in long-term debt..................................... 13,537.6 8,252.8 Decrease in long-term debt..................................... (10,324.2) (6,708.2) Proceeds from sale of minority interest in DIRECTV(R).......... 137.5 -- Repurchases of common and preference stocks.................... (0.2) (1,680.7) Proceeds from issuing common stocks............................ 210.5 289.8 Cash dividends paid to stockholders............................ (1,183.5) (972.3) ----------- ----------- Net Cash (Used in) Provided by Financing Activities.............. (564.2) 279.7 ----------- ----------- Effect of exchange rate changes on cash and cash equivalents..... (170.3) 145.9 ----------- ----------- Net Cash Provided by (Used in) Continuing Operations............. 2,799.6 (2,044.2) Net Cash Provided by Discontinued Operations..................... 103.2 130.9 ----------- ----------- Net increase (decrease) in cash and cash equivalents............. 2,902.8 (1,913.3) Cash and cash equivalents at beginning of the period............. 10,495.4 10,330.8 ----------- ----------- Cash and cash equivalents at end of the period................... $ 13,398.2 $ 8,417.5 =========== ===========
Reference should be made to the Notes to Consolidated Financial Statements. 5 6 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. FINANCIAL STATEMENT PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments (consisting of only normal recurring items, except as discussed in Note 4), which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year. For further information, refer to the consolidated financial statements and notes thereto included in General Motors' 1995 Annual Report on Form 10-K, as amended, the unaudited financial information in General Motors' Quarterly Reports dated March 31, 1996 and June 30, 1996, including unaudited financial information relating to Hughes filed as Exhibit 99(b) and Exhibit 99, to the respective Quarterly Report, and Current Reports on Form 8-K filed subsequent to the filing date for the General Motors 1995 Annual Report on Form 10-K. Certain amounts for prior periods have been reclassified to conform with the current period classifications. NOTE 2. EDS SPLIT-OFF On June 7, 1996 General Motors split-off Electronic Data Systems Corporation (EDS) to General Motors Class E stockholders on a tax-free basis for U.S. federal income tax purposes. Under the terms of the split-off, each share of General Motors Class E common stock was exchanged for one share of EDS common stock. In addition, General Motors and EDS entered into a new 10-year agreement, under which EDS will continue to be General Motors' principal provider of information-technology services, and EDS made a special inter-company payment of $500 million to General Motors. The financial data related to EDS prior to the June 7, 1996 split-off from General Motors is classified as discontinued operations. The financial results of EDS, including assets and liabilities, subsequent to the split-off are not included in General Motors consolidated financial statements. EDS systems and other contracts revenues from outside customers included in income from discontinued operations totaled $4,349.0 million for the nine month period ended September 30, 1996 and $2,107.8 million and $5,953.7 million for the three and nine month periods ended September 30, 1995. Income from discontinued operations of $10.0 million for the nine month period ended September 30, 1996 is reported net of income tax expense of $14.1 million. Income from discontinued operations of $245.7 million and $630.5 million for the three and nine month periods ended September 30, 1995 is reported net of income taxes of $138.3 million and $376.6 million, respectively. Prior to the split-off, General Motors approved certain EDS actions to maintain and improve operating efficiencies and accelerate its move to "user-centered" computing. As a result, income from discontinued operations for the nine month period ended September 30, 1996 includes a one-time charge of $328 million after taxes related to these actions. These actions were not contingent upon the approval or consummation of the split-off. Income from discontinued operations for the nine month period ended September 30, 1996 also includes split-off expenses attributable to $1 2/3 par value common stock of $15 million after taxes or $0.02 per share of $1 2/3 par value common stock. Income from discontinued operations for the nine month period ended September 30, 1995 includes $38.9 million of expense, $0.05 per share of $1 2/3 par value common stock, associated with purchase accounting adjustments made at the time of General Motors' purchase of EDS. 6 7 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (UNAUDITED) NOTE 2. EDS SPLIT-OFF -- CONCLUDED The net assets of EDS were as follows:
DECEMBER 31, SEPTEMBER 30, 1995 1995 ------------ ------------- (DOLLARS IN MILLIONS) NET ASSETS OF DISCONTINUED OPERATIONS Current Assets...................................................... $ 4,381.5 $ 4,083.1 Property and Equipment -- Net....................................... 3,318.8 3,154.4 Operating and Other Assets.......................................... 3,208.5 3,104.8 Current Liabilities................................................. (3,261.4) (2,980.0) Deferred Income Taxes............................................... (739.7) (637.5) Notes Payable....................................................... (1,852.8) (1,877.4) --------- --------- NET ASSETS OF DISCONTINUED OPERATIONS.......................... $ 5,054.9 $ 4,847.4 ========= =========
General Motors no longer owns the outstanding shares of EDS and, accordingly, General Motors' consolidated balance sheet reflects decreased stockholders' equity and liabilities as well as decreased assets. The split-off resulted in an overall reduction in General Motors' consolidated net worth of $4.5 billion at June 7, 1996, including the effect of the $500 million special inter-company payment from EDS. NOTE 3. OTHER INCOME AND OTHER DEDUCTIONS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- 1996 1995 1996 1995 -------- -------- -------- -------- (DOLLARS IN MILLIONS) Other Income Nonfinancing interest............................... $ 436.2 $ 387.1 $1,215.3 $1,263.1 Insurance premiums.................................. 222.9 217.1 698.2 655.7 Gain on sale of interest in DIRECTV................. -- -- 120.3 -- Claims, commissions, and grants..................... 215.1 163.9 427.8 410.5 Equity in earnings of associates -- net............. 43.3 80.9 120.4 142.5 Gain on the sale of finance receivables............. 16.4 -- 35.2 38.2 Other............................................... 407.0 281.6 1,605.5 999.6 -------- -------- -------- -------- Total Other Income............................. $1,340.9 $1,130.6 $4,222.7 $3,509.6 ======== ======== ======== ======== Other Deductions Provision for financing losses...................... $ 143.6 $ 118.9 $ 433.4 $ 307.2 Insurance losses and loss adjustment expenses....... 140.0 82.8 473.8 401.6 Loss on Sale of NCRS' net assets*................... -- -- -- 147.8 Other............................................... 99.4 167.8 341.5 369.5 -------- -------- -------- -------- Total Other Deductions......................... $ 383.0 $ 369.5 $1,248.7 $1,226.1 ======== ======== ======== ========
- ------------------------- * The Corporation sold National Car Rental System's (NCRS) net assets in the 1995 second quarter, resulting in $162.6 million of net income, or $0.22 per share of $1 2/3 par value common stock. The 1995 net income reflects $310.4 million of tax benefits related to the restructuring for NCRS in 1992. The tax benefits had not been previously recorded due to the uncertainty of ultimate realization. 7 8 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (UNAUDITED) NOTE 4. NEW ACCOUNTING STANDARD AND ACCOUNTING CHANGE In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No. 125). SFAS No. 125 is effective for certain transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. General Motors will adopt this accounting standard on January 1, 1997, as required. The adoption of SFAS No. 125 is not expected to have a material impact on General Motors' consolidated financial statements. The Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached a consensus in November 1995 on its Issue No. 95-1 and concluded that a manufacturer must account for the sale of equipment as an operating lease if it guarantees the resale value of the equipment to the purchaser. Accordingly, the Corporation modified its revenue recognition policy on sales to daily rental car companies to conform to the consensus. Adoption of this consensus, effective January 1, 1995, resulted in an unfavorable cumulative effect of $51.8 million after-tax ($0.07 per share) attributable to $1 2/3 par value common stock, and increases in net equipment on operating leases of $4.4 billion and other liabilities and deferred credits of $4.6 billion. NOTE 5. INVENTORIES Major classes of inventories were as follows:
SEPT. 30, DEC. 31, SEPT. 30, 1996 1995 1995 --------- --------- --------- (DOLLARS IN MILLIONS) Productive material, work in process, and supplies -- net... $ 7,074.6 $ 6,570.4 $ 6,924.9 Finished product, service parts, etc. -- net................ 5,054.2 4,777.9 4,830.0 --------- --------- --------- Total inventories -- net............................. $12,128.8 $11,348.3 $11,754.9 ========= ========= =========
NOTE 6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS General Motors has disclosed in the consolidated financial statements certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as "accumulated postretirement benefit obligations", "liabilities", or "obligations". Notwithstanding the recording of such amounts and the use of these terms, General Motors does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of General Motors (other than pensions) represent legally enforceable liabilities of General Motors. NOTE 7. PLANT CLOSINGS AND RESTRUCTURING RESERVES General Motors previously recorded charges to realign GM-NAO's plant capacity and to provide for a reduction of Hughes Electronic Corporation's (Hughes) worldwide employment, a major facilities consolidation, and a reevaluation of certain non-strategic businesses. 8 9 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (UNAUDITED) NOTE 7. PLANT CLOSINGS AND RESTRUCTURING RESERVES -- CONCLUDED The following table summarizes the activity in the GM-NAO plant closings (excluding environmental) and Hughes restructuring reserves for the period from January 1, 1994 to September 30, 1996: Balance at January 1, 1994 (Dollars in Millions)..................................... $4,151.7 1994 charges against reserves...................................................... (722.6) Discount of people related liabilities............................................. (401.9) Additions to the reserve by Hughes................................................. 35.0 Reclassification from environmental clean-up liability............................. 41.4 -------- Balance at December 31, 1994......................................................... 3,103.6 1995 charges against reserves...................................................... (706.7) Adjustments to discount for effects of accretion and change in interest rates...... 215.4 -------- Balance at December 31, 1995......................................................... 2,612.3 1996 charges against reserves through September 30................................. (310.9) Adjustment to discount for effect of accretion..................................... 72.6 Plant closing reserve adjustment................................................... (408.9) -------- Balance at September 30, 1996........................................................ $1,965.1 ========
During the 1996 third quarter, the Corporation recorded a nonrecurring favorable plant closing reserve adjustment of $408.9 million pre-tax, which was $253.4 million after-tax, or $0.34 per share of $1 2/3 par value common stock, reflecting a reduction to the GM-NAO plant closing reserve. The reduction was required based on the decision to utilize GM's Wilmington, Delaware facility for the assembly of a new generation Saturn vehicle. General Motors and Hughes periodically evaluate the reserve balances and estimated future expenditures to assess the assumptions used and the period over which such costs are expected to be incurred. NOTE 8. CONTINGENT MATTERS The Corporation and its subsidiaries are subject to potential liability under government regulations and various claims and legal actions which are pending or may be asserted against them. Some of the pending actions purport to be class actions. The aggregate ultimate liability of the Corporation and its subsidiaries under these government regulations, and under these claims and actions, was not determinable at September 30, 1996. In the opinion of management, such liability is not expected to have a material adverse effect on the Corporation's consolidated operations or financial position. As previously reported, Hughes has maintained a suit against the U.S. Government since September 1973, regarding the Government's infringement and use of a Hughes patent (the "Williams Patent") covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites. On June 17, 1994, the U.S. Court of Claims awarded Hughes damages of $114 million. Because Hughes believed that the record supported a higher royalty rate, it appealed that decision. The U.S. Government, contending that the award was too high, also appealed. On June 19, 1996, the Court of Appeals for the Federal Circuit affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the Court of Appeals for the Federal Circuit for a rehearing. That petition was denied in October of 1996. The U.S. Government has the option of petitioning the U.S. Supreme Court for 9 10 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (UNAUDITED) NOTE 8. CONTINGENT MATTERS -- CONCLUDED certiorari prior to January 15, 1997. Hughes is unable to estimate the duration of any such possible appeal. In the opinion of management of Hughes, there is a reasonable possibility that this matter could be resolved in the near term. While no amount has been recorded in the financial statements of Hughes to reflect the $114 million award, a resolution of this matter could result in a gain that would be material to the earnings of General Motors attributable to Class H common stock. NOTE 9. PREFERENCE STOCK During the 1996 first quarter, approximately 44.7 million shares of Class E common stock were issued upon conversion of approximately 3.2 million shares of Series C Preference Stock (represented by depositary shares). The remaining 6,784 shares of Series C Preference Stock were redeemed on February 22, 1996 for $3.6 million of cash, or $524.20 per share of Series C Preference Stock ($52.42 per depositary share). During the 1995 second quarter, the Corporation purchased certain of its outstanding preference shares for $1.3 billion of cash pursuant to an issuer tender offer. The repurchase had an unfavorable impact of $0.22 per share of $1 2/3 par value common stock, including tender offer expenses of $13.5 million after-tax, or $0.02 per share, that were charged against income and the purchase price in excess of the carrying amount of the preference shares amounting to $153.4 million, or $0.20 per share, that was not charged against income but reduced earnings attributable to $1 2/3 par value common stock. NOTE 10. EARNINGS PER SHARE ATTRIBUTABLE TO AND DIVIDENDS ON COMMON STOCKS Earnings per share attributable to common stocks was determined based on the relative amounts available for the payment of dividends to holders of $1 2/3 par value and Class H common stocks and the former Class E common stock. The allocation of earnings attributable to such common stocks and the calculation of the related amounts per share were computed by considering the weighted average number of common shares outstanding. Beginning in 1996, common stock equivalents were not considered as they are not material. The Available Separate Consolidated Net Income of Hughes represents the quarterly separate consolidated net income of Hughes, excluding the effects of purchase accounting adjustments arising at the time of the Corporation's acquisition of Hughes, multiplied by a fraction, the numerator of which is a number equal to the weighted average number of shares of Class H common stock outstanding during the period (98.8 million during the third quarter of 1996) and the denominator of which was 399.9 million during the third quarter of 1996. The comparable numerator for the third quarter of 1995 was 95.9 million and the comparable denominator was 399.9 million. The denominator used in determining the Available Separate Consolidated Net Income of Hughes may be adjusted as deemed appropriate by the Board of Directors to reflect subdivisions or combinations of the 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 the Corporation's Restated Certificate of Incorporation. In this regard, the 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 on the $1 2/3 par value common stock are declared out of the earnings of General Motors and its subsidiaries, excluding the Available Separate Consolidated Net Income of Hughes and the Available Separate Consolidated Net Income of EDS, during such time that EDS was an indirect wholly owned subsidiary of the Corporation. Dividends on the Class H common stock are declared out of the Available Separate Consolidated Net Income of Hughes earned since the acquisition of Hughes by the Corporation. 