-----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, LszE3jn93RR+/vO4qODLrLbdKXrnfTBRLTMSFT8XlPRjjdRpdyyyhGkKscafU0Cj ExKY+yUaFqtiZDYqevhJ+w== 0000950124-96-001482.txt : 19960402 0000950124-96-001482.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950124-96-001482 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00143 FILM NUMBER: 96543450 BUSINESS ADDRESS: STREET 1: 767 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10153-0075 BUSINESS PHONE: 3135565000 10-K 1 10-K 1 GENERAL MOTORS CORPORATION FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1995 FILED PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT FILED BY GENERAL MOTORS CORPORATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE STOCK EXCHANGES ON WHICH ITS SECURITIES ARE REGISTERED. IT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION NOR HAS THE COMMISSION PASSED UPON ITS ACCURACY OR ADEQUACY. IT IS BEING FURNISHED BY THE CORPORATION UPON REQUEST FOR INFORMATIONAL PURPOSES ONLY. 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549-1004 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 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.) 767 FIFTH AVENUE, NEW YORK, NEW YORK 10153-0075 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ---------------------------------------------------------------------------------- ----------------------------- *COMMON, $1 2/3 PAR VALUE (755,968,150 SHARES OUTSTANDING AS OF FEBRUARY 29, 1996)........................................................................... NEW YORK STOCK EXCHANGE, INC. CLASS E COMMON, $0.10 PAR VALUE (483,678,077 SHARES OUTSTANDING AS OF FEBRUARY 29, 1996)........................................................................... NEW YORK STOCK EXCHANGE, INC. CLASS H COMMON, $0.10 PAR VALUE (97,745,792 SHARES OUTSTANDING AS OF FEBRUARY 29, 1996)........................................................................... NEW YORK STOCK EXCHANGE, INC. PREFERENCE, $0.10 PAR VALUE, SERIES B 9 1/8% DEPOSITARY SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE (20,020,586 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY 29, 1996).............................................................. NEW YORK STOCK EXCHANGE, INC. PREFERENCE, $0.10 PAR VALUE, SERIES C DEPOSITARY SHARES, CONVERTIBLE INTO CLASS E COMMON STOCK, LIQUIDATION PREFERENCE $50 PER SHARE, DIVIDENDS CUMULATIVE (33,645 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY 29, 1996).......................... NEW YORK STOCK EXCHANGE, INC. PREFERENCE, $0.10 PAR VALUE, SERIES D 7.92% DEPOSITARY SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE (6,069,909 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY 29, 1996).............................................................. NEW YORK STOCK EXCHANGE, INC. PREFERENCE, $0.10 PAR VALUE, SERIES G 9.12% DEPOSITARY SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE (10,079,899 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY 29, 1996).............................................................. NEW YORK STOCK EXCHANGE, INC. $500,000,000 8 1/8% DEBENTURES DUE APRIL 15, 2016................................. NEW YORK STOCK EXCHANGE, INC.
*ALSO LISTED ON THE CHICAGO STOCK EXCHANGE, INC., PACIFIC STOCK EXCHANGE, INC., AND PHILADELPHIA STOCK EXCHANGE, INC. NOTE: THE $1 2/3 PAR VALUE COMMON STOCK OF THE REGISTRANT IS ALSO LISTED FOR TRADING ON: MONTREAL STOCK EXCHANGE................................. MONTREAL, QUEBEC, CANADA TORONTO STOCK EXCHANGE.................................. TORONTO, ONTARIO, CANADA BORSE FRANKFURT AM MAIN................................. FRANKFORT ON THE MAIN, GERMANY BORSE DUSSELDORF........................................ DUSSELDORF, GERMANY BOURSE DE BRUXELLES..................................... BRUSSELS, BELGIUM COURTIERS EN VALEURS MOBILIERES......................... PARIS, FRANCE THE LONDON STOCK EXCHANGE............................... LONDON, ENGLAND
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 . INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. ( ) THE AGGREGATE MARKET VALUE (BASED UPON THE AVERAGE OF THE HIGHEST AND LOWEST SALES PRICES ON THE COMPOSITE TAPE ON FEBRUARY 29, 1996) OF GENERAL MOTORS CORPORATION $1 2/3 PAR VALUE, CLASS E, AND CLASS H COMMON STOCKS HELD BY NONAFFILIATES ON FEBRUARY 29, 1996 WAS APPROXIMATELY $38,807.7 MILLION, $27,556.3 MILLION, AND $5,610.4 MILLION, RESPECTIVELY. DOCUMENTS INCORPORATED BY REFERENCE:
PART AND ITEM NUMBER OF FORM 10-K DOCUMENT INTO WHICH INCORPORATED - -------------------------------------------------------------------------------- ------------------------------ GENERAL MOTORS NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 24, 1996.................... PART III, ITEMS 10 THROUGH 13
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3 PART I GENERAL MOTORS CORPORATION AND SUBSIDIARIES THE CORPORATION General Motors Corporation, incorporated in 1916 under the laws of the State of Delaware, is hereinafter sometimes referred to as the "Registrant" or the "Corporation" and, together with its subsidiaries, is hereinafter sometimes referred to as "General Motors" or "GM." ITEM 1. BUSINESS GENERAL The following information is incorporated herein by reference to the indicated pages in Part II:
ITEM PAGE ---------------------------------------------------------------- ------------ Wholesale Sales................................................. II-51 and 53 Employment and Payrolls......................................... II-74 Note 21 of Notes to Consolidated Financial Statements (Segment Reporting).................................................... II-38
While the major portion of General Motors' operations is derived from the automotive products industry segment, GM also has financing and insurance and information technology segments and produces products and provides services in other industry segments. The automotive products segment consists of the design, manufacture, assembly, and sale of automobiles, trucks, and related parts and accessories. The financing and insurance segment assists in the merchandising of General Motors' products as well as other products. General Motors Acceptance Corporation (GMAC) offers financial services and certain types of insurance to dealers and customers. In addition, GMAC is engaged in mortgage banking and investment services. The information technology segment relates to the design, installation, and operation of business information systems. The other products segment consists of military vehicles, radar and weapon control systems, guided missile systems, and defense and commercial satellites; the design, installation, and operation of telecommunication systems; as well as the design, development, and manufacture of locomotives. Substantially all of the products in the automotive segment are marketed through retail dealers and through distributors and jobbers in the United States, Canada, and Mexico, and through distributors and dealers overseas. At December 31, 1995, there were approximately 8,800 General Motors vehicle dealers in the United States, 1,000 in Canada and Mexico, and approximately 5,500 outlets overseas. BACKLOG OF ORDERS Shipments of General Motors' automotive products are made as promptly as possible after receipt of firm sales orders; therefore, no significant backlog of unfilled orders accumulates. Hughes Electronics Corporation had a $14.9 billion and $13.2 billion backlog of defense and commercial contracts at the end of 1995 and 1994, respectively. RAW MATERIALS AND SERVICES General Motors purchases materials, parts, supplies, freight transportation, energy, and other services from numerous unaffiliated firms. Interruptions in production or delivery of these goods or services could adversely affect General Motors. COMPETITIVE POSITION General Motors' principal competitors in passenger cars and trucks in the United States and Canada include Ford Motor Company, Chrysler Corporation, Toyota Corporation, Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd., Mazda Motor Corporation, Mitsubishi Motors Corporation, Fuji Heavy Industries, Ltd. (Subaru), Volkswagen A.G., Hyundai Motor Company, Ltd., Daimler-Benz A.G. I-1 4 (Mercedes), Bayerische Motoren Werke AG (BMW), and Volvo AB. All but Volkswagen and Mercedes currently operate vehicle manufacturing facilities in the United States or Canada. Mercedes has an assembly plant under construction in the United States. Toyota and GM operate the New United Motor Manufacturing, Inc. facility in Fremont, California as a joint venture which currently builds passenger cars and light-duty trucks. Wholesale unit sales of General Motors passenger cars and trucks during the three years ended December 31, 1995 are summarized in Management's Discussion and Analysis in Part II. Total industry new motor vehicle (passenger cars, trucks, and buses) registrations of domestic and foreign makes and General Motors' competitive position during the three years ended December 31, 1995 were as follows:
1995(1) 1994 1993 ------- ------ ------ (UNITS IN THOUSANDS) Total industry registrations In the United States............................... 15,178 15,257 13,941 In other North America(2).......................... 1,356 1,838 1,778 In other countries................................. 32,169 31,428 30,806 ------ ------ ------ Total industry registrations -- all countries........ 48,703 48,523 46,525 ====== ====== ======
1995(1) 1994 1993 ------- ------ ------ (PERCENT OF TOTAL INDUSTRY) General Motors' registrations In the United States............................... 32 % 33% 33% In other North America(2).......................... 32 28 27 In other countries................................. 9 9 9 Total General Motors' registrations -- all countries.......................................... 17 17 18
- ------------------------- (1) Preliminary (2) Includes Canada and Mexico. The above information on registrations of new cars, trucks, and buses was obtained from outside sources and that pertaining to General Motors' registrations includes units which are manufactured overseas by other companies and which are imported and sold by General Motors and affiliates. RESEARCH AND DEVELOPMENT In 1995, General Motors spent $8,387.9 million for research, manufacturing engineering, product engineering, and development activities related primarily to the development of new products or services or the improvement of existing products or services, including activities related to vehicle emissions control, improved fuel economy, and the safety of persons using General Motors products. In addition, $1,394.2 million was spent for customer-sponsored activities, the majority of which were government related. Comparable data for 1994 were $7,035.8 million for company-sponsored activities and $1,495.7 million for customer-sponsored activities and for 1993, $6,029.9 million and $1,340.3 million, respectively. ENVIRONMENTAL MATTERS AUTOMOTIVE EMISSIONS CONTROL Both the Federal and California governments currently impose stringent emission control requirements on motor vehicles sold in their respective jurisdictions. These requirements include pre-production testing of vehicles, testing of vehicles after assembly, the imposition of emission defect and performance warranties, and the obligation to recall and repair customer-owned vehicles determined to be non-compliant with emissions requirements. Both the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) continue to place great emphasis on compliance testing of customer-owned vehicles. Failure to I-2 5 comply with the emission standards or defective emission control hardware discovered during such testing can lead to substantial cost for General Motors related to emissions recalls. New CARB and Federal requirements will increase the time and mileage over which manufacturers are responsible for a vehicle's emission performance. Both the EPA and the CARB emission requirements will become even more stringent in the future. A new tier of exhaust emission standards for cars and light-duty trucks, the "Tier 1" standards began phasing in for California vehicles in the 1993 model year and for Federal vehicles in the 1994 model year. The phase-in of these "Tier 1" standards will be completed by the 1997 model year. In addition to the Tier 1 standards is the CARB Low Emission Vehicle (LEV) Program that began with the 1994 model year and defines requirements through model year 2003 and beyond. This program sets even more stringent exhaust emission standards for cars and trucks sold in California. General Motors will have to meet the LEV Program requirements by marketing a mix of vehicles complying with the Tier 1 standards, Transitional Low Emission Vehicles (TLEVs), Low Emission Vehicles (LEVs), Ultra-Low Emission Vehicles (ULEVs), or Zero Emission Vehicles (ZEVs). From model years 1998 to 2000, 2% of cars and small light-duty trucks (up to 3,750 lb Loaded Vehicle Weight) sold in California must be ZEVs. This requirement increases to 5% in 2001 and 10% in 2003 and thereafter. There is a proposal pending to repeal the 1998 through 2002 model year ZEV mandates. The Clean Air Act permits states that have areas with air quality problems to adopt the California car and truck emission standards in lieu of the Federal requirements and two states (New York and Massachusetts) have done so. In addition, the Ozone Transport Commission, representing twelve Northeast states and the District of Columbia, asked the EPA to impose the California LEV program requirements throughout the Northeast Ozone Transport Region (OTR). The EPA granted this request on January 24, 1995. This could mean that vehicles designed for the California LEV program, including ZEVs, would have to be offered for sale in that region of the country. As an alternative, the auto industry has proposed a National LEV program, which would require the phase-in of TLEVs and LEVs in the northeast starting in 1997, and vehicles in all states outside California meeting LEV standards starting in 2001. EPA has proposed rulemaking which would implement the National LEV program as a voluntary alternative available to automakers. In addition to the above-mentioned exhaust emission programs, onboard diagnostic (OBD) devices, far more complex than those currently used to diagnose problems with emission control systems, will be required both Federally and in California effective with the 1996 model year. This new system has the potential of increasing warranty costs and the chance for recall. New evaporative emission control requirements for cars and trucks begin phasing in with the 1995 model year in California and the 1996 model year Federally. Systems will need to be further modified to accommodate Federal onboard refueling vapor recovery (ORVR) control standards. ORVR phases in on passenger cars in the 1998 through 2000 model years and on light-duty trucks in the 2001 through 2006 model years. INDUSTRIAL ENVIRONMENTAL CONTROL General Motors is subject to various laws relating to the protection of the environment, and is in various stages of investigation or remediation for sites where contamination has been alleged. GM has recorded an accrued liability of $692 million at December 31, 1995 and $694 million at December 31, 1994 for worldwide environmental cleanup as summarized below: - GM has been identified as a potentially responsible party at sites identified by the EPA and state regulatory agencies for cleanup under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar state statutes. GM voluntarily and actively participates in cleanup activity where such involvement is verified. The foreseeable total liability for 1996 and beyond for sites involving GM is estimated to be $227 million, which was recorded at December 31, 1995. This compares to $223 million at December 31, 1994. I-3 6 - For closed or closing plants owned by the Corporation, an estimated liability for environmental cleanup is typically recognized at the time the closure decision is made for actions which are not specifically