10 11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (UNAUDITED) NOTE 10. EARNINGS PER SHARE ATTRIBUTABLE TO AND DIVIDENDS ON COMMON STOCKS -- CONCLUDED Dividends may be paid on common stocks only when, as, and if declared by the Board of Directors in its sole discretion. The Board's policy with respect to $1 2/3 par value common stock is to distribute dividends based on the outlook and the indicated capital needs of the business. The current policy of the Board with respect to the Class H common stock is to pay quarterly cash dividends at an annual rate approximately equal to 35% of the Available Separate Consolidated Net Income of Hughes for the prior year. The Available Separate Consolidated Net Income of EDS during the period that EDS was an indirect wholly-owned subsidiary of the Corporation was determined quarterly and was equal to the quarterly separate consolidated net income of EDS, excluding the effects of purchase accounting adjustments relating to the Corporation's acquisition of EDS, multiplied by a fraction, the numerator of which represented the weighted average number of shares of Class E common stock outstanding during the period (438.8 million for the third quarter of 1995) and the denominator of which was 483.7 million for the third quarter of 1995. The denominator of the fraction was adjusted from time-to-time as deemed appropriate by the Board of Directors to reflect subdivisions or combinations of the Class E common stock and to reflect certain transfers of capital to or from EDS. Dividends on the Class E common stock were declared only out of the Available Separate Consolidated Net Income of EDS earned during such time that EDS was an indirect wholly-owned subsidiary of the Corporation. NOTE 11. GMAC AND SUBSIDIARIES Summary financial data of General Motors Acceptance Corporation (GMAC) and its subsidiaries were as follows: CONDENSED GMAC CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1996 1995 1996 1995 --------- --------- --------- --------- (DOLLARS IN MILLIONS) Financing Revenue Retail and lease financing...................... $ 945.8 $ 857.6 $ 2,859.0 $ 2,380.3 Operating leases................................ 1,856.4 1,618.9 5,379.3 4,591.2 Wholesale and term loans........................ 361.6 483.1 1,229.0 1,623.1 --------- --------- --------- --------- Total financing revenue...................... 3,163.8 2,959.6 9,467.3 8,594.6 Interest and discount............................. (1,220.3) (1,222.9) (3,684.6) (3,718.0) Depreciation on operating leases.................. (1,163.6) (1,135.6) (3,437.2) (3,176.6) --------- --------- --------- --------- Net financing revenue........................ 779.9 601.1 2,345.5 1,700.0 Insurance premiums earned......................... 279.6 269.9 865.0 814.7 Other income...................................... 557.3 490.3 1,545.2 1,551.7 --------- --------- --------- --------- Net financing revenue and other.............. 1,616.8 1,361.3 4,755.7 4,066.4 Expenses.......................................... 1,077.2 950.4 3,147.7 2,770.1 --------- --------- --------- --------- Income before income taxes...................... 539.6 410.9 1,608.0 1,296.3 Income taxes...................................... 232.3 157.2 641.6 528.5 --------- --------- --------- --------- Net Income................................... $ 307.3 $ 253.7 $ 966.4 $ 767.8 ========= ========= ========= =========
11 12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED (UNAUDITED) NOTE 11. GMAC AND SUBSIDIARIES -- CONCLUDED CONDENSED GMAC CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1996 1995 1995 ------------- ------------ ------------- (DOLLARS IN MILLIONS) Cash and cash equivalents................................ $ 921.7 $ 1,448.6 $ 758.7 Investments in securities................................ 4,353.7 4,328.2 4,282.2 Finance receivables -- net............................... 57,089.0 60,404.9 56,436.1 Net investment in operating leases....................... 25,114.1 22,134.9 21,502.7 Notes receivable from General Motors..................... 136.9 -- 1,600.0 Other assets............................................. 8,421.2 7,330.9 6,891.2 --------- --------- --------- Total Assets......................................... $96,036.6 $ 95,647.5 $91,470.9 ========= ========= ========= Short-term debt.......................................... $41,861.7 $ 43,871.8 $37,563.3 Accounts payable and other liabilities................... 12,800.8 12,455.8 13,748.0 Long-term debt........................................... 33,097.1 31,050.6 31,856.0 Stockholder's equity..................................... 8,277.0 8,269.3 8,303.6 --------- --------- --------- Total Liabilities and Stockholder's Equity........... $96,036.6 $ 95,647.5 $91,470.9 ========= ========= =========
CONDENSED GMAC CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1996 1995 ----------- ----------- (DOLLARS IN MILLIONS) Net Cash Provided by Operating Activities............................ $ 4,688.3 $ 5,651.8 ----------- ----------- Cash Flows from Investing Activities Finance receivables -- acquisitions.................................. (118,786.6) (121,008.7) Finance receivables -- liquidations.................................. 92,875.2 102,189.6 Notes receivable from General Motors................................. (136.9) (519.5) Operating leases -- acquisitions..................................... (14,396.2) (10,535.5) Operating leases -- liquidations..................................... 7,842.4 3,943.9 Investments in securities -- acquisitions............................ (8,992.7) (9,554.8) Investments in securities -- liquidations............................ 8,974.8 9,127.7 Proceeds from sales of receivables -- wholesale...................... 26,638.0 14,782.7 Proceeds from sales of receivables -- retail......................... 2,037.2 3,378.1 Due and deferred from receivable sales............................... 152.3 60.2 Other................................................................ (713.3) 329.0 ----------- ----------- Net Cash Used in Investing Activities............................ (4,505.8) (7,807.3) ----------- ----------- Cash Flows from Financing Activities Debt with original maturities 90 days and over -- proceeds........................................................ 40,146.5 35,755.2 -- liquidations.................................................... (37,865.7) (36,366.6) Debt with original maturities less than 90 days -- net change........ (2,093.2) 2,808.4 Cash dividends paid to General Motors................................ (900.0) (625.0) ----------- ----------- Net Cash (Used in) Provided by Financing Activities.............. (712.4) 1,572.0 ----------- ----------- Effect of exchange rate changes on cash and cash equivalents......... 3.0 2.7 ----------- ----------- Net decrease in cash and cash equivalents............................ (526.9) (580.8) Cash and cash equivalents at beginning of the period................. 1,448.6 1,339.5 ----------- ----------- Cash and cash equivalents at end of the period....................... $ 921.7 $ 758.7 =========== ===========
Certain amounts for 1995 have been reclassified to conform with 1996 classifications. * * * 12 13 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS The following management's discussion and analysis should be read in conjunction with the management's discussion and analysis included in the Corporation's 1995 Annual Report to the SEC on Form 10-K, as amended, (the 1995 Form 10-K) and management's discussion and analysis relating to Electronic Data Systems Corporation (EDS) and Hughes Electronics Corporation (Hughes) included in Exhibits 99(a) and 99(b), respectively, to the 1995 Form 10-K, management's discussion and analysis relating to Hughes included in Exhibit 99(b) and Exhibit 99 to the Quarterly Reports on Form 10-Q dated March 31, 1996 and June 30, 1996, respectively, and Current Reports on Form 8-K filed subsequent to the filing date for the 1995 Form 10-K. The competitive position and environmental matters discussions included in Part I, Item 1 of the 1995 Form 10-K are specifically incorporated by reference herein. GM-NAO/DELPHI FINANCIAL HIGHLIGHTS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ----------------------- 1996 1995 1996 1995 --------- --------- --------- --------- (DOLLARS IN MILLIONS) Net Sales.............................................. $24,100.6 $22,321.7 $76,614.8 $77,032.8 --------- --------- --------- --------- Pre-tax Income (Loss).................................. 429.9 (184.5) 1,623.8 2,690.8 Income Tax Benefit (Expense)........................... 69.4 91.7 (323.3) (881.2) Earnings of Nonconsolidated Affiliates................. 15.9 -- 69.3 35.9 Cumulative Effect of Accounting Change (1)............. -- -- -- (51.8) --------- --------- --------- --------- Net Income (Loss).................................... $ 515.2 $ (92.8) $ 1,369.8 $ 1,793.7 ========= ========= ========= ========= Net Profit (Loss) Margin (2)......................... 2.1% (0.4)% 1.8% 2.3%
- ------------------------- (1) In November 1995, the provisions of Issue No. 95-1 of the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board were retroactively adopted to January 1, 1995, which had an unfavorable impact of $51.8 million. (2) Net profit (loss) margin represents net income (loss) as a percent of net sales. VEHICLE UNIT DELIVERIES OF CARS AND TRUCKS -- GM-NAO
THREE MONTHS ENDED SEPTEMBER 30, ---------------------------------------------------------------- 1996 1995 ------------------------------ ------------------------------ GM AS A % GM AS A % OF OF INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY -------- ----- --------- -------- ----- --------- (UNITS IN THOUSANDS) United States Cars......................................... 2,179 698 32.1% 2,243 775 34.6% Trucks....................................... 1,707 484 28.3% 1,593 460 28.9% ----- ----- ----- ----- Total United States........................ 3,886 1,182 30.4% 3,836 1,235 32.2% Other North America............................ 361 111 30.7% 333 107 32.1% ----- ----- ----- ----- Total North America........................ 4,247 1,293 30.4% 4,169 1,342 32.2% ===== ===== ===== ===== Wholesale Sales -- GM-NAO Cars......................................... 721 682 Trucks....................................... 532 486 ----- ----- Total...................................... 1,253 1,168 ===== =====
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------------------------------- 1996 1995 ------------------------------ ------------------------------ GM AS A % GM AS A % OF OF INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY -------- ----- --------- -------- ----- --------- (UNITS IN THOUSANDS) United States Cars......................................... 6,654 2,201 33.1% 6,635 2,235 33.7% Trucks....................................... 5,213 1,507 28.9% 4,886 1,456 29.8% ------ ----- ------ ----- Total United States........................ 11,867 3,708 31.3% 11,521 3,691 32.0% Other North America............................ 1,111 346 31.1% 1,073 337 31.4% ------ ----- ------ ----- Total North America........................ 12,978 4,054 31.2% 12,594 4,028 32.0% ====== ===== ====== ===== Wholesale Sales -- GM-NAO Cars......................................... 2,266 2,542 Trucks....................................... 1,679 1,656 ----- ----- Total...................................... 3,945 4,198 ===== =====
13 14 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM-NAO/DELPHI FINANCIAL REVIEW GM-NAO/Delphi, which represents the combined results of GM-NAO and Delphi Automotive Systems, reported net income of $515.2 million for the three months ended September 30, 1996 (1996 third quarter), an improvement of $608.0 million, compared to a net loss of $92.8 million in the same prior year period. GM-NAO/Delphi's net profit margin -- net income as a percent of net sales -- was 2.1% in the 1996 third quarter, compared with a net loss of margin of 0.4% in the third quarter of 1995. Excluding the $253.4 million favorable impact of the previously announced reduction to the GM-NAO plant closing reserve related to the Wilmington, Delaware assembly plant, GM-NAO/Delphi's net income for the third quarter of 1996 was $261.8 million and the net profit margin was 1.1%. The year-over-year net income improvement, excluding the plant closing reserve adjustment, was primarily attributable to higher net sales, continued cost reduction efforts, and a favorable tax rate versus the prior year. Net income for the nine months ended September 30, 1996 totaled $1,369.8 million, compared to $1,793.7 million for the same 1995 period. The 1996 nine month results included the unfavorable effects of a 17-day strike at two component plants in Dayton, Ohio that temporarily shutdown 26 of General Motors' 29 assembly plants in North America and certain automotive component plants, partially offset by the favorable impact of the plant closing reserve adjustment. Net income reported for the first nine months of 1995 was restated to reflect the impact of General Motors' adoption, retroactive to January 1, 1995, of EITF Issue No. 95-1, which reduced previously reported net income by $51.8 million. Net sales for the 1996 third quarter increased $1,778.9 million, or 8.0%, and totaled $24,100.6 million, compared to $22,321.7 million in the same 1995 period. The net sales increase resulted from a 85,000 unit increase in wholesale sales volume, a favorable product mix and an increase in Delphi's component sales to non-GM-NAO customers, partially offset by higher vehicle sales incentives. Net sales for the nine months ended September 30, 1996 totaled $76,614.8 million, compared to $77,032.8 million in the first nine months of 1995. The year-over-year decline in net sales reflects decreased wholesale sales volume resulting from the first quarter strike and lower production necessary to balance U.S. dealer stock levels. General Motors vehicle deliveries in North America were 1,293,000 units in the 1996 third quarter, which resulted in a market share of 30.4%, compared with deliveries of 1,342,000 units and a 32.2% share in the third quarter of 1995. Vehicle deliveries for the first nine months of 1996 totaled 4,054,000 units, for a 31.2% share of the market, compared with deliveries of 4,028,000 units and a 32.0% market share in the same 1995 period. GM-NAO/Delphi reported pre-tax income of $429.9 million in the 1996 third quarter, compared to a pre-tax loss of $184.5 million in the comparable 1995 period. The year-over-year increase in pre-tax results reflected the effect of the $408.9 million pre-tax plant closing reserve adjustment, as well as the impact of increased volume, a favorable product mix, and continued cost reduction efforts. These favorable items were partially offset by higher vehicle sales incentives and increased overtime requirements to support higher production levels and new product introductions. The 1996 third quarter cost reductions reflect the continued focus on leveraging the power of General Motors' worldwide purchasing process and lower pension expense as a result of the improved funding of the U.S. pension plans. GM-NAO/Delphi's pre-tax income for the nine months ended September 30, 1996 totaled $1,623.8 million, compared to $2,690.8 million in the comparable 1995 period. The year-over-year decline resulted from lower wholesale sales volume, higher vehicle sales incentives and costs associated with new product introductions, partially offset by the favorable impact of the plant closing reserve adjustment and material cost reductions. GM-NAO/Delphi realized a tax benefit in the 1996 third quarter, reflecting the favorable resolution of items related to General Motors' consolidated tax returns for prior years, a favorable tax position in Mexico, and the reinstatement of research and experimentation credits for the last half of 1996. 14 15 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM-NAO/DELPHI FINANCIAL REVIEW -- CONCLUDED During the fourth quarter, the Canadian Auto Workers (CAW) initiated escalating work stoppages that ultimately required General Motors to cease production at various facilities in Canada, the U.S. and Mexico. Additionally, during the fourth quarter, the United Auto Workers' (UAW) local unions at two facilities in the U.S. approved work stoppages that required General Motors to cease production at various facilities. In total, these fourth quarter work stoppages impacted 17 North American assembly plants, as well as numerous component operations. General Motors estimates that the work stoppages will have an unfavorable impact (after recovery plans) on its 1996 fourth quarter net income of approximately $655 million for GM-NAO/Delphi and $45 million for the Delco Electronics unit of Hughes. This total effect of $700 million will decrease earnings per share of $1 2/3 par value common stock by $0.91 per share and Class H common stock by $0.11 per share. During October 1996, labor negotiations with the CAW were concluded. While General Motors agreed to 2% annual wage increases for the next three years and certain limits on outsourcing, the right to sell the Oshawa Fabrication and Windsor Trim facilities was retained. The 1996 labor agreement provides flexibility to continue to cut costs and streamline operations. UAW labor negotiations were concluded in November 1996. While General Motors agreed to certain employment and income security provisions and pension benefit increases, the UAW agreed to loosen restrictions on worker mobility. Greater worker mobility will make it easier for General Motors to relocate UAW members and thus will decrease the number of employees that GM must pay income security protection. Consistent with the Ford and Chrysler agreements, the new contract includes an employment floor. The employment floor, which was set at 95% of current employment, is not expected to restrict General Motors' ability to achieve productivity gains, reduce employment as a result of volume deterioration or divest certain of its operations. In addition, the General Motors agreement provides for certain exclusions in the 95% floor calculation that will allow General Motors to continue to implement its competitive improvement plans. Under its new labor agreement, General Motors' financial exposure to income security protection costs for hourly employees represented by the UAW increased to $4.33 billion from $3.93 billion. During the 1993 contract, $1.21 billion of the $3.93 billion cap was spent through September 30, 1996. In addition, a cap of $225 million was maintained for the Guaranteed Income Stream (GIS) program which was marginally utilized in the prior contract. The contract provides a $2,000 per UAW employee up-front lump sum payment in the first year of the agreement. Subsequently, the contract calls for 3% general wage increases in the second and third years of the contract. In addition, retiree benefit increases include lump sum payments which will result in a charge against General Motors' 1996 fourth quarter earnings of approximately $170 million after-tax, or $0.22 cents per share of $1 2/3 par value common stock and $0.02 per share of Class H common stock. 15 16 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMIO FINANCIAL HIGHLIGHTS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ---------------------- 1996 1995 1996 1995 -------- -------- --------- --------- (DOLLARS IN MILLIONS) Net Sales........................................... $8,260.1 $6,776.5 $26,357.8 $23,703.4 -------- -------- --------- --------- Pre-tax Income (Loss)............................... 265.2 (117.0) 1,468.4 1,491.1 Income Tax Benefit (Expense)........................ 34.8 151.0 (344.1) (480.5) Earnings of Nonconsolidated Affiliates.............. 23.3 77.1 55.0 135.8 -------- -------- --------- --------- Net Income GM Europe......................................... 75.4 (98.0) 679.2 548.3 Other International............................... 247.9 209.1 500.1 598.1 -------- -------- --------- --------- Total Net Income............................... $ 323.3 $ 111.1 $ 1,179.3 $ 1,146.4 ======== ======== ========= ========= Net Profit Margin.............................. 3.9% 1.6% 4.5% 4.8%