required by regulations or government action but which serve to minimize future liability. Such liability, which is based on an environmental assessment of the plant property, is estimated at $136 million, which was recorded at December 31, 1995. This compares to $141 million at December 31, 1994. - GM is involved in investigations and cleanup activities at additional locations worldwide with a foreseeable liability of approximately $329 million, which was recorded at December 31, 1995. This compares to $330 million at December 31, 1994. The capital cost impact of the Clean Air Act Amendments of 1990 on GM stationary sources will depend on the specific requirements of new state and Federal regulations which have been or will be developed and implemented over the next 10 years. These regulations include operating permit programs, nitrogen oxide control programs, compliance assurance monitoring programs, and hazardous air pollutant control programs. The estimated cost of these programs over the next 10-15 years is approximately $1 billion. Annual operating permit emission fees will be approximately $9 million. Expenditures by General Motors in the United States for industrial environmental control facilities during the three years ended December 31, 1995 were (in millions): 1995-$116; 1994-$118; and 1993-$186. The Corporation currently estimates that future expenditures for industrial environmental control facilities through 1999 will be (in millions): 1996-$128; 1997-$124; 1998-$85; and 1999-$56. Specific environmental expenses are difficult to isolate since expenditures may be made for more than one purpose, making precise classification difficult. VEHICULAR NOISE CONTROL The Federal Truck Regulation preempts all state/local noise regulations for trucks over 10,000 lb Gross Vehicle Weight Rating (GVWR). All jurisdictions regulating noise levels of school buses which are built on medium-duty truck chassis have adopted standards compatible with Federal regulations for medium-duty trucks. The Federal Truck Regulations contain label and owner's manual requirements. Passenger cars and light-duty trucks are subject to state and local motor vehicle noise regulations. The current standard for vehicles in these classes is 80 dB as measured at 50 feet. Future implementation of more stringent exhaust emission regulations and more stringent fuel economy regulations will require an assessment of increased costs of noise control. SAFETY AFFAIRS AND REGULATIONS Expenditures to maintain the operational safety, occupant protection, and vehicle theft deterrence capability of new GM models continue. These expenditures include amounts for the study of alternative approaches for meeting the needs of all three areas. A final rule allowing use of Daytime Running Lamps (DRL) as an option was issued by the National Highway Traffic Safety Administration (NHTSA). As a result, GM has announced its intent to provide DRL starting in 1995 on selected models. DRL will be standard on all GM models, including light trucks and vans, by the 1997 model year. GM is meeting the government requirement for passive restraints by selectively installing automatic lap/shoulder belts or driver supplemental inflatable restraints (air bags) on all passenger cars. The driver air bag concept has been approved for all remaining passenger cars and light trucks and vans during the 1995 through 1997 model years. Current plans call for a phase-in of front passenger air bags in these same vehicles from the 1995 through 1999 model years. This will meet the requirements of NHTSA's final rule specifying that air bags be the only means used to meet the automatic restraint requirements for passenger cars and light trucks and vans on a phased-in basis beginning September 1, 1996. I-4 7 Phase-in of a new government requirement for passenger car dynamic side impact protection continues through August 31, 1996. The phase-in of the new requirement began September 1, 1993. New dynamic side impact protection requirements similar to those for cars will apply to certain light trucks and vans beginning September 1, 1998. Side structure and interior trim designs of future models will continue to be affected. A new government requirement for vehicle interior impact protection was proposed in 1993. The final rule, similar to the proposal, was promulgated in August 1995. This rule will significantly affect upper body structure and interior trim designs of future model passenger cars and light trucks and vans. The phase-in for this rulemaking begins in the 1999 model year and will apply to all these vehicles in the 2003 model year. The NHTSA currently is considering the effects of fuel system crash integrity requirements of the Federal Motor Vehicle Safety Standard 301. If any of the considerations ultimately are adopted as final rules, some undetermined redesign, cost, and weight increase could be expected for most of GM's vehicles. See Item 3, Legal Proceedings, Other Matters. With the passage of the Anti-Car Theft Act of 1992, implementation costs affect approximately 22 passenger car assembly plants and 4 light-duty truck plants. For the affected truck plants, the major expenditures were for new label printer installations and additional stamping equipment. AUTOMOTIVE FUEL ECONOMY The Energy Policy and Conservation Act passed in 1975 provided for production-weighted average fuel economy standards for passenger cars for 1978 and thereafter. Based on EPA combined city-highway test data, the General Motors 1995 model year domestic passenger car fleet is projected to attain a Corporate Average Fuel Economy (CAFE) of 27.2 miles per gallon (mpg) versus the standard of 27.5 mpg. The CAFE estimate for 1996 model year passenger cars is projected at 28.4 mpg versus the standard of 27.5 mpg. The projected shortfall for 1995 will be more than offset by credits projected to be earned in the 1996 model year. Fuel economy standards for light-duty trucks became effective in 1979. General Motors' CAFE fleet average for the 1995 model year is projected to be 19.8 mpg versus the standard of 20.6 mpg. For the 1996 model year, GM's truck CAFE is projected to be 20.7 mpg which is also the standard. The small remaining shortfall for 1995 is expected to be offset by credits from future model years. However, the exact amount cannot be determined because standards have not been set beyond 1997. GM's ability to meet increased CAFE standards is contingent on various future economic, consumer, legislative, and regulatory factors that GM cannot control and cannot predict with certainty. If GM could not comply with any new CAFE standards, GM could be subject to sizable civil penalties and could have to close plants or severely restrict product offerings to remain in compliance. SEASONAL NATURE OF BUSINESS In the automotive business, there are retail sales fluctuations of a seasonal nature, so that production varies from month to month. In addition, the changeover period related to the annual new model introduction has traditionally occurred in the third quarter of each year. For this reason, third quarter operating results are, in general, less favorable than those in the other three quarters of the year, depending on the magnitude of the changeover needed to commence production of new models incorporating, for example, design modifications related to more fuel-efficient vehicle packaging, stricter government standards for safety and emission controls, and consumer-oriented improvements in performance, comfort, convenience, and style. SEGMENT REPORTING DATA Industry segment and geographic segment data for 1995, 1994, and 1993 are summarized in Note 21 of Notes to Consolidated Financial Statements in Part II. ****** The Registrant makes no attempt herein to predict the future trend of its business and earnings or the effect thereon of the results of changes in general economic, industrial, regulatory, and international conditions. I-5 8 ITEM 2. PROPERTIES The Corporation, excluding General Motors Acceptance Corporation, has 316 locations operating in 37 states and 171 cities in the United States. Of these, 25 are engaged in the final assembly of GM cars and trucks; 30 are service parts operations responsible for distribution or warehousing; 20 are associated with Electronic Data Systems Corporation as large information processing centers and offices; 31 major plants, offices, and research facilities relate to the operations of Hughes Electronics Corporation; and the remainder are offices or involved primarily in the testing of vehicles or the manufacture of automotive components and power products. In addition, the Corporation has 20 locations in Canada and assembly, manufacturing, distribution, or warehousing operations in 51 other countries, including equity interests in associated companies which conduct assembly, manufacturing, or distribution operations. The major facilities outside the United States and Canada, which are principally vehicle manufacturing and assembly operations, are located in Germany, the United Kingdom, Brazil, Mexico, Austria, Belgium, and Spain. Most facilities are owned by the Corporation or its subsidiaries. Leased properties consist primarily of warehouses and administration, engineering, and sales offices. The leases for warehouses generally provide for an initial period of five years and contain renewal options. Leases for sales offices are generally for shorter periods. Properties of the Registrant and its subsidiaries include facilities which, in the opinion of management, are suitable and adequate for the manufacture, assembly, and distribution of their products. Additional information regarding worldwide expenditures for plants and equipment is presented under Management's Discussion and Analysis in Part II. ITEM 3. LEGAL PROCEEDINGS Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation is a party as of December 31, 1995 are summarized on the following pages. Reference should also be made to Note 16 of Notes to Consolidated Financial Statements in Part II. ENVIRONMENTAL MATTERS On February 19, 1991, a complaint was filed in the Superior Court of Connecticut by the Connecticut Commissioner of Environmental Protection alleging that the plant in Bristol, Connecticut operated by GM's Delco Moraine NDH Division (now part of the Delphi Chassis Division) had violated Connecticut's hazardous waste regulations in connection with its inspection, recordkeeping, and remediation of a spill of chromic acid at the plant site. The complaint seeks penalties of up to $25,000 per day for a period commencing sometime prior to April 1989 and running through November 1990. GM contends that its inspection, recordkeeping, and remediation practices in relation to the spill complied with applicable rules and regulations. * * On March 1, 1993, the U.S. Environmental Protection Agency (EPA) Region V issued a civil administrative complaint alleging that stormwater from the Chevrolet-Pontiac-GM of Canada Group's Pontiac Fiero plant in Pontiac, Michigan exceeded the facility's National Pollutant Discharge System Permit from May 1989 through May 1992. The EPA complaint, as amended, cites the Corporation for 94 exceedances of copper, lead, and zinc and is seeking $125,000 in penalties. There has been no production at the Fiero Plant since August 1988. The Corporation believes that the very low concentrations of metals found in the stormwater during the specified time period occurred as a result of acid rain dissolving metal from the gutters and roof. General Motors is contesting the allegations and has requested a hearing. * * On March 26, 1993, the Region V office of the EPA issued a Civil Administration Complaint against the Corporation alleging that 65 petroleum and hazardous substance underground storage tanks (USTs) which it I-6 9 has operated at its Technical Center in Warren, Michigan have been in violation of certain of the EPA UST regulations. The EPA has proposed a civil penalty of $267,447. Based upon its current evaluation of this matter, General Motors believes that the operations cited by the EPA's complaint have been and remain in substantial compliance with applicable UST regulations. * * In March 1993, the Michigan Department of Natural Resources (MDNR) notified the Corporation's Powertrain Division (PD) that MDNR was making a referral to the Michigan Attorney General for resolution of allegations by MDNR that a PD facility in Saginaw, Michigan had failed to conduct a timely environmental investigation to MDNR's satisfaction of a landfill and certain other areas at the facility's property, and that PD's on-site water recycling basins were improperly discharging contaminants to the groundwater and the Saginaw River. * * On June 28, 1994, the Attorney General for the State of Michigan, on behalf of the Michigan Department of Natural Resources (DNR), filed a complaint in Circuit Court of the 30th Judicial Circuit in Ingham County, Michigan alleging that several of GM's plants released polychlorinated biphenyls (commonly referred to as "PCBs") into the Saginaw River thereby causing damage to natural resources in the river and Saginaw Bay. The complaint also named the City of Saginaw and Bay City as defendants. The State has not asserted that it is seeking fines or penalties and no amount is specified in the complaint as damages, but the State is seeking reimbursement of all its past and future response costs, including enforcement costs, and natural resource damages relating to the Saginaw River and Bay. In this regard, representatives of the State have indicated that the State will be seeking "tens of millions of dollars" in damages as well as several million dollars in past response costs. GM is currently in discussions with representatives of the Michigan Attorney General and the DNR regarding this matter. GM has also been advised that the U.S. Department of Interior ("DOI") may be conducting an investigation of these matters and any related damage to the environment, and that DOI may pursue independent claims against GM, the City of Saginaw and Bay City. * * As previously reported, on March 24, 1995 a purported nationwide class action was filed against General Motors in the Civil District Court for the Parish of Orleans, State of Louisiana alleging that the paint or paint application process used by GM on vehicles produced at several GM manufacturing plants in North America was defective due to the conscious omission of the surface layer primer, causing the paint to delaminate when exposed to ultraviolet sunlight and to prematurely deteriorate, peel, and chip. On May 3, 1995, another purported class action, Barney Kizzire v. General Motors Corporation and Bynun Olds-Pontiac-Cadillac-GMC, Inc., was filed in the Circuit Court for Fayette County, Alabama on behalf of a class of Alabama residents who purchased 1989 GMC pickup trucks from authorized Alabama dealers. The complaint alleges that the paint and/or paint primer used in the manufacture of those vehicles was defective and resulted in chipping, peeling and discoloration. Both cases seek compensatory and punitive damages and injunctive relief. No determination has been made in either case as to whether they may proceed as a class action. * * On November 30, 1995, GM joined the U.S. Environmental Protection Agency ("EPA") and the U.S. Department of Justice ("DOJ") in signing a consent decree to resolve allegations that GM violated the Clean Air Act and EPA emissions regulations with regard to approximately 470,000 1991-1995 model Cadillacs having 4.9 liter engines. The EPA and DOJ alleged that GM had a fueling strategy that reduced the effectiveness of the vehicles' emission controls, and that GM had not adequately disclosed to the EPA its use of emissions-related fueling strategies on those Cadillacs, certain other 1991-1995 passenger cars, and certain 1989-1992 heavy duty truck gasoline engines. In the consent decree, GM denies those allegations and any violation of the law, but agrees to voluntarily recall Cadillacs with the 4.9 liter