VEHICLE UNIT DELIVERIES OF CARS AND TRUCKS -- GMIO
THREE MONTHS ENDED SEPTEMBER 30, ---------------------------------------------------------------- 1996 1995 ----------------------------- ----------------------------- GM AS A % GM AS A % OF OF INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY -------- --- --------- -------- --- --------- (UNITS IN THOUSANDS) International Europe................................ 4,204 425 10.1% 3,748 391 10.4% Latin America, Africa and the Middle East (LAAMO)........................ 1,081 182 16.8% 946 162 17.1% Asian and Pacific..................... 3,411 185 5.4% 3,339 165 4.9% ----- --- ----- --- Total International.............. 8,696 792 9.1% 8,033 718 8.9% ===== === ===== === Wholesale Sales -- GMIO Cars................................ 544 481 Trucks.............................. 208 199 --- --- Total............................ 752 680 === ===
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------ 1996 1995 ------------------------------ ------------------------------ GM AS A % GM AS A % OF OF INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY -------- ----- --------- -------- ----- --------- (UNITS IN THOUSANDS) International Europe................................. 13,118 1,405 10.7% 12,189 1,341 11.0% Latin America, Africa and the Middle East (LAAMO)......................... 2,999 504 16.8% 2,963 474 16.0% Asian and Pacific...................... 10,210 495 4.8% 9,979 458 4.6% ------ ----- ------ ----- Total International.................. 26,327 2,404 9.1% 25,131 2,273 9.0% ====== ===== ====== ===== Wholesale Sales -- GMIO Cars................................. 1,734 1,664 Trucks............................... 598 568 ----- ----- Total............................. 2,332 2,232 ===== =====
16 17 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMIO FINANCIAL REVIEW General Motors International Operations (GMIO) reported net income of $323.3 million, or 3.9% of net sales, in the third quarter of 1996, compared with net income of $111.1 million, or 1.6% of net sales, in the third quarter of 1995. The higher net income for the quarter was largely due to increased wholesale sales volume and favorable currency-exchange movements. GMIO's net income for the nine months ended September 30, 1996 totaled $1,179.3 million, or 4.5% of net sales, compared to $1,146.4 million, or 4.8% of net sales, in the comparable 1995 period. Total net sales for GMIO increased by $1,483.6 million, or 21.9%, to $8,260.1 million for the three months ended September 30, 1996, compared to $6,776.5 million in the prior year period. The increased net sales reflected higher wholesale sales volume in Europe because of increased Vectra availability and continued strong Corsa sales, and increased volume in Latin America. Net sales for the nine months ended September 30, 1996 totaled $26,357.8 million, an increase of $2,654.4 million, or 11.2%, compared to the first nine months of 1995. The increase in net sales during the first nine months of 1996 primarily resulted from higher volume worldwide. At the pre-tax level, GMIO recorded income of $265.2 million for the 1996 third quarter, up from the prior year period pre-tax loss of $117.0 million. GMIO's pre-tax income for the nine months ended September 30, 1996 was $1,468.4 million, compared to $1,491.1 million in the comparable 1995 period. The favorable mix of foreign income and foreign income taxes in the third quarter of 1996 and 1995 resulted in tax benefits for the respective periods. The effective income tax rate was 23.4% and 32.2% for the nine months ended September 30, 1996 and 1995, respectively. GM Europe's (GME) net income for the 1996 third quarter increased $173.4 million to $75.4 million, compared to a net loss of $98.0 million in the third quarter of 1995. The improved third quarter 1996 net income for GME resulted from higher wholesale sales volume, lower vehicle sales incentives, and favorable year-over-year currency-exchange movements. Net income for the remainder of GMIO's operations totaled $247.9 million for the 1996 third quarter, compared to $209.1 million for the third quarter of 1995. The increase in net income for the remainder of GMIO resulted from higher wholesale sales volume, especially in Latin America, partially offset by material cost pressure in Brazil and expenses associated with expansion initiatives in Thailand and China. GME reported net income of $679.2 million for the nine months ended September 30, 1996, compared to $548.3 million in the comparable 1995 period. The net income improvement for the 1996 period primarily resulted from the favorable impact of increased volume. Net income for the remainder of GMIO was $500.1 million for the nine months ended September 30, 1996, compared to $598.1 million for the first nine months of 1995. The year-over-year decline primarily resulted from unfavorable currency-exchange and material cost pressures in Latin America, as well as expenses associated with expansion initiatives. 17 18 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GENERAL MOTORS ACCEPTANCE CORPORATION (GMAC) FINANCIAL HIGHLIGHTS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ----------------------- 1996 1995 1996 1995 --------- --------- --------- --------- (DOLLARS IN MILLIONS) Financing revenue Retail and lease financing.................. $ 945.8 $ 857.6 $ 2,859.0 $ 2,380.3 Operating leases............................ 1,856.4 1,618.9 5,379.3 4,591.2 Wholesale and term loans.................... 361.6 483.1 1,229.0 1,623.1 --------- --------- --------- --------- Total financing revenue................ 3,163.8 2,959.6 9,467.3 8,594.6 Interest and discount......................... (1,220.3) (1,222.9) (3,684.6) (3,718.0) Depreciation on operating leases.............. (1,163.6) (1,135.6) (3,437.2) (3,176.6) --------- --------- --------- --------- Net financing revenue.................. 779.9 601.1 2,345.5 1,700.0 Other income and insurance premiums earned.... 836.9 760.2 2,410.2 2,366.4 --------- --------- --------- --------- Net financing revenue and other........ 1,616.8 1,361.3 4,755.7 4,066.4 Expenses...................................... 1,077.2 950.4 3,147.7 2,770.1 --------- --------- --------- --------- Pre-tax income................................ 539.6 410.9 1,608.0 1,296.3 Income taxes.................................. 232.3 157.2 641.6 528.5 --------- --------- --------- --------- Net Income............................. $ 307.3 $ 253.7 $ 966.4 $ 767.8 ========= ========= ========= ========= Net Income from Financing Operations.......... $ 252.4 $ 222.2 $ 842.5 $ 666.8 Net Income from Insurance Operations.......... 54.9 31.5 123.9 101.0 --------- --------- --------- --------- Net Income............................. $ 307.3 $ 253.7 $ 966.4 $ 767.8 ========= ========= ========= ========= Average Earning Assets........................ $91,775.0 $88,037.7 $92,067.2 $87,579.6 Return on Average Equity...................... 14.5% 12.2% 15.3% 12.5%
18 19 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMAC FINANCIAL REVIEW GMAC provides a broad range of financial and insurance services to General Motors' customers. General Motors encourages reference to the GMAC condensed consolidated financial statements included in Note 11 and to the GMAC Quarterly Report on Form 10-Q for the period ended September 30, 1996 filed separately with the Securities and Exchange Commission. GMAC's consolidated net income for the three and nine month periods ended September 30, 1996 totaled $307.3 million and $966.4 million, respectively, 21% and 26% above the comparable 1995 periods. Third quarter and nine month net income from financing operations was up 14% and 26% over last year's respective periods primarily due to continued lending margin improvements in North America, principally in the retail finance receivables and operating lease portfolios; a lower effective tax rate in 1996 for GMAC's international financing operations; and earnings growth at the GMAC Mortgage Group. Higher capital gains realization and improved commercial underwriting results during the third quarter were the predominant contributors to the 74% and 23% increases in income from insurance operations for the three and nine month periods ended September 30, 1996 over the respective 1995 results. During the three months ended September 30, 1996, GMAC financed 24.9% of new General Motors vehicles delivered in the U.S., down from 25.9% during the same period last year. Penetration for the first nine months of 1996 was 25.6% compared to 24.2% for the respective 1995 period. The 1996 year-to-date gains in retail market share were principally driven by higher volume generated under General Motors sponsored retail programs offering special rate financing and leasing incentives, partially offset by a continued decline in fleet transaction participation. U.S. wholesale inventory financing was provided on 799,000 and 2,479,000 new General Motors vehicles during the respective three and nine month periods ended September 30, 1996, compared to 770,000 and 2,752,000 during the same 1995 periods. This financing represented 70.1% and 71.6% of General Motors' U.S. sales to dealers during the first nine months of 1996 and 1995, respectively. Wholesale financing revenue during the third quarter and first nine months of 1996 was down from 1995 primarily due to lower average outstandings caused by the August 1995 and April 1996 sales of wholesale receivables which GMAC continues to service for a fee. Additionally, lower interest rate indexes upon which floor plan rates are based reduced wholesale financing revenue. GMAC's worldwide cost of borrowing for the third quarter and first nine months of 1996 averaged 6.49% and 6.56%, respectively, 50 and 57 basis points below the comparable prior year levels. Total borrowing costs for U.S. operations also declined to an average of 6.44% and 6.48% for the three and nine month periods ended September 30, 1996, down from 6.90% and 6.98% for the respective 1995 periods. These improvements are predominantly attributable to a greater proportion of floating rate short-term borrowings in the U.S. during a period in which the general level of short-term interest rates declined (e.g., the U.S. prime lending rate for the first nine months of 1996 averaged 51 basis points below the comparable period in 1995). The third quarter $255.5 million improvement in consolidated net financing revenue and other income over last year was partially offset by a $126.8 million increase in total expenses which is primarily attributable to higher general operating costs incidental to expanded business activities in all sectors. These factors, combined with the first quarter's $100.2 million increase in the provision for financing losses (over first quarter 1995), also contributed significantly to the $377.6 million increase in total expenses for the first nine months of 1996 over the comparable prior year period. 19 20 GENERAL MOTORS CORPORATION AND SUBSIDIARIES HUGHES FINANCIAL HIGHLIGHTS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ---------------------- 1996 1995 1996 1995 -------- -------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net Sales Outside customers................................. $2,590.8 $2,341.6 $ 7,560.9 $ 6,850.3 GM and affiliates................................. 1,219.3 1,126.7 3,895.4 3,893.3 -------- -------- --------- --------- Total Net Sales.............................. 3,810.1 3,468.3 11,456.3 10,743.6 Other Income (Loss) -- net.......................... 12.5 (27.0) 165.5 0.1 -------- -------- --------- --------- Total Revenues............................... 3,822.6 3,441.3 11,621.8 10,743.7 -------- -------- --------- --------- Pre-tax Income...................................... 366.2 310.6 1,287.0 1,150.2 Income Taxes........................................ 144.7 121.6 508.4 465.8 -------- -------- --------- --------- Net Income................................... $ 221.5 $ 189.0 $ 778.6 $ 684.4 ======== ======== ========= ========= Earnings Used for Computation of Available Separate Consolidated Net Income(1)....... $ 252.0 $ 256.1 $ 870.3 $ 813.4 ======== ======== ========= ========= Net Earnings Attributable to Class H Common Stock on a Per Share Basis................................. $0.63 $0.64 $2.18 $2.03 Cash Dividends Per Share of Class H Common Stock.... $0.24 $0.23 $0.72 $0.69
- ------------------------- (1) Excludes amortization of GM purchase accounting adjustments of $30.5 million and $31.0 million for the third quarters of 1996 and 1995, and $91.7 million and $92.9 million for the nine-month periods ended September 30, 1996 and 1995, respectively, related to GM's acquisition of Hughes Aircraft Company. In addition, the third quarter and nine months of 1995 exclude the write-off of an additional $36.1 million of purchase accounting adjustments associated with the disposition of certain non-strategic business units. SEGMENT HIGHLIGHTS*
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- 1996 1995 1996 1995 -------- -------- -------- -------- (DOLLARS IN MILLIONS) Automotive Electronics Revenues............................................ $1,275.2 $1,173.3 $4,101.0 $4,154.3 Net Sales........................................... $1,267.6 $1,155.2 $4,068.0 $4,090.6 Operating Profit(1)................................. $ 166.3 $ 150.9 $ 562.0 $ 655.1 Operating Profit Margin(2).......................... 13.1% 13.1% 13.8% 16.0% Telecommunications and Space Revenues............................................ $1,001.8 $ 762.6 $2,890.1 $2,156.7 Net Sales........................................... $ 993.9 $ 737.6 $2,765.2 $2,145.6 Operating Profit(1)................................. $ 62.0 $ 65.7 $ 193.5 $ 143.1 Operating Profit Margin(2).......................... 6.2% 8.9% 7.0% 6.7% Aerospace and Defense Systems Revenues............................................ $1,525.2 $1,517.0 $4,548.0 $4,334.5 Net Sales........................................... $1,529.3 $1,503.5 $4,543.5 $4,313.5 Operating Profit(1)................................. $ 167.1 $ 178.7 $ 486.4 $ 495.8 Operating Profit Margin(2).......................... 10.9% 11.9% 10.7% 11.5%
- ------------------------- * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. (1) Net Sales less Total Costs and Expenses other than Interest Expense. (2) Operating Profit as a percentage of Net Sales. 20 21 GENERAL MOTORS CORPORATION AND SUBSIDIARIES HUGHES FINANCIAL REVIEW The following financial review should be read in conjunction with the financial information and management's discussion and analysis relating to Hughes which is referred to in the first paragraph of this management's discussion and analysis. Hughes Electronics reported net income of $221.5 million for the third quarter of 1996 compared with $189.0 million in the third quarter of 1995. Excluding amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company, Hughes' Earnings Used for Computation of Available Separate Consolidated Net Income was $252.0 million for the third quarter of 1996 compared to $256.1 million for the same period in 1995. The slight decline in quarterly earnings was primarily due to the higher effective tax rate in the third quarter of 1996. Earnings Used for Computation of Available Separate Consolidated Net Income increased 7.0% to $870.3 million in the first nine months of 1996 compared with $813.4 million in the comparable 1995 period. The 1996 nine month earnings improvement was primarily due to the gain recognized from the sale of a 2.5% interest in DIRECTV(R) to AT&T, offset in part by the unfavorable impact on the Automotive Electronics segment of lower GM production volumes related to a 17-day strike at two GM component plants in the first quarter of 1996. Third quarter revenues increased 11.1% between 1995 and 1996 due to revenue increases in all segments, particularly Telecommunications and Space. The 31.4% Telecommunications and Space segment revenue increase was due to increased commercial satellite manufacturing sales and continued DIRECTV subscriber growth. International sales growth and higher GM North American production volumes in the Automotive Electronics segment also contributed to the increase in revenues. For the nine month period ended September 30, 1996, revenues increased 8.2% over the same period in 1995. This revenue growth was primarily the result of a 34.0% increase in the Telecommunications and Space segment driven by DIRECTV subscriber growth, a gain from the sale of a 2.5% equity interest in DIRECTV to AT&T, and higher sales of commercial satellites. Revenues in the Aerospace and Defense Systems segment were higher principally due to the 1995 acquisition of Hughes Defense Communications (formerly Magnavox Electronic Systems Company). Third quarter 1996 operating profit, excluding amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company, increased 5.2% over the comparable period in 1995 primarily due to overall revenue growth, as well as improved operating results at Hughes' in-flight entertainment subsidiary, Hughes-Avicom International, Inc. The operating profit margin was 10.2% for the third quarter compared with 10.7% in the third quarter of 1995. Operating profit for the first nine months of 1996 decreased 1.9% when compared with the same nine month period in 1995. The operating profit margin was 10.7% for the first nine months of 1996 compared with 11.6% in the comparable 1995 period. The majority of the decline in operating profit and operating profit margin was attributable to the Automotive Electronics segment primarily due to the strike discussed above and continued price reductions. During the fourth quarter, work stoppages by both the CAW and UAW caused General Motors to cease production at various facilities. These work stoppages are expected to have an unfavorable impact on earnings of the Automotive Electronics segment amounting to approximately $45 million after-tax, or $0.11 per share of Class H common stock. In addition, the new UAW labor agreement includes lump sum payments which will result in a charge against 1996 fourth quarter earnings for the Automotive Electronics segment of approximately $7 million after-tax, or $0.02 per share of Class H common stock. 21 22 GENERAL MOTORS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS To facilitate analysis, the following financial statements present financial data for the Corporation's manufacturing, wholesale marketing, defense and electronics operations with the financing and insurance operations (primarily GMAC) reflected on an equity basis. This is the same basis and format used in years prior to the Corporation's adoption of SFAS No. 94, Consolidation of All Majority-owned Subsidiaries. CONSOLIDATED STATEMENT OF INCOME WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ------------------------ 1996 1995 1996 1995 --------- --------- ---------- ---------- (DOLLARS IN MILLIONS) Net Sales and Revenues(1)....................... $34,607.1 $31,241.8 $109,461.4 $106,862.9 --------- --------- ---------- ---------- Costs and Expenses Cost of sales and other operating charges, exclusive of items listed below............ 29,629.9 27,431.8 92,879.0 89,661.8 Selling, general, and administrative expenses................................... 2,849.6 2,422.6 8,253.0 7,273.8 Depreciation of real estate, plants, and equipment.................................. 1,065.1 811.5 3,054.6 2,529.8 Amortization of special tools................. 691.2 661.9 2,276.7 2,407.9 Amortization of intangible assets............. 40.1 37.9 102.9 113.2 Plant closing reserve adjustment.............. (408.9) -- (408.9) -- --------- --------- ---------- ---------- Total Costs and Expenses................. 33,867.0 31,365.7 106,157.3 101,986.5 --------- --------- ---------- ---------- Operating Income (Loss)......................... 740.1 (123.9) 3,304.1 4,876.4 Other income less income deductions............. 447.8 232.5 1,589.2 724.1 Interest expense................................ (239.1) (178.5) (664.3) (584.0) --------- --------- ---------- ---------- Income (Loss) from Continuing Operations before Income Taxes.................................. 948.8 (69.9) 4,229.0 5,016.5 Income (taxes) benefit.......................... (26.8) 134.6 (1,146.9) (1,528.6) --------- --------- ---------- ---------- Income from Continuing Operations before Earnings of Nonconsolidated Affiliates and Cumulative Effect of Accounting Change........ 922.0 64.7 3,082.1 3,487.9 Earnings of nonconsolidated affiliates.......... 348.8 332.0 1,084.9 948.1 --------- --------- ---------- ---------- Income from Continuing Operations before Cumulative Effect of Accounting Change........ 1,270.8 396.7 4,167.0 4,436.0 Income from discontinued operations............. -- 245.7 10.0 630.5 Cumulative effect of accounting change(2)....... -- -- -- (51.8) --------- --------- ---------- ---------- Net Income............................... $ 1,270.8 $ 642.4 $ 4,177.0 $ 5,014.7 ========= ========= ========== ========== Net Profit Margin(3)..................... 3.7% 1.3% 3.8% 4.2%
- ------------------------- (1) Includes sales to nonconsolidated affiliates of $240.0 million and $197.5 million for the third quarter of 1996 and 1995 and $737.7 million and $600.6 million for the nine month periods ended September 30, 1996 and 1995, respectively. (2) Effective January 1, 1995, the Corporation adopted EITF Issue No. 95-1, resulting in an unfavorable cumulative effect of $51.8 million. (3) Net profit margin represents income from continuing operations before cumulative effect of accounting change, as a percent of net sales and revenues. 22 23 GENERAL MOTORS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS -- CONTINUED General Motors' 1996 third quarter consolidated income from continuing operations totaled $1,270.8 million, or $1.57 per share of $1 2/3 par value common stock, compared to $396.7 million, or $0.39 per share of $1 2/3 par value common stock, for the comparable 1995 period. Income from continuing operations for the nine months ended September 30, 1996 was $4,167.0 million, or $5.15 per share of $1 2/3 par value common stock, compared to $4,436.0 million, or $5.21 per share of $1 2/3 par value common stock, for the first nine months of 1995 (excluding the cumulative effect of an accounting change). General Motors completed the split-off of Electronic Data Systems Corporation (EDS) on June 7, 1996, and accordingly, the 1996 third quarter financial results exclude EDS. In the 1995 third quarter, income from the discontinued operations of EDS totaled $245.7 million. Consolidated net income for the nine months ended September 30, 1996, including income from discontinued operations through the June 7, 1996 split-off, was $4,177.0 million, or $5.14 per share of $1 2/3 par value common stock, compared to $5,014.7 million, or $5.25 per share of $1 2/3 par value common stock, for the first nine months of 1995. Highlights of financial performance by GM's major business sectors for the quarter and nine months ended September 30 are shown below.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- -------------------- 1996 1995 1996 1995 -------- ------- -------- -------- (DOLLARS IN MILLIONS) MAJOR BUSINESS SECTOR RESULTS GM-NAO/Delphi........................................ $ 515.2 $ (92.8) $1,369.8 $1,793.7 GMIO................................................. 323.3 111.1 1,179.3 1,146.4 GMAC................................................. 307.3 253.7 966.4 767.8 Hughes............................................... 252.0 256.0 870.3 813.3 Other*............................................... (127.0) (131.3) (218.8) (137.0) -------- ------- -------- -------- Income before discontinued operations............. 1,270.8 396.7 4,167.0 4,384.2 Discontinued operations.............................. -- 245.7 10.0 630.5 -------- ------- -------- -------- Consolidated Net Income........................... $1,270.8 $ 642.4 $4,177.0 $5,014.7 ======== ======= ======== ========
- ------------------------- * Includes Allison Transmission Division, GM Locomotive Group, and purchase accounting adjustments. Third quarter 1996 net sales and revenues increased $3,365.3 million, or 10.7%, and totaled $34,607.1 million, compared to $31,241.8 million for the same period in the prior year. The increase in net sales and revenues resulted from increased wholesale sales volume in North America, Europe and Latin America; continued growth in net sales and revenues for Hughes; and an increase in Delphi's component sales. Net sales and revenues for the nine months ended September 30, 1996 were $109,461.4 million, compared to $106,862.9 million for the first nine months of 1995, and reflected increased wholesale sales volume in Europe, year-to-date growth in net sales and revenue for Hughes and an increase in Delphi's component sales, partially offset by decreased wholesale sales volume in North America. The year-over-year decline in the wholesale sales volume in North America reflected the unfavorable impact of the 1996 first quarter strike and lower production necessary to balance U.S. dealer stock levels. The gross margin percentage for the 1996 third quarter increased to 14.4%, compared to 12.2% in the comparable prior year period, and reflected higher wholesale sales volume worldwide, continued cost reduction efforts in North America, and favorable currency-exchange movement and lower vehicle sales incentives in Europe. The gross margin percentage for the nine months ended September 30, 1996 was 15.1%, compared to 16.1% for the first nine months of 1995. The year-to-date decline in the gross margin percentage resulted from decreased wholesale sales volume and higher vehicle sales incentives in North America and unfavorable currency-exchange and material cost pressures in Latin America. Other operating expenses for the third quarter of 1996 totaled $4,237.1 million, compared to $3,933.9 million in the comparable 1995 period. Other operating expenses for the nine months ended September 30, 1996 were $13,278.3 million, compared to $12,324.7 million for the first nine months of 1995. The increases for the three and nine month periods were primarily attributable to expansion efforts of Hughes and GMIO, as well as higher depreciation expense, partially offset by the favorable pre-tax impact of the GM-NAO plant closing reserve adjustment of $408.9 million ($253.4 million after-tax, or $0.34 per share of $1 2/3 par value common stock). 23 24 GENERAL MOTORS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS -- CONCLUDED Other income less income deductions amounted to $447.8 million and $1,589.2 million for the three and nine months ended September 30, 1996, compared to $232.5 million and $724.1 million in the comparable 1995 periods. The amount reported for the first nine months of 1996 includes a pre-tax gain of $120.3 million associated with the sale of a 2.5% equity interest in DIRECTV to AT&T. The amount reported for the 1995 nine month period includes a pre-tax loss of $147.8 million associated with the sale of the net assets of National Car Rental System (NCRS). Interest expense totaled $239.1 million and $664.3 million for the three and nine months ended September 30, 1996, compared to $178.5 million and $584.0 million in the comparable 1995 periods, reflecting an overall net increase in outstanding debt. The third quarter 1996 effective income tax rate of 2.8% resulted mainly from the favorable resolution of items related to General Motors' tax returns for prior years, overall foreign tax rates that were lower than the U.S. statutory rate, and reinstatement of research and experimentation credits for the last half of 1996. The effective income tax rate in the third quarter of 1995 includes tax benefits from the mix of foreign income and foreign income taxes. The effective income tax rate for the nine months ended September 30, 1996 was 27.1% compared to 30.5% for the nine months ended September 30, 1995. Adoption of EITF Issue No. 95-1, "Revenue Recognition on Sales with a Guaranteed Minimum Resale Value", resulted in an unfavorable cumulative effect at January 1, 1995 of $51.8 million after-tax ($0.07 per share) attributable to $1 2/3 par value common stock. General Motors' net profit margin -- income from continuing operations as a percent of net sales and revenues -- was 3.7% for the third quarter of 1996 compared to 1.3% for the third quarter of 1995. The net profit margin for the nine months ended September 30, 1996 was 3.8% compared with 4.2% for the comparable prior year period. EDS SPLIT-OFF On June 7, 1996 General Motors split-off EDS to General Motors Class E stockholders on a tax-free basis for U.S. federal income tax purposes. Under the terms of the split-off, each share of General Motors Class E common stock was exchanged for one share of EDS common stock. In addition, General Motors and EDS entered into a new 10-year agreement, under which EDS will continue to be General Motors' principal provider of information technology services, and EDS made a special inter-company payment of $500 million to General Motors. General Motors' Board of Directors determined that the ownership of EDS was not necessary for it to execute its information technology strategy or to ensure the security of its computer data and other information. Furthermore, General Motors' Board of Directors determined that there were certain actual and potential conflicts between the business of EDS and the other businesses of General Motors. The split-off was completed to address such conflicts in a manner that was beneficial from the standpoint of all stockholders of General Motors and to allow the boards and managements of General Motors and EDS to increase their focus on their respective business operations. Holders of all three classes of General Motors' common stock gave their approval to the split-off in voting results which were tabulated in General Motors' Form 10-Q for the Quarter Ended June 30, 1996. Additional information regarding the split-off of EDS is contained in Note 2 to the condensed consolidated financial statements. NEW ACCOUNTING STANDARD In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No. 125). SFAS No. 125 is effective for certain transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. General Motors will adopt this accounting standard on January 1, 1997, as required. The adoption of SFAS No. 125 is not expected to have a material impact on General Motors' consolidated financial statements. 24 25 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1996 1995 1995 ------------- ------------ ------------- (DOLLARS IN MILLIONS) ASSETS Cash and cash equivalents............................... $ 12,475.7 $ 9,046.8 $ 7,658.8 Other marketable securities............................. 2,067.7 1,194.0 526.6 ---------- ---------- ---------- Total cash and marketable securities............... 14,543.4 10,240.8 8,185.4 Accounts and notes receivable -- net Trade................................................. 6,118.3 5,594.7 7,339.4 Nonconsolidated affiliates............................ 1,452.1 2,103.0 1,661.4 Inventories -- net...................................... 12,128.8 11,348.3 11,754.9 Net assets of discontinued operations................... -- 5,054.9 4,847.4 Contracts in process -- net 2,478.6 2,469.2 2,670.5 Net equipment on operating leases....................... 4,081.0 4,392.6 4,392.6 Deferred income taxes and other......................... 5,373.2 5,527.7 6,462.8 ---------- ---------- ---------- Total Current Assets............................... 46,175.4 46,731.2 47,314.4 Equity in Net Assets of Nonconsolidated Affiliates...... 9,805.7 9,983.0 9,874.2 Deferred Income Taxes................................... 18,460.3 17,374.8 14,614.7 Other Investments and Miscellaneous Assets.............. 11,408.7 12,010.9 12,924.3 Property -- Net......................................... 35,887.8 34,437.8 33,420.8 Intangible Assets -- Net................................ 10,080.3 10,106.4 10,588.3 ---------- ---------- ---------- Total Assets....................................... $ 131,818.2 $130,644.1 $ 128,736.7 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable........................................ $ 10,678.7 $ 10,623.6 $ 10,174.6 Loans payable........................................... 1,201.8 2,187.0 1,454.4 Income taxes payable.................................... 592.2 101.2 -- Accrued liabilities and customer deposits............... 29,601.1 28,093.1 28,604.8 ---------- ---------- ---------- Total Current Liabilities.......................... 42,073.8 41,004.9 40,233.8 Long-Term Debt.......................................... 5,256.1 4,115.0 4,882.9 Capitalized Leases...................................... 163.0 166.2 137.1 Postretirement Benefits Other Than Pensions............. 40,183.7 39,001.0 38,660.5 Pensions................................................ 5,103.4 5,593.9 3,660.6 Other Liabilities and Deferred Income Taxes............. 15,382.1 15,907.2 16,848.0 Deferred Credits........................................ 1,856.1 1,510.4 1,507.2 Stockholders' Equity.................................... 21,800.0 23,345.5 22,806.6 ---------- ---------- ---------- Total Liabilities and Stockholders' Equity......... $ 131,818.2 $130,644.1 $ 128,736.7 ========== ========== ==========