engines, pay a civil penalty of I-7 10 $11 million, and fund certain emission remediation projects currently expected to have a cost of between $7.05 million and $8.75 million. The total cost (pre-tax) of the settlement approaches $45 million. The Consent Decree has been filed with the United States District Court for the District of Columbia, and is awaiting entry by that court. * * On January 26, 1996, GM was notified by the DOJ that the EPA was seeking civil penalties of $650,000 for alleged violations of the Clean Air Act at GM's Powertrain Division foundry in Danville, Illinois. Specifically, DOJ alleges that, based on several stack tests, two cupolas at the facility exceeded air emission limits for particulate matter and carbon monoxide. GM has entered settlement negotiations with the DOJ and the EPA in an attempt to resolve the matter without litigation. It is GM's position that no penalties are appropriate. * * OTHER MATTERS Three suits, denominated by plaintiffs as class actions, were filed in Delaware Chancery Court, Stephen A. Solomon v. General Motors Corporation, et al., on May 13, 1994; TRV Holding Company v. General Motors Corporation, et al., on May 18, 1994; and Melvin Ward, et al. v. General Motors Corporation, et al., on November 11, 1995. The actions purport to be brought on behalf of holders of Class E common stock against the Corporation and its directors. Together, the complaints allege, essentially, that defendants have breached and are continuing to breach their fiduciary duties to holders of Class E common stock by, among other things, planning and announcing a contribution of Class E common stock to the Corporation's U.S. Hourly-Rate Employees Pension Plan, which plan and announcement were allegedly made for the purpose of -- setting the stage for GM's disposition of Electronic Data Systems Corporation (EDS) assets in a manner which will deprive holders of Class E common stock of the full value of their shares, and -- artificially capping the market price of Class E common stock to limit the price to be paid to holders of Class E common stock in connection with what plaintiff alleges is GM's design to either sell EDS assets or tender for Class E common stock. It is also alleged that the proposed split-off of EDS is unfair to Class E stockholders because its terms are being arrived at in an unfair manner and the value of EDS shares is less than the value of GM's $1 2/3 shares to which they claim to be entitled under GM's Certificate of Incorporation. Together, the complaints seek monetary damages and to enjoin GM from contributing Class E common stock to its U. S. Hourly-Rate Employees Pension Plan, to enjoin the split-off of EDS, and to enjoin GM from seeking or receiving an equalizing dividend from EDS. The contribution of Class E common stock to GM's U.S. Hourly-Rate Employees Pension Plan is described by GM under Item 2 of its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1994. All necessary government clearances were obtained, and the contribution was made in March of 1995. GM believes the suits are without merit and intends to defend them vigorously. * * U.S. Government contracts held by the Corporation and its subsidiaries are subject to termination by the U.S. Government either for its convenience or for default by the contractor. The costs recovered for terminations for convenience do not always fully reimburse the contractor, and the profit or fee received by the contractor may be lower than that which it had expected for the portion of the contract performed. In cases of termination for default, normal contract remedies generally apply. In addition, the U.S. Government has broad discretion to suspend or debar a contractor from engaging in new government business, including discretion as to the period of suspension and activities affected. A contractor may be debarred based on a conviction or civil judgment involving certain offenses, including fraud in connection with obtaining or performing a public contract, or subcontract thereunder, and may be suspended if indicted for such an offense or if there is other adequate evidence that such an offense has been committed. Like other government contractors, GM and its subsidiaries are subject to civil audits and criminal investigations relating to their contracting activity. I-8 11 * * In September 1973, Hughes Aircraft Company (HAC) filed suit against the U.S. Government in the U.S. Court of Claims seeking reasonable and entire compensation for the unauthorized manufacture or use by the United States of the invention claimed in a HAC patent (the "Williams Patent") covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites. In late 1983, the United States Court of Appeals for the Federal Circuit (the U.S. Court with appellate jurisdiction for patent cases) ruled that the Williams Patent was valid and that the Government had infringed that patent. The compensation which HAC is entitled to recover as a result of the Government's infringement is now being determined by the U.S. Court of Claims, as well as whether additional U.S. Government satellites also infringe. The trial concluded in December 1988. HAC contended that its recovery should be calculated in accordance with either of two methods for computing delay compensation and introduced evidence to support an award of approximately $4.8 billion or $1.5 billion depending upon the methods used. The Government sought to demonstrate to the Court that any damages awarded to HAC in this case should not exceed $20-30 million. In August 1993, the Court determined that approximately $4 billion in satellite purchases infringed the patent. On June 17, 1994, the Court issued a decision awarding HAC damages of $114 million. HAC believes that the record supports a higher royalty rate, and, accordingly, on August 3, 1994 filed a notice of appeal pursuant to which HAC will be seeking a higher award. Oral argument in the case was heard in June 1995. HAC is unable to estimate the duration of these appeal efforts. In the opinion of the management of HAC, 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 Electronics Corporation pending the outcome of the case, resolution could result in a gain that would be material to the earnings of GM attributable to Class H common stock. * * On August 21, 1992, EDS filed a breach of contract suit against the State of Florida (the "State") in the Circuit Court of the Second Judicial Circuit in Leon County, Florida, seeking recovery under various counts of more than $46 million in payment for unpaid computer equipment and information technology services. The suit arises out of a 1989 contract entered into between EDS and the State of Florida under which EDS had agreed to provide an information management system to the Department of Health and Rehabilitative Services ("DHRS") that would integrate its offices and computer programs statewide. EDS completed the system and turned it over to the DHRS in May 1992. On September 21, 1993, the State filed an Answer and Counterclaims, alleging principally breach of contract and breach of warranty. Under various counts, the State is requesting approximately $90 million in damages and approximately $140 million in indemnification for potential liability of the State to the Federal government. EDS and the State agreed to resolve this matter through a final and binding Alternative Dispute Resolution process (ADR) which commenced in January 1995. On August 14, 1995, the ADR judge recommended that EDS be awarded approximately $50 million in damages, including interest on unpaid amounts. EDS is seeking to have this award confirmed by the Circuit Court. The State is resisting these efforts. Shortly before the ADR judge issued his opinion, the State filed a motion to void the agreement under which the parties had agreed to resolve this matter through the ADR process. The State claimed that it had been fraudulently induced into signing such agreement, alleged that EDS knew of certain problems with the system in 1992 and failed to inform the State of such problems and argued that it would not have signed such agreement had it known of such problems prior to such signing. EDS denied the State's allegations. On October 17, 1995, the Circuit Court denied the State's motion to void the ADR agreement. The State appealed this decision and that appeal was denied on December 14, 1995. On October 25, 1995, the State filed suit against EDS alleging Inter Alia, breach of contract and fraud with respect to a guarantee executed by EDS in conjunction with the transaction which is the subject of the prior litigation and seeking approximately $46 million in damages. On November 30, 1995, the Circuit Court granted EDS' motion to dismiss the lawsuit. The judge took judicial notice of the mediation action and ruled that the State was attempting improperly to split its causes of action. The State appealed the dismissal on December 29, 1995. On October 28, 1995, the Attorney General of the State of Florida also commenced an I-9 12 action against EDS for civil theft seeking disgorgement of the Florida computer system, disgorgement of at least $20 million in payments to EDS, revocation of EDS' certificate of authority to conduct business in Florida and an injunction preventing EDS and its affiliates from doing business in Florida, as well as trebling of actual damages and attorneys' fees. On December 18, 1995, the court orally ruled that the complaint would be dismissed with prejudice. EDS management believes that it has strong and meritorious defenses to any counterclaims which the State may assert and intends to defend itself vigorously while continuing to pursue recovery against the State under the claims which it has filed. * * Several actions seeking compensatory and punitive damages in unspecified amounts have been filed against Hughes by plaintiffs alleging that they suffered injuries as a result of the migration into the Tucson, Arizona water supply of 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 include a class action filed in Arizona State Court, Cordova v. Hughes Aircraft Company (formerly Bahrs, et al. v. Hughes Aircraft Company, et al. (Super. Ct. Pima County)), an individual action filed on behalf of approximately 800 plaintiffs in Federal District Court in Arizona, Yslava v. Hughes Aircraft Company (formerly Acevedo, et al. 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 the source of toxic substances which may have migrated into the Tucson water supply. Hughes believes that it has strong defenses to the claims asserted against it and that it may have claims for contribution against the other entities. The facts alleged in these cases are similar to the facts alleged in the previously reported action entitled Valenzuela v. Hughes Aircraft Company. As previously reported, the Valenzuela action was settled pursuant to an agreement under which Hughes' principal insurers provided $70.7 million and Hughes provided $13.8 million. At the time of such settlement, Hughes and its insurers were litigating in the United States District Court in Arizona their respective ultimate liability to one another for the amounts paid in the Valenzuela settlement. This litigation, entitled Smith, et al. v. Hughes Aircraft Company and related cases, was commenced in 1988 by various insurers seeking a declaratory judgment that the Valenzuela claims are not covered under the terms of the insurance policies issued to Hughes. These insurers have taken a similar position with respect to the more recently filed actions and are also litigating that position against Hughes in the Arizona United States District Court. In September 1991, the Smith court entered summary judgment in favor of Hughes' insurers who issued policies from 1971 to 1985, based upon "pollution exclusions" contained in those policies. In September 1992, the Smith court entered summary judgment in favor of Hughes' pre-1971 insurers based upon findings and conclusions that could have been adverse to Hughes with respect to other claims and proceedings. Hughes appealed these rulings to the Ninth Circuit Court of Appeals. In November 1993, the Ninth Circuit affirmed in substantial part the District Court's summary judgment on the "pollution exclusion" policies, but reversed the District Court's summary judgment on pre-1971 policies. The Ninth Circuit remanded the case for further proceedings in the District Court. Contracts under which Hughes has operated the Air Force facility contain provisions under which indemnification from the Air Force may be provided for certain liabilities which Hughes may incur in connection with its operation of the facility to the extent such liabilities are not covered by insurance. Hughes intends to prosecute all appropriate claims it may have for insurance coverage and, if necessary, to pursue all appropriate claims for indemnification or contribution relating to the actions described above. * * As previously reported, thirty-eight class actions have been filed in state and Federal courts against the Corporation, claiming that 1973-1987 model Chevrolet and GMC full-size pickup trucks are defective because their fuel tanks are mounted below the cab and outside the frame rails. Twenty-four Federal court class actions were transferred to the Federal court in Philadelphia, Pennsylvania by the Judicial Panel on Multidistrict Litigation. In these actions, plaintiffs claimed that the fuel tank locations make the vehicles I-10 13 unreasonably susceptible to fuel-fed fires following side-impact collisions. Plaintiffs alleged breach of contract and warranty, negligence, fraud, and negligent misrepresentation, as well as violation of various state consumer protection laws. The lawsuits seek compensatory and punitive damages and injunctions requiring notice to owners, repairs, retrofitting, and "disgorgement" of revenues. In July 1993, a nationwide class action settlement of the C/K pickup truck class actions was submitted to the Pennsylvania Federal Court and a state court in Texas. Following approval by both courts, the U.S. Third Circuit and Texas appellate courts reversed. The actions will proceed in the Philadelphia Federal court and Texas trial court. There are also pending individual product liability claims and lawsuits involving allegations of defects in the design of such vehicles resulting in fuel-fed fires following side-impact collisions. GM intends to defend these cases vigorously. * * On October 24, 1994, a jury sitting in two cases consolidated for trial in the California Superior Court for the County of Los Angeles, both of which cases had been brought by individual plaintiffs, Jeffrey Lane v. Hughes Aircraft Company and David Villalpando v. Hughes Aircraft Company, rendered verdicts resulting in an aggregate award against Hughes in the amount of $89.5 million. $80 million of the award was for punitive damages and the remainder was for emotional distress and lost wages and benefits. One plaintiff alleged racial discrimination by Hughes with respect to pay and promotion, and both plaintiffs alleged retaliation by Hughes. Hughes vigorously denied plaintiffs' allegations. On December 15, 1994, Superior Court Judge Malcolm H. Mackey granted Hughes' motion for judgment in its favor notwithstanding the verdict, overturning the entire $89.5 million judgment against Hughes. The court also granted Hughes' alternative motion for an order for a new trial in the event that a court of appeals reverses Judge Mackey's ruling in favor of Hughes. Plaintiffs filed a timely appeal which is currently pending. * * On April 26 and 27, 1995, two purported class actions, Keith McGill v. General Motors Corporation and Richard Dolowich v. General Motors Corporation, were filed against General Motors in the Supreme Court of the State of New York, Counties of Bronx and Suffolk, alleging defective rear disc brake caliper pins in the "GM W-Body car". These actions have been consolidated in the Supreme Court of the State of New York, County of Bronx. The Dolowich suit is brought on behalf of all persons and entities in the United States who currently own or lease or previously owned or leased a 1988-1993 Buick Regal, Oldsmobile Cutlass Supreme, Pontiac Grand Prix or Chevrolet Lumina. The McGill suit includes the same model year vehicles, but is brought on behalf of persons and entities residing in the State of New York who purchased or leased such vehicles and still own them. Three additional purported nationwide class actions, brought on behalf of current and previous owners of the same vehicles, have been filed in Federal courts in New Jersey, Garcia v. General Motors, and Pennsylvania, Neff v. General Motors and Marcel v. General Motors. Two additional purported class actions involving the same vehicles were filed, one in the Superior Court of New Jersey for Burlington County, Bishop v. General Motors Corporation and another in the United States District Court for the Eastern District of Pennsylvania, Cohen v. General Motors Corporation. Together, the complaints allege violation of state consumer protection laws, fraud, negligent misrepresentation, and breach of express and implied warranty, and seek unspecified amounts of economic damages, punitive damages not less than $20 million, attorneys' fees and costs, and injunctive relief. The courts have not made a determination as to whether any of the cases may proceed as class actions. * * ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable (N/A). * * * I-11 14 PART II GENERAL MOTORS CORPORATION AND SUBSIDIARIES CROSS REFERENCE SHEET