25 26 GENERAL MOTORS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS Cash and marketable securities totaled $14,543.4 million at September 30, 1996, compared to $8,185.4 million and $10,240.8 million at September 30, 1995 and December 31, 1995, respectively. During the first nine months of 1996, loans payable and long-term debt increased $155.9 million to $6,457.9 million at September 30, 1996 from a balance of $6,302.0 million at December 31, 1995. The increase in loans payable and long-term debt reflected General Motors' overall liability management program, which comprehends prefunding future debt maturities when interest rates are low. Net liquidity, calculated as cash and marketable securities less the total of loans payable, long-term debt and capitalized leases, was $7,922.5 million, an improvement of $4,149.9 million compared to December 31, 1995 and $6,211.5 million compared to September 30, 1995. Book value per share of $1 2/3 par value common stock increased to $25.95 at the end of the 1996 third quarter from $24.37 at the end of 1995. Book value per share of Class H common stock increased to $12.98 at September 30, 1996 from $12.20 at the end of 1995. The Corporation believes it has sufficient resources to meet anticipated future cash flow requirements. In addition to cash flow from operations, the Corporation and certain of its subsidiaries (including GMAC) maintain, or otherwise have available through asset securitization programs, various syndicated bank credit facilities which at September 30, 1996 in the aggregate provide $34.1 billion of committed bank credit availability. Of this amount, $6.8 billion is directly available to the Corporation. At September 30, 1996, unused short-term credit facilities, including those relating to GMAC, totaled approximately $25.9 billion and unused long-term credit facilities (including GMAC) totaled approximately $19.6 billion, compared with $21.0 billion and $19.0 billion, respectively, at the end of 1995. LIQUIDITY AND CAPITAL RESOURCES FOR GMAC At September 30, 1996, GMAC owned assets and serviced automotive receivables totaling $106,466.9 million, $98,323.0 million below year-end 1995, and $3,160.3 million above September 30, 1995. Earning assets totaled $92,898.4 million at September 30, 1996, compared to $92,014.1 million and $88,948.6 million at December 31 and September 30, 1995, respectively. The increases over the comparable prior year periods are principally attributable to continued growth of the operating lease portfolio. As of September 30, 1996, GMAC's total borrowings were $74,958.8 million, an increase from $74,922.4 million and $69,419.3 million at December 31, and September 30, 1995, respectively. The higher year-to-year debt levels were principally used to fund increased asset levels and reduce accounts payable and other liabilities. GMAC's ratio of debt to total stockholder's equity at September 30, 1996 was 9.1:1, relatively unchanged from December 31, 1995 and higher than 8.4:1 at September 30, 1995. Continuing to utilize its asset securitization program, GMAC sold retail and wholesale finance receivables totaling $4,108.7 million (net) during the first nine months of 1996. GMAC and its subsidiaries continue to maintain substantial bank lines of credit which totaled $40.8 billion at September 30, 1996, compared to $40.0 billion at year-end 1995 and $39.6 billion at September 30, 1995. The unused portion of these credit lines totaled $32.0 billion at September 30, 1996, $1.5 billion and $.5 billion higher than December 31 and September 30, 1995, respectively. 26 27 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1996 1995 --------- --------- (DOLLARS IN MILLIONS) Net Cash Provided by Operating Activities............................... $11,056.9 $ 5,811.7 --------- --------- Cash Flows from Investing Activities Investment in companies, net of cash acquired......................... (125.6) (154.9) Expenditures for real estate, plants, and equipment................... (3,837.0) (3,377.5) Expenditures for special tools........................................ (2,681.3) (2,595.4) Proceeds from disposals of real estate, plants, and equipment......... 255.8 465.5 Special Inter-Company Payment from EDS................................ 500.0 -- Expenditures related to the sale of NCRS' net assets.................. -- (197.0) Change in other investing assets Investments in other marketable securities -- acquisitions......... (8,225.8) (3,948.4) Investments in other marketable securities -- liquidations......... 7,352.1 4,530.5 Notes receivable................................................... 93.9 (72.8) Operating leases -- acquisitions................................... (3,341.8) (998.6) Operating leases -- liquidations................................... 3,142.4 377.0 --------- --------- Net Cash Used In Investing Activities................................... (6,867.3) (5,971.6) --------- --------- Cash Flows from Financing Activities Net (decrease) increase in loans payable.............................. (985.3) 656.8 Increase in long-term debt............................................ 1,918.1 642.1 Decrease in long-term debt............................................ (787.7) (825.8) Net increase in payable to GMAC....................................... -- 311.5 Proceeds from sale of minority interest in DIRECTV.................... 137.5 -- Repurchases of common and preference stocks........................... (0.2) (1,680.7) Proceeds from issuing common stocks................................... 210.5 289.8 Cash dividends paid to stockholders................................... (1,183.5) (972.3) --------- --------- Net Cash Used in Financing Activities................................... (690.6) (1,578.6) --------- --------- Effect of Exchange Rate Changes on Cash and Cash Equivalents............ (173.3) 143.2 --------- --------- Net Cash Provided by (Used in) Continuing Operations.................... 3,325.7 (1,595.3) Net Cash Provided by Discontinued Operations............................ 103.2 130.9 --------- --------- Net increase (decrease) in cash and cash equivalents.................... 3,428.9 (1,464.4) Cash and cash equivalents at beginning of the period.................... 9,046.8 9,123.2 --------- --------- Cash and cash equivalents at end of the period.......................... $12,475.7 $ 7,658.8 ========= =========
27 28 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CASH FLOW WITH FINANCING AND INSURANCE OPERATIONS ON AN EQUITY BASIS Net cash provided by operating activities was $11,056.9 million for the nine months ended September 30, 1996, compared to net cash provided by operating activities of $5,811.7 million in the 1995 period. The improvement compared to the first nine months of 1995 reflected lower pension contributions, as a result of the improved funding of General Motors' U.S. pension plans, and favorable changes in operating assets and liabilities on a comparative year-over-year basis. Net cash used in investing activities totaled $6,867.3 million for the first nine months of 1996, compared to $5,971.6 million for the comparable 1995 period. The increase in net cash used in investing activities during the 1996 period was primarily attributable to cash used for marketable security acquisitions, net of cash generated by marketable security liquidations, and an increase in capital expenditures, partially offset by receipt of the $500 million special inter-company payment from EDS. The net investment in marketable securities for the nine month period ended September 30, 1996 totaled $873.7 million, compared to a net liquidation of marketable securities totaling $582.1 million in the comparable 1995 period. Expenditures for real estate, plants, and equipment and special tools totaled $6,518.3 million in the first nine months of 1996 compared to $5,972.9 million in the first nine months of 1995. Net cash used in financing activities amounted to $690.6 million for the first nine months of 1996, compared to $1,578.6 million for the comparable 1995 period. During the 1996 period, the net increase in long-term debt and notes payable, proceeds from the sale of a minority interest in DIRECTV and proceeds from issuing common stocks for benefit plan purposes were more than offset by cash dividends paid to stockholders. The net cash used in financing activities in the nine month period ended September 30, 1995 reflected cash used to repurchase preference stocks and pay dividends to stockholders. On September 20, 1996, Hughes and PanAmSat Corporation entered into an agreement to merge their respective satellite services operations into a new publicly-held company. Immediately after the merger, Hughes will own 71.5% and current PanAmSat stockholders will own 28.5% of the new company. The PanAmSat stockholders will also receive cash of $1.5 billion. The transaction is contingent upon obtaining regulatory approvals and is expected to close in 6 to 12 months. In connection with Delphi's lean manufacturing efforts and competitive market pressures, it is negotiating to sell four facilities. In addition, evaluations are underway with respect to appropriate plans for other Delphi facilities. The plans related to the four Delphi facilities considered for sale were not yet finalized at September 30, 1996; the associated costs are expected to be recognized in the future when firm plans are adopted and could occur before the end of 1996. General Motors is also evaluating its plant closing reserve, taking into consideration the effect of the recent settlements with the UAW and CAW (see the GM-NAO/Delphi Financial Review) including redeployment and other assumptions. Although the amount of such changes can not be currently determined, the changes may have a favorable effect in the 1996 fourth quarter. During the 1996 first quarter, approximately 44.7 million shares of Class E common stock were issued upon conversion of approximately 3.2 million shares of Series C Preference Stock (represented by depositary shares). The remaining 6,784 shares of Series C Preference Stock were redeemed on February 22, 1996 for $3.6 million of cash, or $524.20 per share of Series C Preference Stock ($52.42 per depositary share). During the 1995 second quarter, the Corporation purchased certain of its outstanding preference shares pursuant to an issuer tender offer. The repurchase had an unfavorable impact of $0.22 per share of $1 2/3 par value common stock, including tender offer expenses of $13.5 million after-tax, or $0.02 per share, that were charged against income and the purchase price in excess of the carrying amount of the preference shares amounting to $153.4 million, or $0.20 per share, that was not charged against income but reduced earnings attributable to $1 2/3 par value common stock. 28 29 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CASH FLOW FOR GMAC Cash provided by operating activities during the nine months ended September 30, 1996 totaled $4,688.3 million, compared to $5,651.8 million provided during the corresponding 1995 period. The decrease is primarily attributable to reduced payables to General Motors Corporation and affiliates. Cash used for investing activities during the first nine months of 1996 totaled $4,505.8 million, compared to $7,807.3 million during the same period in 1995, with the decline primarily resulting from the 1996 reduction in GMAC's finance receivables portfolio. During the first nine months of 1996, cash used for financing activities totaled $712.4 million, reflecting $900.0 million in dividends paid to General Motors, partially offset by $187.6 million in net borrowings activities. Cash provided by financing activities during the first nine months of 1995 totaled $1,572.0 million as net proceeds from debt issuances and liquidations amounted to $2,197.0 million and dividends totaling $625.0 million were paid to General Motors during that period. PENSIONS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS At year-end 1995, GM's total worldwide net unfunded pension position decreased to $6.6 billion ($3.0 billion U.S. and $3.6 billion non-U.S.) from $12.6 billion at the end of 1994. In the first nine months of 1996, General Motors made cash contributions of $800 million to its U.S. pension plans. General Motors' unfunded pension obligation and 1997 pension expense are expected to be unfavorably impacted as a result of the recently completed labor negotiations. Under SFAS No. 87, Employers' Accounting for Pensions, any year-to-year movement in the rate of interest on long-term, high quality corporate bonds necessitates a change in the discount rate used to calculate the actuarial present value of pension plan obligations. The increase in long-term interest rates which has occurred since December 31, 1995 would, if there were no further changes in long-term interest rates in 1996, require the Corporation to calculate its December 31, 1996 pension obligation using a discount rate approximately 50 to 75 basis points above that used at the last measurement date. GM's reported unfunded pension obligation would be favorably impacted by such a change in interest rates. The unfunded pension position would also be affected by contributions during the year, the actual return on pension investments, and various other factors. A change in the unfunded pension position would also affect the minimum pension liability adjustment to stockholders' equity. The change in long-term interest rates described above similarly impacts the calculation of General Motors' postretirement health care obligations under SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. There has been an increase of approximately 25 basis points in long-term interest rates between October 1, 1995 and September 30, 1996 (the most recent valuation date). However, a change to the accumulated postretirement benefit obligation would not impact General Motors' stockholders' equity in 1996. Changes in General Motors' unfunded pension obligations under SFAS No. 87 and postretirement obligations under SFAS No. 106 resulting from changes in interest rates during 1996 would not have an impact on the earnings to be reported by General Motors for 1996. However, in accordance with applicable accounting standards, any change in these obligations would impact General Motors' 1996 and subsequent years earnings as non-cash increases/decreases in pension and other postretirement benefit expense. SECURITY RATINGS On October 7, 1996, Standard and Poor's Corporation (S&P) affirmed its long-term debt and commercial paper ratings for Hughes and revised its outlook from stable to developing as a result of the uncertainty with respect to General Motors' investment strategy related to Hughes. S&P indicated that the developing outlook reflects the possibility that if a significant change in the relationship between General Motors and Hughes were to occur, the credit quality of Hughes could be either favorably or adversely affected, depending upon the nature of the transaction pursued. 29 30 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SECURITY RATINGS -- CONCLUDED On November 14, 1996, S&P affirmed its ratings on General Motors, GMAC and various overseas affiliates of GMAC. In addition, S&P indicated that the ratings outlook for General Motors and GMAC remains stable, and the ratings outlook for Hughes remains developing. EMPLOYMENT AND PAYROLLS
1996 1995 ---- ---- Worldwide Employment at September 30 (In Thousands) GM-NAO/Delphi................................................................. 425 431 GMIO.......................................................................... 110 105 GMAC.......................................................................... 17 17 Hughes........................................................................ 84 82 Other......................................................................... 11 12 --- --- Employees Associated With Continuing Operations............................... 647 647 === ===