10-K ITEM PAGE (AND CAPTION) IN PART II - ---------------------------------------------------- ------------------------------------------ 5. Market for Registrant's Common Equity and Related Stockholder Matters (a) Market information......................... II-45 -- Selected Quarterly Data (b) Approximate number of holders of common stocks..................................... II-45 -- Selected Quarterly Data (c) Dividends (1) History.................................... II-45 -- Selected Quarterly Data (2) Policy..................................... II-36 -- Dividends on Common Stocks 6. Selected Financial Data........................ II-47 -- Selected Financial Data 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... II-50 -- Management's Discussion and Analysis 8. Financial Statements and Supplementary Data.... II-2 -- Responsibilities for Consolidated Financial Statements II-3 -- Independent Auditors' Report II-4 -- Consolidated Statement of Income for the Years Ended December 31, 1995, 1994, and 1993 II-5 -- Consolidated Balance Sheet, December 31, 1995 and 1994 II-6 -- Consolidated Statement of Cash Flows for the Years Ended December 3l, 1995, 1994, and 1993 II-8 -- Notes to Consolidated Financial Statements II-45 -- Selected Quarterly Data 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... None
II-1 15 RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS The following consolidated financial statements of General Motors Corporation and subsidiaries were prepared by management which is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on judgments of management. Financial information elsewhere in this Annual Report is consistent with that in the consolidated financial statements. Management is further responsible for maintaining a system of internal accounting controls, designed to provide reasonable assurance that the books and records reflect the transactions of the companies and that its established policies and procedures are carefully followed. From a stockholder's point of view, perhaps the most important feature in the system of control is that it is continually reviewed for its effectiveness and is augmented by written policies and guidelines, the careful selection and training of qualified personnel, and a strong program of internal audit. Deloitte & Touche LLP, an independent auditing firm, is engaged to audit the consolidated financial statements of General Motors Corporation and its subsidiaries and issue reports thereon. The audit is conducted in accordance with generally accepted auditing standards which comprehend the consideration of internal accounting controls and tests of transactions to the extent necessary to form an independent opinion on the financial statements prepared by management. The Independent Auditors' Report appears on the next page. The Board of Directors, through the Audit Committee (composed entirely of non-employee Directors), is responsible for assuring that management fulfills its responsibilities in the preparation of the consolidated financial statements. The Committee selects the independent auditors annually in advance of the Annual Meeting of Stockholders and submits the selection for ratification at the Meeting. In addition, the Committee reviews the scope of the audits and the accounting principles being applied in financial reporting. The independent auditors, representatives of management, and the internal auditors meet regularly (separately and jointly) with the Committee to review the activities of each, to ensure that each is properly discharging its responsibilities, and to assess the effectiveness of the system of internal accounting controls. It is management's conclusion that the system of internal accounting controls at December 31, 1995 provides reasonable assurance that the books and records reflect the transactions of the companies and that its established policies and procedures are complied with. To ensure complete independence, Deloitte & Touche LLP has full and free access to meet with the Committee, without management representatives present, to discuss the results of the audit, the adequacy of internal accounting controls, and the quality of the financial reporting. /s/ JOHN F. SMITH, JR. /s/ J. MICHAEL LOSH - --------------------------------- ------------------------- JOHN F. SMITH, JR. J. MICHAEL LOSH Chairman, Chief Executive Chief Financial Officer Officer, and President II-2 16 INDEPENDENT AUDITORS' REPORT General Motors Corporation, its Directors, and Stockholders: We have audited the Consolidated Balance Sheets of General Motors Corporation and subsidiaries as of December 31, 1995 and 1994 and the related Consolidated Statements of Income and Cash Flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of General Motors Corporation and subsidiaries at December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, effective January 1, 1995 the Corporation changed its method of accounting for sales to daily rental car companies. Also, as discussed in Note 1 to the financial statements, effective January 1, 1994 the Corporation changed its methods of accounting for postemployment benefits and certain investments in debt and equity securities. /s/ DELOITTE & TOUCHE LLP - ------------------------------------------------------ DELOITTE & TOUCHE LLP Detroit, Michigan January 29, 1996 II-3 17 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 ---------- ---------- ---------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net Sales and Revenues (Note 1) Manufactured products.............................................. $143,666.1 $134,759.8 $119,686.3 Financial services................................................. 11,664.0 9,418.8 8,752.0 Computer systems services.......................................... 8,531.0 6,412.9 5,183.6 Other income (Note 3).............................................. 4,967.5 4,359.7 4,597.6 ---------- ---------- ---------- Total Net Sales and Revenues................................... 168,828.6 154,951.2 138,219.5 ---------- ---------- ---------- Costs and Expenses Cost of sales and other operating charges, exclusive of items listed below..................................................... 126,535.3 117,220.5 106,421.9 Selling, general, and administrative expenses...................... 13,514.7 12,233.7 11,531.9 Interest expense (Note 9).......................................... 5,302.2 5,431.9 5,673.7 Depreciation of real estate, plants, and equipment (Note 1)........ 8,554.4 7,124.4 6,576.3 Amortization of special tools (Note 1)............................. 3,212.0 2,900.7 2,535.3 Amortization of intangible assets (Notes 1 and 8).................. 255.3 226.2 330.4 Other deductions (Note 3).......................................... 1,678.4 1,460.5 1,624.7 Special provision for scheduled plant closings (Note 15)........... -- -- 950.0 ---------- ---------- ---------- Total Costs and Expenses....................................... 159,052.3 146,597.9 135,644.2 ---------- ---------- ---------- Income before Income Taxes......................................... 9,776.3 8,353.3 2,575.3 United States, foreign, and other income taxes (Note 6)............ 2,843.8 2,694.6 109.5 ---------- ---------- ---------- Income before cumulative effect of accounting changes.............. 6,932.5 5,658.7 2,465.8 Cumulative effect of accounting changes (Note 1)................... (51.8) (758.1) -- ---------- ---------- ---------- Net Income..................................................... 6,880.7 4,900.6 2,465.8 Preference shares tender offer premium (Note 17)................... 153.4 -- -- Dividends on preferred and preference stocks (Note 17)............. 210.2 320.7 356.8 ---------- ---------- ---------- Income on Common Stocks........................................ $ 6,517.1 $ 4,579.9 $ 2,109.0 ========== ========== ========== Earnings Attributable to Common Stocks $1 2/3 par value before cumulative effect of accounting changes........................................................ $ 5,508.8 $ 4,645.2 $ 1,537.3 Cumulative effect of accounting changes (Note 1)................. (51.8) (751.3) -- ---------- ---------- ---------- Net earnings attributable to $1 2/3 par value.................... $ 5,457.0 $ 3,893.9 $ 1,537.3 ========== ========== ========== Net earnings attributable to Class E............................. $ 795.5 $ 444.4 $ 367.2 ========== ========== ========== Class H before cumulative effect of accounting change............ $ 264.6 $ 248.4 $ 204.5 Cumulative effect of accounting change (Note 1).................. -- (6.8) -- ---------- ---------- ---------- Net earnings attributable to Class H............................. $ 264.6 $ 241.6 $ 204.5 ========== ========== ========== Average number of shares of common stocks outstanding (in millions) $1 2/3 par value................................................. 749.7 741.3 710.2 Class E.......................................................... 404.6 260.3 243.0 Class H.......................................................... 95.5 92.1 88.6 Earnings Per Share Attributable to Common Stocks (Note 18) $1 2/3 par value before cumulative effect of accounting changes........................................................ $7.28 $6.20 $2.13 Cumulative effect of accounting changes (Note 1)................. (0.07) (1.05) -- ----- ----- ----- Net earnings attributable to $1 2/3 par value.................... $7.21 $5.15 $2.13 ===== ===== ===== Net earnings attributable to Class E............................. $1.96 $1.71 $1.51 ===== ===== ===== Class H before cumulative effect of accounting change............ $2.77 $2.70 $2.30 Cumulative effect of accounting change (Note 1).................. -- (0.08) -- ----- ----- ----- Net earnings attributable to Class H............................. $2.77 $2.62 $2.30 ===== ===== =====
Reference should be made to the Notes to Consolidated Financial Statements. II-4 18 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
DECEMBER 31, --------------------------- 1995 1994 ---------- ---------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) ASSETS Cash and cash equivalents (Note 1)........................................... $ 11,044.3 $ 10,939.0 Other marketable securities.................................................. 5,598.6 5,136.6 ---------- ---------- Total cash and marketable securities................................... 16,642.9 16,075.6 Finance receivables -- net (Note 4).......................................... 58,732.0 54,077.3 Accounts and notes receivable (less allowances).............................. 9,988.4 8,977.8 Inventories (less allowances) (Note 5)....................................... 11,529.5 10,127.8 Contracts in process (less advances and progress payments of $1,327.2 and $2,311.2) (Note 1)......................................................... 2,469.2 2,265.4 Net equipment on operating leases (less accumulated depreciation of $7,224.5 and $5,374.7) (Note 7)..................................................... 27,702.3 20,061.6 Deferred income taxes (Note 6)............................................... 19,028.3 19,693.3 Property (Note 1) Real estate, plants, and equipment -- at cost (Note 7)..................... 73,652.3 69,807.9 Less accumulated depreciation.............................................. 44,083.2 42,586.4 ---------- ---------- Net real estate, plants, and equipment................................... 29,569.1 27,221.5 Special tools -- at cost (less amortization)............................... 8,170.7 7,559.1 ---------- ---------- Total property......................................................... 37,739.8 34,780.6 Intangible assets -- at cost (less amortization) (Notes 1 and 8)............. 11,898.9 11,913.8 Other assets (less allowances)............................................... 21,392.1 20,625.5 ---------- ---------- Total Assets........................................................... $217,123.4 $198,598.7 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable (principally trade)......................................... $ 11,898.8 $ 11,635.0 Notes and loans payable (Note 9)............................................. 83,323.5 73,730.2 United States, foreign, and other income taxes -- deferred and payable (Note 6)......................................................................... 3,231.6 2,721.0 Postretirement benefits other than pensions (Note 12)........................ 41,595.1 40,018.2 Pensions (Note 13)........................................................... 6,842.3 14,353.2 Other liabilities and deferred credits (Note 14)............................. 46,886.6 42,867.3 ---------- ---------- Total Liabilities...................................................... 193,777.9 185,324.9 ---------- ---------- Stocks Subject to Repurchase (Note 17)....................................... -- 450.0 ---------- ---------- Stockholders' Equity (Notes 17 and 20) Preference stocks............................................................ 1.2 2.4 Common stocks $1 2/3 par value (issued, 753,008,273 and 754,345,782 shares).............. 1,255.0 1,257.2 Class E (issued, 442,812,166 and 268,125,255 shares)....................... 44.3 26.8 Class H (issued, 97,152,014 and 78,720,022 shares)......................... 9.7 7.9 Capital surplus (principally additional paid-in capital)..................... 18,870.9 13,149.4 Net income retained for use in the business.................................. 7,185.4 1,785.8 ---------- ---------- Subtotal............................................................... 27,366.5 16,229.5 Minimum pension liability adjustment (Note 13)............................... (4,736.3) (3,548.4) Accumulated foreign currency translation adjustments......................... 222.5 (100.4) Net unrealized gains on investments in certain debt and equity securities (Note 1)................................................................... 492.8 243.1 ---------- ---------- Total Stockholders' Equity............................................. 23,345.5 12,823.8 ---------- ---------- Total Liabilities and Stockholders' Equity............................. $217,123.4 $198,598.7 ========== ==========