Worldwide payrolls for continuing operations totaled $7,490.1 million and $24,359.4 million for the three and nine months ended September 30, 1996 compared with $7,221.7 million and $22,327.7 million for the three and nine months ended September 30, 1995. * * * * * * 30 31 PART II GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 1. LEGAL PROCEEDINGS (a) Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation became, or was, a party during the quarter ended September 30, 1996, or subsequent thereto, but before the filing of this report are summarized below: OTHER MATTERS On July 12, 1996, the Corporation was served with a putative class action complaint filed in the Circuit Court of Greene County, Alabama, Robert J. Reinning et al v. General Motors Corporation. The Complaint alleges that the paint systems used on all GM vehicles manufactured in the 1985 through 1995 model years are defective or potentially defective because GM switched to "water-based primers" which if "not used with finish coats were appropriate for use with them or were not properly cured before the application of the finish coats of the overall paint system . . . could result in various problems with the vehicle finish, including but not limited to chipping, peeling, bubbling, blotching, discoloration, water spotting, whitening or fogging of the finish." The Complaint identified separate putative classes encompassing past, present and future owners or lessees of GM motor vehicles from the specified model years. No determination has been made whether the case is appropriate to proceed as a class action. * * * As previously reported, Hughes has maintained a suit against the U.S. Government since September 1973, regarding the Government's infringement and use of a Hughes patent (the "Williams Patent") covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites. On June 17, 1994, the U.S. Court of Claims awarded Hughes damages of $114 million. Because Hughes believed that the record supported a higher royalty rate, it appealed that decision. The U.S. Government, contending that the award was too high, also appealed. On June 19, 1996, the Court of Appeals for the Federal Circuit affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the Court of Appeals for the Federal Circuit for a rehearing. That petition was denied in October of 1996. The U.S. Government has the option of petitioning the U.S. Supreme Court for certiorari prior to January 15, 1997. Hughes is unable to estimate the duration of any such possible appeal. In the opinion of management of Hughes, there is a reasonable possibility that this matter could be resolved in the near term. While no amount has been recorded in the financial statements of Hughes to reflect the $114 million award, a resolution of this matter could result in a gain that would be material to the earnings of General Motors attributable to Class H common stock. As previously reported, General Motors has agreed to settle the class action suits involving 1973 to 1987 C/K pickup trucks and 1987 to 1991 R/V pickup trucks and chassis cabs subject to the Court's review and approval of terms of the settlement. Under the proposed settlements, which are not expected to have a material impact on the consolidated financial statements of General Motors, certificates of up to $1,000 toward the purchase of any new GM passenger car or light-duty truck, except Saturns or electric vehicles, would be made available to owners of C/K pickup trucks, subject to certain conditions. Settlement certificates may be used for 33 months by consumers or 50 months by fleets at reduced amounts of $500 or $250. The settlement was preliminarily approved by a Louisiana state court and applied to owners nationwide. Prior settlements of these class action suits were reversed on appeal. * * * As previously reported, several actions seeking compensatory and punitive damages in unspecified amounts were filed against Hughes by plaintiffs alleging that they suffered injuries as a result of the migration into the Tucson, Arizona water supply of alleged toxic substances that were disposed of at a facility owned by the United States Government which Hughes operates under a contract with the U.S. Air Force. These actions included a putative class action filed in Arizona State Court, Cordova v. Hughes Aircraft Company, an 31 32 individual action filed on behalf of approximately 800 plaintiffs in Federal District Court in Arizona, Yslava v. Hughes Aircraft Company, and a class action filed in Federal District Court in Arizona, Lanier v. Hughes Aircraft Company. Other governmental and private entities are known to have also been sources of substances which may have migrated into the Tucson water supply. Hughes believes that it has strong defense to the claims asserted against it and that it may have claims for contribution against the other entities. In July, 1996, the Cordova court denied plaintiffs' motion for class certification and, subsequently, an amended complaint in intervention on behalf of more than 400 plaintiffs asserting individual claims was filed. * * * (b) Previously reported legal proceedings which have been terminated, either during the quarter ended September 30, 1996, or subsequent thereto, but before the filing of this report are summarized below. As previously reported, on May 3, 1995 a putative class action was filed in the Circuit Court for Fayette County, Alabama on behalf of a putative class of Alabama residents who purchased 1989 GMC pickup trucks. The Complaint alleged that the paint and/or paint primer used in the manufacture of those vehicles was defective. The case, Barney Kizzire v. General Motors Corporation and Bynum Olds-Pontiac-Cadillac-GMC, Inc., was subsequently removed to the United States District Court for the Northern District of Alabama. On October 8, 1996, that Court granted GM's motion for summary judgment dismissing all claims asserted by the named plaintiff as barred by the statute of limitations. Plaintiff retains the option to file an appeal. * * * * * * ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS (Including Those Incorporated by Reference).
EXHIBIT NUMBER EXHIBIT NAME PAGE NO. - ------- ------------------------------------------------------------------------ -------- 11 Computation of Earnings Per Share Attributable to Common Stocks for the Three and Nine Month Periods Ended September 30, 1996 and 1995. ........ 34 12 Computation of Ratios of Earnings to Fixed Charges for the Nine Month Periods Ended September 30, 1996 and 1995. ............................. 38 99 Hughes Electronics Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis. ................... 39 27 Financial Data Schedule (for SEC information only)
(b) REPORTS ON FORM 8-K. No report on Form 8-K was filed during the three months ended September 30, 1996. * * * * * * 32 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GENERAL MOTORS CORPORATION -------------------------------------- (Registrant) By /s/ LEON J. KRAIN Date November 14, 1996 ------------------------------------ (Leon J. Krain, Vice President and Group Executive) By /s/ WALLACE W. CREEK Date November 14, 1996 ------------------------------------ (Wallace W. Creek, Comptroller) 33 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS
THREE MONTHS ENDED SEPTEMBER 30, 1996 ------------------------------ $1 2/3 PAR VALUE CLASS H COMMON STOCK COMMON STOCK ------------ ------------ (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net income attributable to common stocks....................... $1,208.5 $ 62.3 Dividends on preference stocks................................. 20.2 -- -------- ----- Earnings attributable to common stocks......................... 1,188.3 62.3 Dividends on common stocks..................................... 302.3 23.7 -------- ----- Undistributed earnings attributable to common stocks........... $ 886.0 $ 38.6 ======== ===== Weighted average shares outstanding (in millions).............. 756.0 98.8 ======== ===== Per Share Data Earnings per share attributable to undistributed earnings from continuing operations........................................ $ 1.17 $ 0.39 Dividends...................................................... 0.40 0.24 -------- ----- Earnings per share attributable to common stocks............... $ 1.57 $ 0.63 ======== =====
- ------------------------- Note: The difference between fully diluted and primary earnings per share is immaterial. 34 2 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS -- CONTINUED
THREE MONTHS ENDED SEPTEMBER 30, 1995 -------------------------------------------- $1 2/3 PAR VALUE CLASS E CLASS H COMMON STOCK COMMON STOCK COMMON STOCK ------------ ------------ ------------ (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Income from continuing operations attributable to common stocks..................................... $335.3 $ -- $ 61.4 Income from discontinued operations attributable to common stocks..................................... 22.8 222.9 -- ------ ------ ----- Net income attributable to common stocks............ 358.1 222.9 61.4 Dividends on preference stocks...................... 41.4 -- -- ------ ------ ----- Earnings attributable to common stocks.............. 316.7 222.9 61.4 Dividends on common stocks.......................... 224.3 57.1 22.1 ------ ------ ----- Undistributed earnings.............................. $ 92.4 $165.8 $ 39.3 ====== ====== ===== Memo: Adjusted earnings from continuing operations attributable to common stocks..................... $ 69.6 $ -- $ 39.3 ====== ====== ===== Adjusted earnings from discontinued operations attributable to common stocks..................... $ 22.8 $165.8 $ -- ====== ====== ===== Weighted average shares outstanding (in millions)... 748.2 438.8 95.9 ====== ====== ===== Per Share Data Earnings per share attributable to undistributed earnings from continuing operations............... $0.09 $ -- $0.41 Earnings per share attributable to undistributed earnings from discontinued operations............. 0.03 0.38 -- Dividends........................................... 0.30 0.13 0.23 ------ ------ ----- Earnings per share attributable to common stocks.... $0.42 $0.51 $0.64 ====== ====== =====
- ------------------------- Note: The difference between fully diluted and primary earnings per share is immaterial. 35 3 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS -- CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1996 -------------------------------------------- $1 2/3 PAR VALUE CLASS E CLASS H COMMON STOCK COMMON STOCK COMMON STOCK ------------ ------------ ------------ (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Income from continuing operations attributable to common stocks..................................... $3,953.5 $ -- $213.5 Income (Loss) from discontinued operations attributable to common stocks..................... (5.4) 15.4 -- -------- ------- ------ Net income attributable to common stocks............ 3,948.1 15.4 213.5 Dividends on preference stocks...................... 60.7 -- -- -------- ------- ------ Earnings attributable to common stocks.............. 3,887.4 15.4 213.5 Dividends on common stocks.......................... 907.1 145.1 70.7 -------- ------- ------ Undistributed earnings (loss) attributable to common stocks............................................ $2,980.3 $ (129.7) $142.8 ======== ======= ====== Memo: Undistributed earnings from continuing operations attributable to common stocks..................... $2,985.7 $ -- $142.8 ======== ======= ====== Loss from discontinued operations attributable to common stocks..................................... $ (5.4) $ (129.7) $ -- ======== ======= ====== Weighted average shares outstanding (in millions)... 755.7 470.1 98.2 ======== ======= ====== Per Share Data Earnings per share attributable to undistributed earnings from continuing operations............... $ 3.95 $ -- $ 1.46 Loss per share attributable to discontinued operations........................................ (0.01) (0.26) -- Dividends........................................... 1.20 0.30 0.72 -------- ------- ------ Earnings per share attributable to common stocks.... $ 5.14 $ 0.04 $ 2.18 ======== ======= ======
- ------------------------- Note: The difference between fully diluted and primary earnings per share is immaterial. 36 4 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS -- CONCLUDED
NINE MONTHS ENDED SEPTEMBER 30, 1995 ------------------------------------------ $1 2/3 PAR VALUE COMMON CLASS E CLASS H STOCK COMMON STOCK COMMON STOCK ------------ ------------ ------------ (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Income from continuing operations before cumulative effect of accounting change attributable to common stocks............................................... $4,242.5 $ -- $193.5 Income from discontinued operations attributable to common stocks........................................ 79.4 551.1 -- Cumulative effect of accounting change................. (51.8) -- -- -------- ------ ------ Net income attributable to stocks...................... 4,270.1 551.1 193.5 Premium on repurchase of preference stocks............. 153.4 -- -- Dividends on preference stocks......................... 159.5 -- -- -------- ------ ------ Earnings attributable to common stocks................. 3,957.2 551.1 193.5 Dividends on common stocks............................. 598.8 148.3 65.7 -------- ------ ------ Undistributed earnings................................. $3,358.4 $402.8 $127.8 ======== ====== ====== Memo: Adjusted earnings from continuing operations attributable to common stocks........................ $3,279.0 $ -- $127.8 ======== ====== ====== Adjusted earnings from discontinued operations attributable to common stocks........................ $ 79.4 $402.8 $ -- ======== ====== ====== Weighted average shares outstanding (in millions)...... 749.0 393.0 95.2 Per Share Data Earnings per share attributable to undistributed earnings from continuing operations before cumulative effect of accounting change.......................... $4.41 $ -- $1.34 Earnings per share attributable to undistributed earnings from discontinued operations................ 0.11 1.01 -- Cumulative effect of accounting change................. (0.07) -- -- Dividends.............................................. 0.80 0.39 0.69 -------- ------ ------ $5.25 $1.40 $2.03 Earnings per share attributable to common stocks....... ======== ====== ======
- ------------------------- Note: The difference between fully diluted and primary earnings per share is immaterial. 37 EX-12 3 EXHIBIT 12 1 EXHIBIT 12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1996 1995 --------- --------- (DOLLARS IN MILLIONS) Income from continuing operations before cumulative effect of accounting change................................................. $ 4,167.0 $ 4,436.0 United States, foreign, and other income taxes......................... 1,788.4 2,057.2 Equity in income of associates......................................... (107.4) (110.1) Cash dividends received from associates................................ 35.2 13.7 Amortization of capitalized interest................................... 40.8 38.3 --------- --------- Income from continuing operations before cumulative effect of accounting change, income taxes, undistributed income of associates, and amortization of capitalized interest.............. 5,924.0 6,435.1 --------- --------- Fixed charges included in income from continuing operations Interest and related charges on debt.............................. 4,255.7 4,182.0 Portion of rentals deemed to be interest.......................... 196.5 181.0 --------- --------- Total fixed charges included in income from continuing operations..................................................... 4,452.2 4,363.0 --------- --------- Earnings from continuing operations available for fixed charges........ $10,376.2 $10,798.1 ========= ========= Fixed Charges Fixed Charges included in income from continuing operations.......... $ 4,452.2 $ 4,363.0 Interest capitalized in the period................................... 37.5 37.5 --------- --------- Total Fixed Charges............................................. $ 4,489.7 $ 4,400.5 ========= ========= Ratios of earnings from continuing operations to fixed charges......... 2.31 2.45 ========= =========
38 EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GENERAL MOTORS CORPORATION SEPTEMBER 30, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THIRD QUARTER 1996 FORM 10-Q. 0000040730 GENERAL MOTORS CORPORATION 1,000,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 13,398 6,421 63,874 0 12,129 0 77,682 41,508 215,889 0 81,328 0 1 1,271 20,528 215,889 109,416 123,121 92,872 101,679 109 433 4,258 5,955 1,788 4,167 10 0 0 4,177 5.14 0
EX-99 5 EXHIBIT 99 1 EXHIBIT 99 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF INCOME AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ---------------------- 1996 1995 1996 1995 -------- -------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Revenues Net sales Outside customers.............................. $2,590.8 $2,341.6 $ 7,560.9 $ 6,850.3 General Motors and affiliates.................. 1,219.3 1,126.7 3,895.4 3,893.3 Other income (loss) -- net (Note 2)............... 12.5 (27.0) 165.5 0.1 -------- -------- --------- --------- Total Revenues............................... 3,822.6 3,441.3 11,621.8 10,743.7 -------- -------- --------- --------- Costs and Expenses Cost of sales and other operating charges, exclusive of items listed below................ 2,890.5 2,694.5 8,781.6 8,301.3 Selling, general, and administrative expenses..... 383.6 289.2 1,041.9 837.9 Depreciation and amortization..................... 146.7 114.6 407.9 355.6 Amortization of GM purchase accounting adjustments related to Hughes Aircraft Company (Note 4).... 30.5 31.0 91.7 92.9 Interest expense -- net........................... 5.1 1.4 11.7 5.8 -------- -------- --------- --------- Total Costs and Expenses..................... 3,456.4 3,130.7 10,334.8 9,593.5 -------- -------- --------- --------- Income before Income Taxes.......................... 366.2 310.6 1,287.0 1,150.2 Income taxes........................................ 144.7 121.6 508.4 465.8 -------- -------- --------- --------- Net Income.......................................... 221.5 189.0 778.6 684.4 Adjustments to exclude the effect of GM purchase accounting adjustments related to Hughes Aircraft Company (Notes 2 and 4)........................... 30.5 67.1 91.7 129.0 -------- -------- --------- --------- Earnings Used for Computation of Available Separate Consolidated Net Income........................... $ 252.0 $ 256.1 $ 870.3 $ 813.4 ======== ======== ========= ========= Available Separate Consolidated Net Income (Note 4) Average number of shares of GM Class H Common Stock outstanding (in millions) (Numerator).... 98.8 95.9 98.2 95.2 Class H dividend base (in millions) (Denominator).................................. 399.9 399.9 399.9 399.9 Available Separate Consolidated Net Income........ $ 62.3 $ 61.4 $ 213.5 $ 193.5 ======== ======== ========= ========= Net earnings attributable to General Motors Class H Common Stock on a per share basis (Note 4)..................................... $0.63 $0.64 $2.18 $2.03 ======== ======== ========= =========