Reference should be made to the Notes to Consolidated Financial Statements. II-5 19 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------------- 1995 1994 1993 ----------- ----------- ----------- (DOLLARS IN MILLIONS) Cash Flows from Operating Activities Income before cumulative effect of accounting changes.......................................... $ 6,932.5 $ 5,658.7 $ 2,465.8 Adjustments to reconcile income before cumulative effect of accounting changes to net cash provided by operating activities Depreciation of real estate, plants, and equipment...................................... 4,062.1 3,688.7 3,682.7 Depreciation of equipment on operating leases.... 4,492.3 3,435.7 2,893.6 Amortization of special tools.................... 3,212.0 2,900.7 2,535.3 Amortization of intangible assets................ 255.3 226.2 330.4 Amortization of discount and issuance costs on debt issues.................................... 77.6 71.3 90.5 Provision for financing losses................... 448.8 177.3 300.8 Special provision for scheduled plant closings... -- -- 950.0 Provision for inventory allowances............... 77.5 53.1 44.1 Pension expense, net of cash contributions....... (2,983.9) (5,096.1) (1,548.2) Pre-tax (gain) loss on sales of various assets... 116.1 (17.6) 305.6 Provision for ongoing postretirement benefits other than pensions, net of cash payments...... 1,684.1 2,252.6 2,396.7 Origination and purchase of mortgage loans....... (12,085.6) (10,135.7) (21,583.7) Proceeds on sale of mortgage loans............... 11,132.7 10,719.2 22,309.5 Change in other investments, miscellaneous assets, deferred credits, etc. ................ 367.5 (1,628.2) 340.2 Change in other operating assets and liabilities Accounts receivable............................ (733.1) (2,582.1) (480.9) Inventories.................................... (1,487.0) (1,750.3) 240.3 Prepaid expenses and other deferred charges.... (661.6) (725.5) 60.2 Deferred taxes and income taxes payable*....... 1,945.2 903.8 (1,512.8) Other liabilities*............................. 438.8 2,683.5 (189.3) Other.......................................... (867.8) 1,113.4 1,115.6 ----------- ----------- ----------- Net Cash Provided by Operating Activities............. $ 16,423.5 $ 11,948.7 $ 14,746.4 =========== =========== ===========
- ------------------------- * Excluding effect of accounting changes. Reference should be made to the Notes to Consolidated Financial Statements. II-6 20 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS -- CONCLUDED
YEARS ENDED DECEMBER 31, -------------------------------------------- 1995 1994 1993 ------------ ------------ ------------ (DOLLARS IN MILLIONS) Cash Flows from Investing Activities Investment in companies, net of cash acquired.... $ (616.3) $ (246.6) $ (232.4) Expenditures for real estate, plants, and equipment..................................... (6,351.4) (4,883.7) (3,822.1) Expenditures for special tools................... (3,725.9) (2,341.4) (2,648.6) Proceeds from disposals of real estate, plants, and equipment................................. 540.8 351.0 534.9 Proceeds from the sale of various assets......... 183.2 518.4 231.5 Expenditures related to the sale of NCRS' net assets........................................ (197.0) -- -- Change in other investing assets Investments in other marketable securities -- acquisitions................................ (18,410.1) (14,482.3) (13,545.4) Investments in other marketable securities -- liquidations................................ 17,947.4 13,906.0 13,377.0 Finance receivables -- acquisitions........... (163,033.3) (156,579.8) (103,396.3) Finance receivables -- liquidations........... 133,766.2 137,598.4 92,808.6 Finance receivables -- other.................. 244.3 610.6 8,528.3 Proceeds from sales of finance receivables.... 25,982.5 18,800.0 13,072.2 Operating leases -- net*...................... (8,856.7) (10,239.8) (4,887.7) Other......................................... (13.0) (510.6) 346.8 ------------ ------------ ------------ Net Cash Provided by (Used in) Investing Activities....................................... (22,539.3) (17,499.8) 366.8 ------------ ------------ ------------ Cash Flows from Financing Activities Net increase (decrease) in short-term loans payable....................................... 6,087.6 3,877.7 (4,278.3) Increase in long-term debt....................... 12,129.8 12,997.4 9,634.7 Decrease in long-term debt....................... (9,636.3) (14,259.9) (17,029.6) Redemption of HHMI put options................... -- -- (315.0) Repurchases of common, preferred, and preference stocks........................................ (1,680.7) -- (265.6) Proceeds from issuing common stocks.............. 504.8 1,184.9 860.2 Cash dividends paid to stockholders.............. (1,327.7) (1,111.9) (1,083.9) ------------ ------------ ------------ Net Cash Provided by (Used in) Financing Activities....................................... 6,077.5 2,688.2 (12,477.5) ------------ ------------ ------------ Effect of Exchange Rate Changes on Cash and Cash Equivalents...................................... 143.6 11.4 76.2 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents...................................... 105.3 (2,851.5) 2,711.9 Cash and cash equivalents at beginning of the year............................................. 10,939.0 13,790.5 11,078.6 ------------ ------------ ------------ Cash and cash equivalents at end of the year....... $ 11,044.3 $ 10,939.0 $ 13,790.5 ============ ============ ============
- ------------------------- * Excluding effect of accounting changes. Reference should be made to the Notes to Consolidated Financial Statements. II-7 21 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of General Motors Corporation (hereinafter referred to as the Corporation) and domestic and foreign subsidiaries which are more than 50% owned, principally General Motors Acceptance Corporation and Subsidiaries (GMAC), Electronic Data Systems Corporation and Subsidiaries (EDS), and Hughes Electronics Corporation and Subsidiaries (Hughes) (collectively referred to as General Motors). General Motors' share of earnings or losses of associates in which at least 20% of the voting securities is owned is included in consolidated operating results under the equity method of accounting (see Note 3). Certain amounts for 1994 and 1993 have been reclassified to conform with the 1995 classifications. USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates. REVENUE RECOGNITION Sales are generally recorded when products are shipped to independent dealers. Provisions for normal dealer sales incentives, returns and allowances, and GM Card rebates are made at the time of vehicle sale. Costs related to special sales incentive programs are recognized as reductions to sales when determinable. Certain sales under long-term contracts, primarily in the defense business, are recorded using the percentage-of-completion (cost-to-cost) method of accounting. Hughes Aircraft Company, a subsidiary of Hughes, recognizes revenues for certain commercial long-term contracts using the units-of-delivery method. Profits expected to be realized on contracts are based on estimates of total sales value and costs at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are recorded in the accounting period in which the revisions are made. Estimated losses on contracts are recorded in the period in which they are identified. In the case of finance receivables in which the face amount includes the finance charge (principally retail financing), earnings are recorded in income over the terms of the receivables using the interest method. On finance receivables in which the face amount represents the principal (principally wholesale, interest-bearing financing, and fleet leasing), the interest is reported as income when earned. Certain loan origination costs are deferred and amortized to financing revenue over the life of the related loans using the interest method. Income from operating lease assets is recognized as scheduled payments become due. Insurance premiums are earned on a basis related to coverage provided over the terms of the policies. Commission costs and premium taxes incurred in acquiring new business are deferred and amortized over the terms of the related policies on the same basis as premiums are earned. The liability for losses includes a provision for unreported losses, based on past experience, net of the estimated salvage and subrogation recoverable. PRODUCT-RELATED EXPENSES Expenditures for advertising and sales promotion and for other product-related expenses are charged to costs and expenses as incurred; provisions for estimated costs related to product warranty are made at the time the products are sold. Expenditures for advertising amounted to $3,139.5 million in 1995, $2,805.9 million in II-8 22 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 1994, and $2,574.4 million in 1993. Expenditures for research and development are charged to costs and expenses as incurred and amounted to $8,387.9 million in 1995, $7,035.8 million in 1994, and $6,029.9 million in 1993. DEPRECIATION AND AMORTIZATION Depreciation is provided based on estimated useful lives of groups of property generally using accelerated methods, which accumulate depreciation of approximately two-thirds of the depreciable cost during the first half of the estimated useful lives. The cost of each leasehold improvement is amortized over the period of the lease or the life of the property, whichever is shorter, with the amortization applied directly to the asset account and charged to costs and expenses. Depreciation on capitalized leases with a term of five years or less is provided using the straight-line method; leases with a term in excess of five years are depreciated using the foregoing accelerated methods. Expenditures for special tools are amortized over their estimated useful lives, primarily using the units of production method. Amortization is applied directly to the asset account. Replacement of special tools for reasons other than changes in products is charged directly to cost of sales. Depreciation of vehicles and other equipment on operating leases or in General Motors' use is provided generally on a straight-line basis. The difference between the net book value and the proceeds of sale or salvage on items disposed of is included in income as a charge against or credit to the provision for depreciation. Certain purchased software is being amortized over five to eight years. FOREIGN CURRENCY TRANSLATION Exchange and translation gains (losses) on an after-tax basis included in consolidated operating results in 1995, 1994, and 1993 amounted to ($380.7) million, $206.9 million, and $189.0 million, respectively. CASH AND CASH EQUIVALENTS Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less. Supplemental disclosure of cash flow information is as follows:
YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) Cash paid during the years for Interest..................................................... $6,056.9 $5,499.3 $5,938.0 Income taxes................................................. $ 930.5 $2,045.8 $1,545.7
With respect to noncash transactions, 173.2 million shares of Class E common stock (Note 13) and 18.8 million shares of $1 2/3 par value common stock were contributed to the U.S. pension plans in 1995 and 1993, respectively. The 1993 contribution of $1 2/3 par value shares consisted of shares sold to the Corporation from individual employee accounts in various stock savings plans of General Motors. Also, General Motors entered into capital lease agreements totaling $22.3 million, $25.0 million, and $13.7 million, in 1995, 1994, and 1993, respectively. II-9 23 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED ALLOWANCE FOR FINANCING LOSSES An allowance for credit losses is generally established during the period in which receivables are acquired and is maintained in amounts considered by management to be appropriate in relation to receivables outstanding. Losses arising from repossession of the collateral supporting doubtful accounts are recognized upon repossession of the collateral. Repossessed collateral is recorded at estimated realizable value in other assets and adjustments to the related valuation allowance are included in operating expense. Where repossession has not been effected, losses are charged off as soon as it is determined that the collateral cannot be repossessed, generally not more than 150 days after default. Nonretail finance receivables are reduced to the estimated fair value of collateral when determined to be impaired or uncollectible. CONTRACTS IN PROCESS Contracts in process are stated at costs incurred plus estimated profit, less amounts billed to customers and advances and progress payments applied. Engineering, tooling, manufacturing, and applicable overhead costs, including administrative, research and development, and selling expenses, are charged to costs and expenses when incurred. Contracts in process also include estimates relating to claims, requests for equitable adjustments, and amounts withheld pending negotiation or settlement with customers. Under certain contracts with the U.S. Government, progress payments are received based on costs incurred on the respective contracts. Title to the inventories related to such contracts (included in contracts in process) vests with the U.S. Government. INTANGIBLE ASSETS General Motors periodically evaluates the recoverability of goodwill and other intangible assets by assessing whether the unamortized intangible asset can be recovered over its remaining life through undiscounted cash flows generated by underlying tangible assets. DERIVATIVE INSTRUMENTS General Motors is party to a variety of foreign exchange, interest rate and commodity forward contracts and options entered into in connection with the management of its exposure to fluctuations in foreign exchange rates, interest rates, and certain commodities prices. These financial exposures are monitored and managed in accordance with Corporate policies and procedures. Foreign exchange-forward contracts are accounted for as hedges to the extent they are designated as, and are effective as, hedges of firm foreign currency commitments. Other such foreign exchange contracts and options are marked to market on a current basis. Interest rate forward contracts designated and effective as a hedge of an underlying debt obligation are not marked to market, but are used to adjust interest expense recognized over the life of the underlying debt agreement. Gains and losses from terminated contracts are deferred and amortized over the remaining period of the original contract. Open interest rate forward contracts are reviewed regularly to ensure that they remain effective as hedges of interest rate exposure. Written options (including swaptions and interest rate caps and collars) are marked to market on a current basis. General Motors also enters into commodity forward and options contracts. Since General Motors has the discretion to settle these transactions either in cash or by taking physical delivery, these contracts are not considered financial instruments. Commodity forward contracts and options are accounted for as hedges to the II-10 24 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED extent they are designated as, and are effective as, hedges of firm or anticipated commodity purchase contracts. ENVIRONMENTAL LIABILITIES General Motors recognizes environmental liabilities when a loss is probable and can be reasonably estimated. Such liabilities are generally not subject to insurance coverage. The cost of each environmental liability is estimated by engineering, financial, and legal specialists within General Motors based on current law and existing technologies. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that other potentially responsible parties (PRPs) will be able to fulfill their commitments at the sites where General Motors may be jointly and severally liable. At sites being addressed under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act or similar state laws (the "Superfund Sites"), General Motors typically recognizes a loss once it has been named as a PRP and has determined that some liability loss is probable. The Superfund Sites are primarily multi-PRP sites not owned or operated by General Motors. For General Motors' operating plants, an estimated liability is typically recognized either upon completion of an environmental assessment or when General Motors proposes an agreement with the appropriate regulatory agency to take action at a site. For closed or closing plants owned by General Motors and properties being sold, an estimated liability is typically recognized at the time the closure decision is made or sale is recorded and is based on an environmental assessment of the plant property. General Motors' estimates for environmental obligations are dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, uncertainty as to what remedy and technology will be required, the outcome of discussions with regulatory agencies and other PRPs at multi-party sites, the number and financial viability of other PRPs, and the timing of expenditures; accordingly, such estimates could change materially as General Motors periodically evaluates and revises such estimates based on expenditures against established reserves and the availability of additional information. ACCOUNTING CHANGES The Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) reached a consensus in November 1995 on Issue No. 95-1, Revenue Recognition on Sales with a Guaranteed Minimum Resale Value, 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 has 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 at December 31, 1995 in net equipment on operating leases of $4.4 billion and other liabilities and deferred credits of $4.6 billion. The effect on future periods is not expected to be material. Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which becomes effective for General Motors as of January 1, 1996, establishes accounting standards for determining and calculating the impairment of long-lived assets, certain identifiable intangible assets, and goodwill related to those assets. General Motors will adopt SFAS No. 121 and calculate its impact on General Motors during the first quarter of 1996. As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, which becomes effective for General Motors as of January 1, 1996, and which encourages companies to record expense for stock options and other stock-based employee compensation awards based on their fair value at date of grant, General II-11 25 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Motors will continue to apply its current accounting policy under Accounting Principles Board Opinion No. 25 and will include the necessary disclosures in its 1996 financial statements. Effective January 1, 1994, General Motors adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits. SFAS No. 112 requires accrual of the costs of benefits provided to former or inactive employees after employment, but before retirement. The unfavorable cumulative effect of adopting SFAS No. 112, determined on a discounted basis, was $1,220.1 million ($758.1 million after-tax), or $751.3 million ($1.05 per share) attributable to $1 2/3 par value common stock and $6.8 million ($0.08 per share) attributable to GM Class H common stock. The non-cash charge is primarily related to General Motors' extended-disability benefit program in the U.S. which, under SFAS No. 112, will be accrued on a service-driven basis. Also effective January 1, 1994, General Motors adopted SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, which resulted in a $241.0 million after-tax increase in stockholders' equity. SFAS No. 115 requires the recording at fair value of debt securities that are not expected to be held to maturity and equity securities that have a readily determinable fair value. The primary effect of SFAS No. 115 on General Motors relates to debt securities held by a subsidiary of GMAC and certain equity securities. Marketable securities, other than certain securities held by GMAC and its subsidiaries (and described in Note 22), are considered available for sale; $812.6 million mature within one year, $417.2 million mature in two to five years, and a substantial amount of the remaining $40.6 million matures after 10 years. LABOR FORCE General Motors, on a worldwide basis, has a concentration of labor supply in employees working under union collective bargaining agreements, which represent approximately 86% of its hourly workforce and 8% of its salaried workforce. Of these represented employees, 86% of hourly and 37% of salaried employees are working under agreements that will expire in 1996. NOTE 2. EDS SPLIT-OFF The Corporation has previously announced its intention to pursue a split-off of EDS to the Corporation's Class E stockholders by an exchange of EDS common stock for Class E stock in a transaction that is tax-free for U.S. Federal income tax purposes and fair to all classes of the Corporation's common stockholders. The Corporation also announced in December 1995 that it had received a ruling from the U.S. Internal Revenue Service to the effect that a split-off as contemplated by the Corporation would be tax-free to the Corporation and its common stockholders for U.S. Federal income tax purposes. The Corporation would not record a gain or loss on the transaction. The Corporation and EDS management are working to develop specific terms for such a transaction to present to the Corporation's Board of Directors. Among other matters being addressed, the managements are in the process of developing terms for a long-term information technology agreement between the companies to be effective upon a split-off. Management of the Corporation and EDS are also addressing the amount of any special payment that should be made by EDS to the Corporation prior to a split-off in order to ensure that the split-off is fair to all of the Corporation's common stockholders. Any such payment will not exceed one billion dollars and could well be substantially less. Substantial progress is being made in developing a specific split-off proposal, although significant matters still remain to be resolved before a definitive proposal can be presented to the Corporation's Board of Directors for its consideration. Any such transaction will be subject to approval by the Corporation's common stockholders. No assurances can be given that a split-off of EDS will be proposed to the Corporation's II-12 26 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED common stockholders or, if proposed, approved by them. However, management of both the Corporation and EDS and the Corporation's Board of Directors continue to expect that such a transaction will be accomplished. If a split-off of EDS is not completed, EDS would continue as a wholly-owned subsidiary of the Corporation. Under such circumstances, the existing contractual arrangements between the Corporation and EDS respecting information technology would continue with any changes that the Corporation's Board of Directors may consider fair to all classes of the Corporation's common stockholders and appropriate in light of the evolving competitive market for information technology services. NOTE 3. OTHER INCOME AND OTHER DEDUCTIONS
YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) Other Income Nonfinancing interest........................................ $1,672.2 $1,507.7 $1,886.2 Insurance premiums........................................... 867.0 873.8 799.3 Claims, commissions, and grants.............................. 603.9 467.4 489.7 Equity in earnings (losses) of associates, net............... 252.9 205.5 (172.5) Gain on the sale of finance receivables...................... 38.2 30.8 436.4 Other........................................................ 1,533.3 1,274.5 1,158.5 -------- -------- -------- Total other income...................................... $4,967.5 $4,359.7 $4,597.6 ======== ======== ======== Other Deductions Insurance losses and loss adjustment expenses................ $ 620.8 $ 749.7 $ 614.4 Provision for financing losses............................... 448.8 177.3 300.8 Loss on sale of NCRS' net assets*............................ 147.8 -- -- Loss on the sale of Allison Gas Turbine Division (AGT)....... -- -- 305.6 Other........................................................ 461.0 533.5 403.9 -------- -------- -------- Total other deductions.................................. $1,678.4 $1,460.5 $1,624.7 ======== ======== ========
- ------------------------- * The Corporation sold National Car Rental System's (NCRS) net assets, 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 were not previously recorded due to the uncertainty of ultimate realization. II-13 27 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 4. FINANCE RECEIVABLES -- NET The composition of finance receivables outstanding is summarized as follows:
DECEMBER 31, ------------------------ 1995 1994 --------- --------- (DOLLARS IN MILLIONS) U.S. Retail............................................................ $26,979.9 $23,486.8 Wholesale......................................................... 15,187.2 14,560.9 Leasing and lease financing....................................... 1,296.0 1,613.4 Term loans to dealers and others.................................. 3,656.4 3,670.0 --------- --------- Total U.S...................................................... 47,119.5 43,331.1 --------- --------- Canada, Mexico, and International Retail............................................................ 8,651.3 7,747.9 Wholesale......................................................... 5,465.3 4,850.6 Leasing and lease financing....................................... 1,733.0 1,666.7 Term loans to dealers and others.................................. 493.3 484.2 --------- --------- Total Canada, Mexico, and International........................ 16,342.9 14,749.4 --------- --------- Total finance receivables................................. 63,462.4 58,080.5 Less -- Unearned income............................................. (3,922.5) (3,309.9) -- Allowance for financing losses.............................. (807.9) (693.3) --------- --------- Total finance receivables -- net.......................... $58,732.0 $54,077.3 ========= =========
Retail, lease financing, and leasing receivable installments past due over 30 days amounted to $90.2 million and $55.5 million at December 31, 1995 and 1994, respectively. Installments on term loans to dealers and others past due over 30 days aggregated $85.2 million at December 31, 1995 and $70.7 million at December 31, 1994. The aggregate amount of total finance receivables maturing in each of the five years following December 31, 1995 is as follows: 1996 - $36,568.1 million; 1997 - $11,315.2 million; 1998 - $8,168.2 million; 1999 - $4,528.4 million; 2000 - - $2,244.2 million; and 2001 and thereafter - $638.3 million. The following table presents an analysis of the allowance for financing losses.
YEARS ENDED DECEMBER 31, --------------------- 1995 1994 ------- ------- (DOLLARS IN MILLIONS) Allowance for financing losses at beginning of the year............... $ 693.3 $ 748.0 ------- ------- Charge-offs U.S................................................................. (372.2) (310.7) Other countries..................................................... (50.2) (50.3) ------- ------- Total charge-offs................................................ (422.4) (361.0) Recoveries and other.................................................. 104.5 116.0 Transfers (to) from sold receivables allowance........................ (16.3) 13.0 Provisions charged to income.......................................... 448.8 177.3 ------- ------- Allowance for financing losses at end of the year................ $ 807.9 $ 693.3 ======= =======
II-14 28 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED GMAC participates in various sales of receivables programs and has sold retail finance receivables through special purpose subsidiaries with principal aggregating $3.6 billion in 1995 and $3.7 billion in 1994. These subsidiaries generally retain a subordinated investment of no greater than 9% of the total receivables pool and market the remaining portion. These subordinated investments absorb losses related to sold receivables to the extent that such losses are greater than the excess cash flows from those receivables and cash reserves related to the sale transaction. Pre-tax gains relating to such sales recorded in other income (excluding limited recourse loss provisions which generally have been provided at the time the contracts were originally acquired) amounted to $38.2 million in 1995, $30.8 million in 1994, and $436.4 million in 1993. GMAC continues to service these receivables for a fee and earns other related ongoing income. GMAC's retail finance receivable servicing portfolio amounted to $6.6 billion and $9.9 billion at December 31, 1995 and 1994, respectively. GMAC has also sold wholesale receivables, resulting in decreases in its wholesale receivables outstanding of $4.7 billion and $2.6 billion at December 31, 1995 and 1994, respectively. GMAC continues to service these receivables for a fee, and is committed to sell eligible wholesale receivables arising in certain dealer accounts. NOTE 5. INVENTORIES
DECEMBER 31, ---------------------- 1995 1994 --------- --------- (DOLLARS IN MILLIONS) Major Classes of Inventories Productive material, work in process, and supplies..................... $ 6,570.4 $ 5,478.3 Finished product, service parts, etc................................... 4,959.1 4,649.5 --------- --------- Total............................................................. $11,529.5 $10,127.8 ========= ========= Memo: Increase in LIFO inventories if valued at FIFO................... $ 2,424.4 $ 2,535.9
Inventories are stated generally at cost, which is not in excess of market. The cost of substantially all U.S. inventories other than the inventories of Saturn Corporation (Saturn) and Hughes is determined by the last-in, first-out (LIFO) method. The cost of non-U.S., Saturn, and Hughes inventories is determined generally by the first-in, first-out (FIFO) or average cost methods. As a result of decreases in U.S. inventories, certain inventory quantities carried at lower LIFO costs prevailing in prior years, as compared with current purchases, were liquidated in 1993. This inventory adjustment improved pre-tax operating results by approximately $134.4 million in 1993, primarily from the sale of AGT. II-15 29 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 6. UNITED STATES, FOREIGN, AND OTHER INCOME TAXES -- DEFERRED AND PAYABLE
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 -------- -------- ------- (DOLLARS IN MILLIONS) Taxes estimated to be payable (refundable) currently U.S. Federal.................................................. $ (689.7) $ 544.7 $(230.5) Foreign....................................................... 1,431.2 1,029.9 783.8 U.S. state and local.......................................... 51.1 69.7 188.9 --------- --------- ------- Total...................................................... 792.6 1,644.3 742.2 --------- --------- ------- Deferred tax (benefits) liabilities -- net U.S. Federal.................................................. 2,051.6 576.0 (86.2) Increase in U.S. corporate income tax rate.................... -- -- (444.3) Foreign....................................................... (67.1) 421.7 (28.3) U.S. state and local.......................................... 135.6 108.5 (5.3) --------- --------- ------- Total...................................................... 2,120.1 1,106.2 (564.1) --------- --------- ------- Investment tax credits amortized -- net U.S. Federal.................................................. (62.1) (48.1) (58.6) Foreign....................................................... (6.8) (7.8) (10.0) --------- --------- ------- Total...................................................... (68.9) (55.9) (68.6) --------- --------- ------- Total taxes........................................... $2,843.8* $2,694.6* $ 109.5 ========= ========= =======
- ------------------------- * Excluding effect of accounting changes. Deferred income tax assets and liabilities for 1995 and 1994 reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. The net deferred tax asset in the U.S. was $17,550.0 million and $18,171.0 million at December 31, 1995 and 1994, respectively. Realization of the net deferred tax assets is dependent on future reversals of existing taxable temporary differences and future taxable income exclusive of reversing temporary differences and carryforwards. Although realization is not assured, management believes that it is more likely than not that the net deferred tax assets will be realized. The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term if actual future taxable income is lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable temporary differences. The valuation allowance increased by $153.8 million and $46.8 million in 1995 and 1994, respectively. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ materially from the amount accrued. The alternative minimum tax credit can be carried forward indefinitely. The U.S. state net operating loss carryforwards will expire in the years 1997 - 2010 if not utilized; however, a substantial portion will not expire until after the year 2000. The tax credit carryforwards will expire in the years 2000 - 2010 if not utilized. II-16 30 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are shown as follows:
DECEMBER 31, ------------------------------------------------------- 1995 1994 ------------------------- ------------------------- DEFERRED TAX DEFERRED TAX ------------------------- ------------------------- ASSETS LIABILITIES ASSETS LIABILITIES --------- ----------- --------- ----------- (DOLLARS IN MILLIONS) Postretirement benefits other than pensions... $15,811.7 $ -- $15,184.7 $ -- Minimum pension liability adjustment.......... 2,926.8 -- 2,213.4 -- Benefit plans................................. 2,056.0 6,621.1 1,606.3 3,757.4 Policy and warranty........................... 2,085.4 -- 2,041.9 -- Sales and product allowances.................. 1,548.5 143.2 1,615.2 241.3 Special provision for scheduled plant closings.................................... 961.7 -- 1,135.8 -- Miscellaneous foreign......................... 1,140.6 318.1 1,422.2 638.3 Profits on long-term contracts................ 514.4 450.3 387.7 632.4 Alternative minimum tax credit carryforwards............................... 730.4 -- 741.2 -- Depreciation.................................. 606.7 5,034.0 465.3 4,915.6 Capitalized research and experimentation...... 571.1 -- 780.3 -- U.S. state net operating loss carryforwards... 478.4 -- 314.2 -- Financing losses.............................. 298.5 -- 253.2 -- Tax credit carryforwards...................... 536.5 -- 130.0 -- Lease transactions............................ -- 2,741.5 -- 2,321.3 Tax on unremitted profits..................... -- 467.8 -- 353.1 All other..................................... 6,357.6 3,222.0 5,461.3 2,681.7 --------- --------- --------- --------- Subtotal.................................... 36,624.3 18,998.0 33,752.7 15,541.1 Valuation allowance........................... (1,228.2) -- (1,074.4) -- --------- --------- --------- --------- Total deferred taxes..................... $35,396.1 $ 18,998.0 $32,678.3 $ 15,541.1 ========= ========= ========= =========
Provisions are made for estimated U.S. and foreign income taxes, less available tax credits and deductions, which may be incurred on the remittance of the Corporation's share of subsidiaries' undistributed earnings not deemed to be permanently invested. Taxes have not been provided on foreign subsidiaries' earnings which are deemed essentially permanently reinvested of approximately $7.3 billion at December 31, 1995 and $5.8 billion at December 31, 1994. Quantification of the deferred tax liability, if any, associated with permanently reinvested earnings is not practicable. Income before income taxes included the following components:
YEARS ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) U.S. income (loss)......................................... $4,712.6 $3,152.1 $ (512.7) Foreign income............................................. 5,063.7 5,201.2 3,088.0 -------- -------- -------- Total................................................. $9,776.3 $8,353.3 $2,575.3 ======== ======== ========
II-17 31 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The consolidated income tax was different than the amount computed using the 35% U.S. Federal statutory income tax rate for the reasons set forth in the table below:
YEARS ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) Tax at U.S. statutory income tax rate...................... $3,421.7 $2,923.7 $ 901.4 U.S. net operating loss carryback.......................... (190.0) -- -- U.S. state and local income taxes.......................... 135.7 130.8 129.7 Deferred tax impact of Federal rate increase............... -- -- (444.3) Investment tax credits amortized........................... (68.9) (55.9) (68.6) U.S. tax effect of foreign earnings and dividends.......... 292.2 126.5 80.9 Foreign rates other than 35%............................... (215.8) (453.6) (433.4) Taxes on unremitted earnings of subsidiaries............... 139.4 123.5 54.3 Equity effect in pre-tax income............................ (88.5) (71.9) 60.4 Sale of NCRS' net assets................................... (258.7) -- -- Other adjustments.......................................... (323.3) (28.5) (170.9) -------- -------- ------- Consolidated income tax............................... $2,843.8* $2,694.6* $ 109.5 ======== ======== =======
- ------------------------- * Excluding effect of accounting changes. NOTE 7. PROPERTY AND NET EQUIPMENT ON OPERATING LEASES
ESTIMATED DECEMBER 31, USEFUL ---------------------- LIVES (YEARS) 1995 1994 ------------- --------- --------- (DOLLARS IN MILLIONS) Real estate, plants, and equipment Land..................................................... -- $ 797.8 $ 799.1 Land improvements........................................ 20-31 1,910.7 1,849.7 Leasehold improvements -- less amortization.............. 8-10 320.7 306.8 Buildings................................................ 29-40 13,921.5 13,651.6 Machinery and equipment.................................. 5-27 45,753.3 43,890.2 Furniture and office equipment........................... 8-20 6,235.3 5,306.7 Capitalized leases....................................... 5-40 1,402.9 1,199.7 Construction in progress................................. -- 3,310.1 2,804.1 --------- --------- Total................................................. $73,652.3 $69,807.9 ========= =========
The value of General Motors' net equipment on operating leases is based on estimated residual values of the leased equipment, which are calculated at the lease inception date. Realization of the residual values is dependent on General Motors' future ability to market the equipment under then prevailing market conditions. Although realization is not assured, management believes it is more likely than not that the estimated residual values will be realized. The lease payments to be received relate to equipment on operating leases maturing in each of the five years following December 31, 1995 and are as follows: 1996-$5,302.4 million; 1997-$3,373.9 million; 1998-$1,361.6 million; 1999-$200.9 million; and 2000-$82.8 million. II-18 32 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 8. INTANGIBLE ASSETS
DECEMBER 31, ---------------------- 1995 1994 --------- --------- (DOLLARS IN MILLIONS) Pensions (Note 13)..................................................... $ 6,500.9 $ 7,373.8 Intangible assets relating to acquisition of Hughes.................... 2,845.8 3,005.3 Goodwill relating to all other acquisitions............................ 2,025.4 1,214.1 Mortgage servicing rights.............................................. 470.3 222.3 All other.............................................................. 56.5 98.3 --------- --------- Total................................................................ $11,898.9 $11,913.8 ========= =========
Intangible assets arising from the acquisition of Hughes relate to patents and related technology and other intangible assets which were originally recorded in 1985 and are principally being amortized over 40 years. Goodwill resulting from other acquisitions is being amortized over periods of eight to 40 years. Mortgage servicing rights are being amortized over periods that generally match future net mortgage servicing revenues. NOTE 9. NOTES AND LOANS PAYABLE
DECEMBER 31, WEIGHTED AVERAGE ---------------------- INTEREST RATE(1) 1995 1994 ---------------- --------- --------- (DOLLARS IN MILLIONS) Notes, loans, and debentures Payable within one year Current portion of long-term debt.................. 7.4% $13,117.4 $ 8,381.8 Commercial paper(2)................................ 5.9% 21,913.7 18,644.4 All other(2)....................................... 6.6% 11,617.8 9,213.9 Payable beyond one year 1996............................................... -- -- 11,953.4 1997............................................... 7.0% 11,858.0 10,158.8 1998............................................... 6.9% 6,477.9 2,795.6 1999............................................... 7.1% 4,551.9 4,151.2 2000............................................... 7.5% 4,957.9 2,191.6 2001 and after..................................... 7.7% 9,958.4 7,176.0 Unamortized discount.................................. (1,129.5) (936.5) --------- --------- Total............................................ $83,323.5 $73,730.2 ========= =========
- ------------------------- (1) The weighted average interest rate for 1995 includes the impact of interest rate swap agreements. (2) The weighted average interest rate for commercial paper and all other short-term borrowings was 6.1% and 6.5%, respectively, at December 31, 1994. After consideration of foreign currency swaps, the above 1995 maturities, payable beyond one year, include $6.1 billion in currencies other than the U.S. Dollar, primarily the Canadian Dollar ($1.7 billion), German Mark ($1.7 billion), and the British Pound ($1.5 billion). At December 31, 1995 and 1994, notes and loans payable include $68.8 billion and $62.0 billion of obligations with fixed rates, and $14.5 billion and $11.7 billion of obligations with variable interest rates II-19 33 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (predominantly based on the London Interbank Offering Rate or LIBOR), after considering the impact of interest rate swap agreements. To achieve its desired balance, within prescribed limits, between fixed and variable rate debt, General Motors has entered into interest rate swap, interest rate cap, interest rate collar, and swaption agreements. The notional amounts of such agreements as of December 31, 1995 were approximately $7,105 million ($3,568 million pay variable and $3,537 million pay fixed), $340 million, $50 million, and $270 million, respectively. The notional amounts of such agreements as of December 31, 1994 were approximately $5,482 million ($4,195 million pay variable and $1,287 million pay fixed), $440 million, $50 million, and $741 million, respectively. General Motors maintains, or otherwise has available through asset securitization programs, various syndicated bank credit facilities which in aggregate provide $30.3 billion of committed bank credit availability. The terms of the facilities range from one to five years, with a weighted average term of approximately three years. Facility and commitment fees on the syndicated credit facilities average 0.11% per annum over the term of the various agreements based on current credit ratings. The facilities contain certain covenants. The Corporation and applicable subsidiaries were in compliance with these covenants at December 31, 1995. Certain subsidiaries maintain other bank lines of credit, some of which are supported by bank commitment fees and compensating balances. Compensating balances, which are not subject to withdrawal restrictions, are maintained at a level required to provide the same income that a fee would generate. Total commitment and facilities fees incurred by the Corporation's subsidiaries amounted to $43.7 million in 1995, $60.0 million in 1994, and $44.5 million in 1993. Total compensating balances maintained by the Corporation's subsidiaries in lieu of commitment fees averaged $12.4 million in 1995 and $23.5 million in 1994. At December 31, 1995, unused short-term credit facilities totaled approximately $22.6 billion and unused long-term credit facilities totaled approximately $20.1 billion. Total interest cost incurred in 1995, 1994, and 1993 amounted to $5,352.0 million, $5,465.8 million, and $5,717.8 million, respectively, of which $49.8 million, $33.9 million, and $44.1 million, related to certain real estate, plants, and equipment acquired in those years, was capitalized. NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT General Motors is a party to financial instruments with off-balance-sheet risk which it uses in the normal course of business to manage its exposure to fluctuations in interest rates and foreign exchange rates, and to meet the financing needs of its customers. The primary classes of derivatives used by General Motors are foreign exchange-forward contracts and options, interest rate forward contracts and options, and forward contracts to purchase or sell mortgages or mortgage-backed securities. Those instruments involve, to varying degrees, elements of credit risk in the event a counter-party should default, and market risk as the instruments are subject to rate and price fluctuations. Credit risk is managed through the approval and periodic monitoring of financially sound counterparties. Derivative transactions are entered into to hedge underlying business exposures. Market risk in these instruments is more than offset by opposite movements in the underlying exposure since General Motors does not hedge 100% of all such exposures. Cash receipts or payments on these contracts normally occur at maturity, or for interest rate swap agreements, at periodic contractually defined intervals. FOREIGN EXCHANGE-FORWARD CONTRACTS AND OPTIONS General Motors is an international corporation with operations in over 50 countries. General Motors has foreign currency exposures at these operations related to buying, selling, and financing in currencies other than II-20 34 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED the local currency. General Motors' most significant foreign currency exposures relate to major North American countries (Canada and Mexico), Western European countries (primarily Germany, United Kingdom, Spain, Belgium, and France), Japan, and Brazil. The magnitude of these exposures significantly varies over time depending upon the strength of local automotive markets and sourcing decisions. General Motors enters into agreements by which it seeks to manage certain of its foreign exchange exposures in accordance with established policy guidelines. These agreements primarily hedge cash flows such as debt, firm commitments and anticipated transactions involving vehicles, components and fixed assets and subsidiary dividends. As a general practice, General Motors has not hedged the foreign exchange exposure related either to the translation of overseas earnings into U.S. dollars, or the translation of overseas equity positions back to U.S. dollars. General Motors uses foreign exchange-forward contracts as well as purchased and written foreign exchange options. Foreign exchange-forward contracts are legal agreements between two parties to purchase and sell a foreign currency, for a price specified at the contract date, with delivery and settlement in the future. Cross-currency swaps are included in this category and relate to interest rate swaps in which the underlying notional principal amounts are in different currencies. At December 31, 1995 and 1994, General Motors held foreign exchange-forward