Reference should be made to the Notes to Consolidated Financial Statements. 39 2 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 DECEMBER 31, (UNAUDITED) 1995 ------------- ------------ (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNT) ASSETS Current Assets Cash and cash equivalents......................................... $ 1,081.7 $ 1,139.5 Accounts and notes receivable Trade receivables (less allowances)............................ 1,211.9 1,235.6 General Motors and affiliates.................................. 111.9 146.7 Contracts in process, less advances and progress payments......... 2,478.6 2,469.2 Inventories (less allowances) Productive material, work in process, and supplies............. 1,461.8 1,060.4 Finished product............................................... 163.0 165.1 Prepaid expenses, including deferred income taxes................. 606.7 594.3 --------- --------- Total Current Assets......................................... 7,115.6 6,810.8 Property -- Net..................................................... 2,863.8 2,739.2 Telecommunications and Other Equipment -- Net....................... 1,110.4 1,175.1 Intangible Assets, net of amortization.............................. 3,497.5 3,573.7 Investments and Other Assets, including deferred income taxes -- principally at cost (less allowances)............................. 1,626.3 1,675.6 --------- --------- Total Assets........................................................ $16,213.6 $ 15,974.4 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Outside........................................................ $ 847.8 $ 748.7 General Motors and affiliates.................................. 19.4 52.2 Advances on contracts............................................. 985.7 893.7 Notes and loans payable........................................... 244.1 432.5 Income taxes payable.............................................. 132.2 190.8 Accrued liabilities............................................... 1,868.7 1,990.9 --------- --------- Total Current Liabilities.................................... 4,097.9 4,308.8 --------- --------- Long-Term Debt and Capitalized Leases............................... 36.2 258.8 --------- --------- Postretirement Benefits Other Than Pensions (Note 5)................ 1,651.1 1,610.6 --------- --------- Other Liabilities, Deferred Income Taxes, and Deferred Credits...... 1,402.5 1,270.5 --------- --------- Stockholder's Equity Capital stock (outstanding, 1,000 shares, $0.10 par value) and additional paid-in capital..................................... 6,346.3 6,338.1 Net income retained for use in the business....................... 2,814.5 2,323.9 --------- --------- Subtotal..................................................... 9,160.8 8,662.0 Minimum pension liability adjustment.............................. (108.6) (108.6) Accumulated foreign currency translation adjustments.............. (26.3) (27.7) --------- --------- Total Stockholder's Equity................................... 9,025.9 8,525.7 --------- --------- Total Liabilities and Stockholder's Equity.......................... $16,213.6 $ 15,974.4 ========= =========
Reference should be made to the Notes to Consolidated Financial Statements. 40 3 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1996 1995 -------- -------- (DOLLARS IN MILLIONS) Net Cash Provided by Operating Activities................................ $ 844.3 $ 739.5 -------- -------- Cash Flows from Investing Activities Investment in companies, net of cash acquired.......................... (28.7) (168.2) Expenditures for property and special tools............................ (485.0) (361.3) Increase in telecommunications and other equipment..................... (145.5) (96.2) Proceeds from sale and leaseback of satellite transponders with General Motors Acceptance Corporation....................................... 252.0 -- Proceeds from disposal of property..................................... 60.9 56.3 Proceeds from sale of investments and businesses....................... -- 23.7 Decrease (increase) in notes receivable................................ 5.7 (32.3) -------- -------- Net Cash Used in Investing Activities............................... (340.6) (578.0) -------- -------- Cash Flows from Financing Activities Net decrease in notes and loans payable................................ (397.2) (65.8) Increase in long-term debt............................................. 12.8 28.0 Decrease in long-term debt............................................. (26.6) (15.8) Proceeds from sale of minority interest in subsidiary.................. 137.5 -- Cash dividends paid to General Motors.................................. (288.0) (276.0) -------- -------- Net Cash Used in Financing Activities............................... (561.5) (329.6) -------- -------- Net decrease in cash and cash equivalents................................ (57.8) (168.1) Cash and cash equivalents at beginning of the period..................... 1,139.5 1,501.8 -------- -------- Cash and cash equivalents at end of the period........................... $1,081.7 $1,333.7 ======== ========
Reference should be made to the Notes to Consolidated Financial Statements. 41 4 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments (consisting of only normal recurring items) which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year. For further information, refer to the consolidated financial statements and notes thereto included in General Motors' 1995 Annual Report on Form 10-K, as amended, the unaudited financial information relating to Hughes filed as Exhibit 99(b) and Exhibit 99 in General Motors' Quarterly Reports dated March 31, 1996 and June 30, 1996, respectively, and Current Reports on Form 8-K filed subsequent to the filing date for the General Motors' 1995 Annual Report on Form 10-K. NOTE 2. Other income (loss) -- net for the nine months ended September 30, 1996 includes a $120.3 million pre-tax gain from the sale of a 2.5% equity interest in DIRECTV(R) to AT&T. The three and nine month periods ended September 30, 1995 include a $76.1 million charge for estimated losses on disposition of certain non-strategic business units including $36.1 million from the write-off of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company and $35.9 million of revenue earned for providing services to GM. NOTE 3. On September 20, 1996, Hughes and PanAmSat Corporation entered into an agreement to merge their respective satellite services operations into a new publicly-held company. Immediately after the merger, Hughes will own 71.5% and current PanAmSat stockholders will own 28.5% of the new company. The PanAmSat stockholders will also receive cash of $1.5 billion. The transaction is contingent upon obtaining regulatory approvals and is expected to close in 6 to 12 months. NOTE 4. Earnings 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 of Hughes earned since the acquisition of Hughes Aircraft Company by GM. The Available Separate Consolidated Net Income of Hughes is determined quarterly and is equal to the separate consolidated net income of Hughes, excluding the effects of GM purchase accounting adjustments arising from the acquisition of Hughes Aircraft Company (Earnings Used for Computation of Available Separate Consolidated Net Income), 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 three months ended September 30, 1996 and 1995. The denominator used to determine the Available Separate Consolidated Net Income 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 GM Board's discretion to make such adjustments is limited by criteria set forth in GM's Restated Certificate of Incorporation. In this regard, the GM Board has generally caused the denominator to decrease as shares are 42 5 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED (UNAUDITED) NOTE 4. -- CONCLUDED 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 quarterly cash dividends at an annual rate approximately equal to 35% of the Available Separate Consolidated Net Income of Hughes for the prior year. NOTE 5. Hughes has disclosed in the financial statements certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as "accumulated postretirement benefit obligations", "liabilities", or "obligations". Notwithstanding the recording of such amounts and the use of these terms, Hughes does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of Hughes (other than pensions) represent legally enforceable liabilities of Hughes. NOTE 6. As previously reported, Hughes has maintained a suit against the U.S. Government since September 1973, regarding the Government's infringement and use of a Hughes patent (the "Williams Patent") covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites. On June 17, 1994, the U.S. Court of Claims awarded Hughes damages of $114 million. Because Hughes believed that the record supported a higher royalty rate, it appealed that decision. The U.S. Government, contending that the award was too high, also appealed. On June 19, 1996, the Court of Appeals for the Federal Circuit affirmed the decision of the Court of Claims which awarded Hughes $114 million in damages, together with interest. The U.S. Government petitioned the Court of Appeals for the Federal Circuit for a rehearing. That petition was denied in October of 1996. The U.S. Government has the option of petitioning the U.S. Supreme Court for certiorari prior to January 15, 1997. In the opinion of management of Hughes, there is a reasonable possibility that this matter could be resolved in the near term. While no amount has been recorded in the financial statements of Hughes to reflect the $114 million award, a resolution of this matter could result in a gain that would be material to the earnings of General Motors attributable to Class H common stock. * * * * * * MANAGEMENT'S DISCUSSION AND ANALYSIS The following management's discussion and analysis should be read in conjunction with the management's discussion and analysis included in GM's 1995 Annual Report to the SEC on Form 10-K, as amended, (the 1995 Form 10-K), the management's discussion and analysis relating to Hughes included in Exhibit 99(b) and Exhibit 99 to GM's Quarterly Reports on Form 10-Q dated March 31, 1996 and June 30, 1996, respectively, and Current Reports on Form 8-K filed subsequent to the filing date for the 1995 Form 10-K. In addition, the following discussion excludes the purchase accounting adjustments related to General Motors' acquisition of Hughes Aircraft Company (see Supplemental Data beginning on page 47). Statements made concerning expected financial performance, ongoing financial performance strategies, and possible future action which Hughes intends to pursue to achieve the strategic objectives for each of its three principal business segments constitute forward-looking information. The implementation of these strategies and of such future actions and the achievement of such financial performance are each subject to 43 6 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED numerous conditions, uncertainties and risk factors, and, accordingly, no assurance can be given that Hughes will be able to successfully accomplish its strategic objectives or achieve such financial performance. The principal important risk factors which could cause actual performance and future actions to differ materially from the forward-looking statements made herein include economic conditions, product demand and market acceptance, government action, competition, ability to achieve cost reductions, GM's global sourcing strategy with respect to automotive electronics, General Motors' North American Operations (GM NAO) volumes, technological risk and interruptions to production attributable to causes outside Hughes' control. RESULTS OF OPERATIONS Hughes reported 1996 third quarter earnings, before the effects of purchase accounting adjustments related to General Motors' acquisition of Hughes Aircraft Company, of $252.0 million, a slight decrease from the $256.1 million reported in the third quarter of 1995. Earnings per share of GM Class H common stock decreased to $0.63 per share from $0.64 per share in the third quarter of 1995. For the first nine months of 1996, net income increased 7.0% to $870.3 million compared with $813.4 million reported in the same period in 1995. Earnings per share increased 7.4% to $2.18 from $2.03 per share in the first nine months of 1995. Revenues for the third quarter of 1996 were $3,822.6 million, a 9.9% increase from the $3,477.4 million reported in the third quarter of 1995. Revenues for the first nine months of 1996 increased to $11,621.8 million, a 7.8% increase over the $10,779.8 million reported in the same period of 1995. Costs and expenses as a percentage of revenues increased slightly to 89.6% from 89.1% in the third quarter of 1995. For the nine months ended September 30, 1996, costs and expenses as a percentage of revenues remained at 88.1%, unchanged from the comparable period in 1995. Income taxes were $144.7 million, or 36.5% of income before income taxes, for the quarter compared with $121.6 million, or 32.2% of income before income taxes, in the comparable quarter of 1995. For the first nine months of 1996, income taxes were $508.4 million, or 36.9% of income before income taxes, compared with $465.8 million, or 36.4% of income before income taxes, in the comparable 1995 period. Operating profit was $389.3 million for the third quarter, a 5.2% increase from the operating profit of $370.0 million reported during the comparable period in 1995. The operating profit margin on the same basis was 10.2% for the quarter compared with 10.7% in the third quarter of 1995. Operating profit for the first nine months of 1996 was $1,224.9 million, a 1.9% decrease from the $1,248.8 million in the same period last year. The operating profit margin on the same basis for the first nine months of 1996 was 10.7% compared with 11.6% in the prior year's period. Each of Hughes' three business segments contributed to the increased third quarter revenues. The Telecommunications and Space segment accounted for the majority of the growth due to increased commercial satellite manufacturing sales and continued DIRECTV subscriber growth. In addition, the Automotive Electronics segment also contributed to the increase in revenues due to international sales growth and higher GM North American production volumes. The increase in operating profit was attributable to the overall revenue growth as well as the return to profitability in September of Hughes' in-flight entertainment subsidiary, Hughes-Avicom International, Inc. The slight decline in earnings was primarily due to the higher effective tax rate in the third quarter of 1996 which more than offset the improvement in operating profit. For the first nine months of 1996, the revenue growth was primarily the result of increased Telecommunications and Space segment revenues driven by DIRECTV subscriber growth, a gain recognized in the first quarter of 1996 from the sale of a 2.5% equity interest in DIRECTV to AT&T, and higher sales of commercial satellites. Aerospace and Defense Systems segment revenues were also higher in the first nine months of 1996 principally due to the December 1995 acquisition of Hughes Defense Communications (formerly Magnavox Electronic Systems Company)(Magnavox). The Automotive Electronics segment accounted for the majority 44 7 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED RESULTS OF OPERATIONS -- CONTINUED of the decline in operating profit and operating profit margin primarily due to lower first quarter GM production volumes related to a 17-day strike at two GM component plants and continued price reductions. The earnings improvement was primarily due to the gain recognized from the sale of 2.5% of DIRECTV to AT&T. The Automotive Electronics segment reported revenues for the quarter of $1,275.2 million, an increase of 8.7% from revenues of $1,173.3 million for the same period in 1995. The increase reflects a 29.7% increase in international and non-GM sales (from $182 million to $236 million) and a 7.6% increase in GM vehicles produced in the United States and Canada (excluding joint ventures) which more than offset a small decline in Hughes-supplied electronic dollar content in these vehicles(from $910 per vehicle to $900 per vehicle). Operating profit increased 10.2% in the third quarter to $166.3 million from $150.9 million for the comparable period in 1995. The improvement was primarily due to increased production volumes and continued cost reduction efforts partially offset by price reductions resulting from competitive pricing in connection with GM's global sourcing initiative and the impact from continued investment in international expansion. Third quarter operating profit margin was unchanged from last year's 13.1%. During the fourth quarter, work stoppages by both the CAW and UAW caused General Motors to cease production at various facilities. These work stoppages are expected to have an unfavorable impact on earnings of the Automotive Electronics segment amounting to approximately $45 million after-tax, or $0.11 per share of GM Class H common stock. In addition, the new UAW labor agreement includes lump sum payments which will result in a charge against 1996 fourth quarter earnings for the Automotive Electronics segment of approximately $7 million after-tax, or $0.02 per share of GM Class H common stock. As the principal supplier of automotive electronics to GM NAO, Hughes' sales of automotive electronics will continue to be heavily dependent on General Motors production of vehicles in North America, the level of Hughes-supplied electronic content per vehicle, the price of such electronics, and the competitiveness of Hughes' product offerings. In this regard, it is anticipated that competition through GM's global purchasing process will negatively impact Hughes' sales to GM NAO and result in a decline in the portion of GM NAO automotive electronics supplied by Hughes. The segment's strategy is to aggressively reduce costs in order to minimize the effect of continuing price reductions and to manage the loss of GM NAO market share by offering competitive products which increase electronic functionality through a focus on safety, security, communications, and convenience. The segment will also seek to improve its systems capability and cost competitiveness both internally and by developing key design, manufacturing and marketing alliances and other relationships with mechanical and electrical automotive component suppliers. The international market for automotive electronic products is also highly competitive. The segment has refined its strategy for this market to focus on profitability as well as increased market share, and accordingly, will seek to enhance the cost competitiveness of its international operations. The competitive environment described above will make it increasingly difficult to maintain the current level of operating profit margins in this segment. Beyond 1996, operating margins are expected to decrease as price and volume declines associated with GM's global sourcing initiatives more than offset Hughes' ability to achieve cost reductions. In response to the increased pressure on margins and to enhance future competitiveness, management will take action to reduce the cost structure of the business. As a result of the operating factors described above, operating margins are expected to decline to low double digits, as compared to full year operating margins of 15.9%, 15.4%, and 14.0% in 1995, 1994, and 1993, respectively. The Telecommunications and Space segment revenues for the quarter were $1,001.8 million, an increase of 31.4% over revenues of $762.6 million reported in the prior year's third quarter. The growth was principally due to increased commercial satellite manufacturing sales and continued DIRECTV subscriber growth. 45 8 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED RESULTS OF OPERATIONS -- CONCLUDED Operating profit in the third quarter decreased 5.6% to $62.0 million compared with $65.7 million reported in the same period in 1995. This decline was primarily the result of operating losses related to the commencement of DIRECTV service in Latin America and increased DIRECTV marketing expenses in the United States which were partially offset by profits on higher commercial satellite manufacturing sales. As a result, third quarter operating profit margin was 6.2% compared with 8.9% reported in 1995. The global telecommunications industry is experiencing a period of rapid growth and change providing industry participants with many opportunities for strategic growth as well as vigorous competition. The Telecommunications and Space segment intends to continue to expand its offerings from being primarily a supplier of hardware to becoming a provider of hardware and video, voice, and data services worldwide. This strategy requires significant current and future investment in order to maintain and enhance the segment's competitive position with respect to existing products and to take advantage of the growth opportunities presented, as well as the formation of strategic alliances to compete in the very competitive global marketplace. The Aerospace and Defense Systems segment third quarter 1996 revenues were $1,525.2 million, a slight increase over revenues of $1,517.0 million reported in the same period in 1995. The growth was principally due to additional revenues resulting from the December 1995 acquisition of Magnavox, which were partly offset by lower production rates on several missile programs. Operating profit for the period declined 6.5% to $167.1 million compared with $178.7 million for the third quarter of 1995. The operating profit margin in the period declined to 10.9% from 11.9% in the third quarter of 1995 primarily due to a continued shift from production programs to engineering and development programs, and growth in information systems and services revenues. The continuing consolidation of businesses in the defense industry is resulting in increased competitive pressures for the Aerospace and Defense Systems segment that could impact future operating results. In response to this environment, the Hughes strategy is to strengthen its leadership positions through acquisitions, consolidations, realignments, and divestitures, strive to be the low-cost provider, use technology to capture market share, expand international sales, and broaden its customer base. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents at September 30, 1996 were $1,081.7 million, a decrease of $57.8 million from the $1,139.5 million reported at December 31, 1995. Net cash provided by operating activities for the nine months ended September 30, 1996 of $844.3 million was more than offset by cash used in investing and financing activities. Net cash used in investing activities was primarily attributable to capital expenditures of $485.0 million and an increase in telecommunications and other equipment of $145.5 million, offset by proceeds from the sale and leaseback of satellite transponders with General Motors Acceptance Corporation of $252.0 million. Net cash used in financing activities included the repayment of a $302.7 million note payable related to the 1995 acquisition of Magnavox, repayment of an $85.0 million term loan to GM and cash dividends paid to General Motors of $288.0 million, partially offset by cash proceeds from the sale of a minority interest in DIRECTV of $137.5 million. As a measure of liquidity, Hughes' current ratio (ratio of current assets to current liabilities) increased to 1.74 at September 30, 1996 from 1.58 at December 31, 1995. Working capital increased to $3,017.7 million at September 30, 1996 from $2,502.0 million at December 31, 1995. Capital expenditures, including expenditures for telecommunications and other equipment, were $627.6 million through September 30, 1996, compared with $508.9 million for the comparable period in 1995. Notes and loans payable decreased from $432.5 million at December 31, 1995 to $244.1 million at September 30, 1996. The decrease is primarily due to the repayment of the $302.7 million note payable related 46 9 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONCLUDED LIQUIDITY AND CAPITAL RESOURCES -- CONCLUDED to the 1995 acquisition of Magnavox and repayment of an $85.0 million term loan to GM in August 1996, offset in part by the reclassification of $208.0 million of debt from non-current to current. This reclassification of debt also caused long-term debt and capitalized leases to decrease from $258.8 million at December 31, 1995 to $36.2 million at September 30, 1996. The ratio of long-term debt to the total of such debt and proforma stockholder's equity improved to 0.6% at September 30, 1996 from 4.4% at December 31, 1995. Cash flows in 1997 and beyond are expected to be negatively impacted by a change in the credit terms between Hughes and GM NAO for purchases of automotive electronics. In the past, GM has paid its internal suppliers for product shipments upon billing. This policy is being changed such that Hughes and GM NAO will implement 30-day net credit terms. Such terms will be comparable to those given to GM's non-affiliated suppliers and will be phased-in during the next four years. SECURITY RATINGS On October 7, 1996, Standard and Poor's Corporation (S&P) affirmed its long-term debt and commercial paper ratings for Hughes and revised its outlook from stable to developing as a result of the uncertainty with respect to General Motors' investment strategy related to Hughes. S&P indicated that the developing outlook reflects the possibility that if a significant change in the relationship between General Motors and Hughes were to occur, the credit quality of Hughes could be either favorably or adversely affected, depending upon the nature of the transaction pursued. On November 14, 1996, S&P affirmed the ratings for Hughes and indicated that the ratings outlook for Hughes remains developing. SUPPLEMENTAL DATA The Consolidated Financial Statements reflect the application of purchase accounting adjustments as described in Note 4 to the Consolidated Financial Statements. However, as provided in GM's Certificate of Incorporation, the earnings attributable to GM Class H common stock for purposes of determining the amount available for the payment of dividends on GM Class H common stock specifically excludes such adjustments. More specifically, amortization of these intangible assets associated with GM's purchase of Hughes Aircraft Company amounted to $30.5 million and $31.0 million for the third quarters of 1996 and 1995, respectively. In addition, the third quarter of 1995 includes the write-off of an additional $36.1 million of purchase accounting adjustments associated with the disposition of several nonstrategic business units. Such amounts were excluded from the earnings available for the payment of dividends on GM Class H common stock and were charged against the earnings available for the payment of dividends on GM's $1 2/3 par value stock. Unamortized purchase accounting adjustments associated with GM's purchase of Hughes Aircraft Company were $2,754.1 million at September 30, 1996 and $2,845.8 million at December 31, 1995. In order to provide additional analytical data to the users of Hughes' financial information, supplemental data in the form of unaudited summary pro forma financial data are provided. Consistent with the basis on which earnings of Hughes available for the payment of dividends on the GM Class H common stock is determined, the pro forma data exclude purchase accounting adjustments related to General Motors' acquisition of Hughes Aircraft Company. Included in the supplemental data are certain financial ratios which provide measures of financial returns excluding the impact of purchase accounting adjustments. The pro forma data are not presented as a measure of GM's total return on its investment in Hughes. 47 10 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES SUMMARY PRO FORMA FINANCIAL DATA* (UNAUDITED) PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ---------------------- 1996 1995 1996 1995 -------- -------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Total Revenues...................................... $3,822.6 $3,477.4 $11,621.8 $10,779.8 Total Costs and Expenses............................ 3,425.9 3,099.7 10,243.1 9,500.6 -------- -------- --------- --------- Income before Income Taxes.......................... 396.7 377.7 1,378.7 1,279.2 Income taxes........................................ 144.7 121.6 508.4 465.8 -------- -------- --------- --------- Earnings Used for Computation of Available Separate Consolidated Net Income........................... $ 252.0 $ 256.1 $ 870.3 $ 813.4 ======== ======== ========= ========= Earnings Attributable to General Motors Class H Common Stock on a Per Share Basis................. $0.63 $0.64 $2.18 $2.03 ======== ======== ========= =========
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ (DOLLARS IN MILLIONS) ASSETS Total Current Assets................................................ $ 7,115.6 $ 6,810.8 Property -- Net..................................................... 2,863.8 2,739.2 Telecommunications and Other Equipment -- Net....................... 1,110.4 1,175.1 Intangible Assets, Investments, and Other Assets -- Net............. 2,369.7 2,403.5 --------- --------- Total Assets........................................................ $13,459.5 $ 13,128.6 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Total Current Liabilities........................................... $ 4,097.9 $ 4,308.8 Long-Term Debt and Capitalized Leases............................... 36.2 258.8 Postretirement Benefits Other Than Pensions, Other Liabilities, and Deferred Credits.................................................. 3,053.6 2,881.1 Total Stockholder's Equity**........................................ 6,271.8 5,679.9 --------- --------- Total Liabilities and Stockholder's Equity**........................ $13,459.5 $ 13,128.6 ========= =========
- ------------------------- * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. ** General Motors' equity in its wholly-owned subsidiary, Hughes. Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). 48 11 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES SUMMARY PRO FORMA FINANCIAL DATA* -- CONTINUED (UNAUDITED) PRO FORMA SELECTED SEGMENT DATA
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1996 1995 1996 1995 -------- -------- -------- -------- (DOLLARS IN MILLIONS) AUTOMOTIVE ELECTRONICS Revenues Amount...................................... $1,275.2 $1,173.3 $4,101.0 $4,154.3 As a percentage of Hughes Revenues.......... 33.4% 34.1% 35.3% 38.7% Net Sales..................................... $1,267.6 $1,155.2 $4,068.0 $4,090.6 Operating Profit(1)........................... $ 166.3 $ 150.9 $ 562.0 $ 655.1 Operating Profit Margin(2).................... 13.1% 13.1% 13.8% 16.0% Depreciation and Amortization................. $ 48.2 $ 29.4 $ 147.5 $ 115.7 Capital Expenditures.......................... $ 53.5 $ 71.6 $ 155.9 $ 182.4 TELECOMMUNICATIONS AND SPACE Revenues Amount...................................... $1,001.8 $ 762.6 $2,890.1 $2,156.7 As a percentage of Hughes Revenues.......... 26.2% 22.2% 24.9% 20.1% Net Sales..................................... $ 993.9 $ 737.6 $2,765.2 $2,145.6 Operating Profit(1)........................... $ 62.0 $ 65.7 $ 193.5 $ 143.1 Operating Profit Margin(2).................... 6.2% 8.9% 7.0% 6.7% Depreciation and Amortization(3).............. $ 53.9 $ 47.7 $ 141.8 $ 125.8 Capital Expenditures(4)....................... $ 109.3 $ 102.8 $ 344.9 $ 246.2 AEROSPACE AND DEFENSE SYSTEMS Revenues Amount...................................... $1,525.2 $1,517.0 $4,548.0 $4,334.5 As a percentage of Hughes Revenues.......... 39.9% 44.1% 39.1% 40.3% Net Sales..................................... $1,529.3 $1,503.5 $4,543.5 $4,313.5 Operating Profit(1)........................... $ 167.1 $ 178.7 $ 486.4 $ 495.8 Operating Profit Margin(2).................... 10.9% 11.9% 10.7% 11.5% Depreciation and Amortization(3).............. $ 43.9 $ 31.3 $ 109.9 $ 95.8 Capital Expenditures.......................... $ 50.6 $ 22.9 $ 105.7 $ 73.7 CORPORATE AND OTHER Operating Loss(1)............................. $ (6.1) $ (25.3) $ (17.0) $ (45.2)
- ------------------------- * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. (1) Net Sales less Total Costs and Expenses other than Interest Expense. (2) Operating Profit as a percentage of Net Sales. (3) Excludes amortization of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company amounting to $5.3 million in each of the third quarters and $15.9 million in each of the nine-month periods for the Telecommunications and Space segment; and $25.2 million in each of the third quarters and $75.6 million in each of the nine-month periods for the Aerospace and Defense Systems segment. (4) Includes expenditures related to telecommunications and other equipment amounting to $38.7 million, $64.8 million, $142.6 million, and $147.6 million, respectively. 49 12 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES SUMMARY PRO FORMA FINANCIAL DATA* -- CONCLUDED (UNAUDITED) PRO FORMA SELECTED FINANCIAL DATA
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- --------------------- 1996 1995 1996 1995 -------- -------- -------- -------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Operating profit.................................... $ 389.3 $ 370.0 $1,224.9 $1,248.8 Income before income taxes.......................... $ 396.7 $ 377.7 $1,378.7 $1,279.2 Earnings used for computation of available separate consolidated net income........................... $ 252.0 $ 256.1 $ 870.3 $ 813.4 Average number of GM Class H dividend base shares(1)......................................... 399.9 399.9 399.9 399.9 Stockholder's Equity................................ $6,271.8 $5,515.0 $6,271.8 $5,515.0 Dividends per share of GM Class H common stock...... $0.24 $0.23 $0.72 $0.69 Working capital..................................... $3,017.7 $2,862.5 $3,017.7 $2,862.5 Operating profit as a percent of net sales.......... 10.2% 10.7% 10.7% 11.6% Pre-tax income as a percent of net sales............ 10.4% 10.9% 12.0% 11.9% Net income as a percent of net sales................ 6.6% 7.4% 7.6% 7.6%
- ------------------------- * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. (1) Class H dividend base shares is used in calculating earnings attributable to GM Class H common stock on a per share basis. This is not the same as the average number of GM Class H shares outstanding, which was 98.8 million for the third quarter of 1996 and 95.9 million for the third quarter of 1995. * * * * * * 50 -----END PRIVACY-ENHANCED MESSAGE-----