contracts of approximately $11,602 million and $9,030 million (including cross-currency swaps of $1,290 million and $1,161 million), respectively. At December 31, 1995 and 1994, General Motors had entered into foreign exchange options of approximately $3,833 million and $2,637 million, respectively. Deferred hedging gains on outstanding contracts hedging firm commitments to purchase inventory or fixed assets totaled $1 million and $12 million at December 31, 1995 and 1994, respectively. Such amounts are deferred and will be included in the cost of such assets when purchased, to be recognized in operations as part of the basis of these assets. All other foreign exchange-forward contracts and options are marked to market, and recognized with other gains or losses on foreign exchange transactions in the Consolidated Statement of Income. General Motors' firm commitments typically extend for periods of up to three years. INTEREST RATE FORWARD CONTRACTS AND OPTIONS General Motors' financing and cash management activities subject it to market risk from exposure to changes in interest rates. To manage these exposures, General Motors has entered into various financial instrument transactions. General Motors' objective of entering into these transactions is to maintain the desired level of exposure to the risk of interest rate fluctuations and minimize interest expense. To achieve this objective, General Motors will at times use written options. In a limited number of cases, GMAC swaps, matched to specific portfolios of wholesale assets or debt, are executed on a portfolio basis to achieve specific interest rate management objectives. The differential paid or received on such swaps is recorded as an adjustment to interest expense or income over the term of the underlying debt agreement or matched portfolio. Interest rate forward contracts are contractual agreements between General Motors and another party to exchange fixed and floating interest rate payments periodically over the life of the agreements without the exchange of underlying principal amounts. Interest rate options, including swaptions, and interest rate caps and floors may result in the future exchange of interest payments if market interest rates reach certain levels. At December 31, 1995 and 1994, the total notional amount of such agreements with off-balance-sheet risk was approximately $15,942 million and $14,080 million, respectively. II-21 35 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Interest rate forward contracts used to hedge an underlying debt obligation are not marked to market, but are used to adjust interest expense recognized over the life of the underlying debt agreement. Gains and losses on terminated interest rate forward contracts are deferred and recognized as a yield adjustment on the underlying debt. Unamortized net losses on interest rate forward contracts totaled approximately $36 million and $24 million at December 31, 1995 and 1994, respectively. Written options, including those embedded in interest rate forward agreements, written interest rate caps, written swaptions, and interest rate forward contracts that do not meet settlement accounting criteria are marked to market with related gains and losses recognized in income on a current basis. MORTGAGE CONTRACTS GMAC has also entered into contracts to purchase and sell mortgages at specific future dates and has entered into certain exchange traded futures and option contracts to reduce exposure to interest rate risk. At December 31, 1995 and 1994, commitments to sell mortgage loans totaled $2,154 million and $694 million, respectively, and commitments to purchase or originate mortgage loans totaled $2,896 million and $690 million, respectively. GMAC's exchange traded futures and option contracts, which are used to hedge mortgage loans held for sale, have notional values of $100 million and $4,954 million at December 31, 1995 and 1994, respectively. Gains and losses on derivatives, including exchange traded futures and option contracts, used to hedge interest rate risk associated with rate locked funding commitments and mortgage loans held for sale are deferred, and considered in the reporting of the underlying mortgages on a lower of cost or market basis. The notional values of derivatives used to hedge price and interest rate risk associated with mortgage related securities totaled $66 million and $667 million at December 31, 1995 and 1994, respectively. Gains and losses associated with these instruments are recognized in the current period on a mark to market basis. Derivatives used to hedge purchased mortgage servicing rights have notional values of $5,022 million and $482 million at December 31, 1995 and 1994, respectively; gains and losses on such contracts are recorded as an adjustment to amortization expense. GMAC has also entered into interest rate swap contracts in an effort to stabilize short-term borrowing costs and to maintain a minimum return on certain mortgage loans held for investment. Amounts received or paid under such interest rate swap contracts are recorded as an adjustment to interest expense. At December 31, 1995 and 1994, the notional values of such instruments totaled $133 million and $461 million, respectively. CREDIT RISK The forward contracts, options, and lines of credit previously discussed contain an element of risk that the counterparties may be unable to meet the terms of the agreements. However, General Motors minimizes such risk exposure for forward contracts and options by limiting the counterparties to major international banks and financial institutions. Management also reduces its credit risk for unused lines of credit by applying the same credit policies in making commitments as it does for extending loans. Management does not expect to record any losses as a result of counterparty default. General Motors does not require or place collateral for these financial instruments, except for the lines of credit. General Motors has business activities with customers, dealers, and associates around the world, and its receivables from and guarantees to such parties are well diversified and, in many cases, secured by collateral. Consequently, in management's opinion, no significant concentration of credit risk exists for General Motors. II-22 36 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with the requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, and SFAS No. 119, Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments, General Motors has provided the following fair value estimates and information about valuation methodologies. The estimated fair value amounts have been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. Fair value information presented herein is based on information available at December 31, 1995 and 1994. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been updated since those dates and, therefore, the current estimates of fair value at dates subsequent to December 31, 1995 and 1994 may differ significantly from these amounts. The estimated fair value of financial instruments held by General Motors, for which it is practicable to estimate that value, are set forth below:
DECEMBER 31, ---------------------------------------------------- 1995 1994 ------------------------ ------------------------ BOOK FAIR BOOK FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- (DOLLARS IN MILLIONS) Assets Cash and Marketable Securities.............. $ 16,642.9 $ 16,642.9 $ 16,075.6 $ 16,075.6 Finance Receivables -- net.................. 58,714.8 59,095.9 54,048.4 53,869.8 Accounts and Notes Receivable -- net........ 9,946.2 9,946.2 8,742.5 8,742.5 Other Assets................................ 6,349.8 6,474.2 7,591.6 7,801.4 Liabilities Accounts Payable............................ (11,898.8) (11,898.8) (11,635.0) (11,635.0) Notes and Loans Payable Payable within one year.................. (46,305.1) (46,381.6) (36,108.5) (36,097.4) Payable beyond one year.................. (37,018.4) (41,016.0) (37,621.7) (38,138.9) Other Liabilities........................... (623.0) (639.5) (632.9) (622.8) Stocks Subject to Repurchase.................. -- -- (450.0) (445.4)
II-23 37 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The prior table excludes the book value and fair value of financial instrument derivatives which are as follows:
FAIR VALUE OF OPEN CONTRACTS(1) AT: DECEMBER 31, ----------------------------------------------- 1995 1994 --------------------- --------------------- ASSET LIABILITY ASSET LIABILITY POSITION POSITION POSITION POSITION -------- -------- -------- -------- (DOLLARS IN MILLIONS) Foreign Exchange-Forward Contracts(2)................... $290 $ (174) $241 $ (63) Foreign Exchange Options................................ 28 (29) 2 (1) Interest Rate Forward Contracts......................... 181 (133) 48 (296) Interest Rate Options................................... -- (42) -- (126) Mortgage Contracts...................................... 46 (43) 9 (7)
- ------------------------- (1) The related asset (liability) recorded on the balance sheet for foreign exchange-forward contracts, foreign exchange options, interest rate forward contracts, and interest rate options totaled $64 million, ($1) million, ($21) million, and ($46) million, respectively, at December 31, 1995, and $42 million, $1 million, ($78) million, and ($137) million, respectively, at December 31, 1994. The related asset recorded on the balance sheet for mortgage contracts was $5 million and $1 million at December 31, 1995 and 1994, respectively. (2) Foreign exchange contracts include certain derivatives with both foreign exchange and interest rate exposures which had a fair value of $75 million at December 31, 1995 and $77 million at December 31, 1994. The following methods and assumptions were used to estimate the fair value of each class of financial instrument: CASH AND MARKETABLE SECURITIES The fair value of cash equivalents and marketable securities is determined principally based on quoted market prices. FINANCE RECEIVABLES The fair value is estimated by discounting the future cash flows using applicable spreads to approximate current rates applicable to each category of finance receivables. The carrying value of wholesale receivables and other receivables whose interest rates adjust on a short-term basis with applicable market indices (generally the prime rate) are assumed to approximate fair value either due to their short maturities or due to the interest rate adjustment feature. ACCOUNTS AND NOTES RECEIVABLE AND ACCOUNTS PAYABLE For receivables and payables with short maturities, the book values approximate market value. OTHER ASSETS AND OTHER LIABILITIES Other assets reported at December 31, 1995 and 1994 include various financial instruments (e.g., long-term receivables and certain investments) having a fair value based on discounted cash flows, market quotations, and other appropriate valuation techniques. The fair values of retained subordinated interests in trusts and excess servicing assets (net of deferred costs) are derived by discounting expected cash flows using II-24 38 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED current market rates. Estimated values of Industrial Development Bonds, included in other liabilities and deferred credits, are based on quoted market prices for the same or similar issues. NOTES AND LOANS PAYABLE The fair value of the debt payable within one year is determined by using quoted market prices, if available, or calculating the estimated value of each bank loan, note, or debenture in the portfolio at the applicable rate in effect. Commercial paper, master notes, and demand notes have an original term of less than 90 days and, therefore, the carrying amount of these liabilities is considered fair value. Debt payable beyond one year has an estimated fair value based on quoted market prices for the same or similar issues or based on the current rates offered to General Motors for debt of similar remaining maturities. STOCKS SUBJECT TO REPURCHASE At December 31, 1994, the fair value of the Corporation's repurchase obligation was based on discounted cash flows assuming redemption by the Howard Hughes Medical Institute (HHMI) at the specified exercise date. At the closing Class H common stock price on December 31, 1994, the shares subject to repurchase would have been valued at $523 million. FOREIGN EXCHANGE-FORWARD CONTRACTS AND OPTIONS The fair value of foreign exchange-forward contracts is estimated by obtaining quotes for futures contracts with similar terms, adjusted where necessary for maturity differences. The fair value of foreign exchange options is estimated using active exchange quotations for most options, and pricing models for illiquid options. INTEREST RATE FORWARD CONTRACTS AND OPTIONS The fair value of interest rate forward contracts, including contracts with optionality, is estimated using pricing models based upon current market interest rates. Exchange traded futures are valued at quoted market prices. MORTGAGE CONTRACTS The fair value of such contracts is estimated based upon the amount that would be received or paid to terminate the contracts based on market prices of similar financial instruments and current rates for mortgage loans. UNUSED LINES OF CREDIT Because loans extended under these commitments are at market interest rates, there is no significant fair value position related to the outstanding commitments. NOTE 12. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS General Motors maintains hourly and salaried benefit plans that provide postretirement medical, dental, vision, and life insurance to most U.S. retirees and eligible dependents. These benefits are funded as incurred from the general assets of General Motors. SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires that the cost of such benefits be recognized in the consolidated financial statements during the period employees provide service to General Motors. The medical, dental, vision, and life insurance costs for active employees during active service are not covered by SFAS No. 106 and are charged directly to expense on a pay-as-you-go basis. Certain of the Corporation's subsidiaries outside of the U.S. have postretirement plans, although most participants are covered by government sponsored or administered programs, and the postretirement cost of such programs generally is not significant to General Motors. II-25 39 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The components of non-pension postretirement benefit cost are set forth below:
YEARS ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) Benefits earned during the year............................ $ 617.2 $ 955.4 $ 811.5 Interest accrued on benefits earned in prior years......... 3,120.0 3,114.2 3,177.5 Termination, curtailment, and settlement benefits.......... 26.4 (233.0) 174.4 Amortization of net actuarial (gains) losses............... (7.4) 407.4 -- Amortization of prior service costs due to plan changes.... (115.9) (121.7) -- -------- -------- -------- Total non-pension postretirement benefit cost............ $3,640.3 $4,122.3 $4,163.4 ======== ======== ========
The table below displays the components of General Motors' net postretirement benefit obligation, as recognized in the Consolidated Balance Sheet:
DECEMBER 31, ------------------------ 1995 1994 --------- --------- (DOLLARS IN MILLIONS) Accumulated postretirement benefit obligation (APBO) Current retirees.................................................. $23,155.1 $21,562.3 Fully eligible active plan participants........................... 5,295.6 3,984.7 Other active plan participants.................................... 12,411.1 11,196.1 --------- --------- APBO................................................................ 40,861.8 36,743.1 Unamortized prior service costs due to plan changes................. 795.4 958.3 Unamortized net amount resulting from changes in plan experience and actuarial assumptions............................................. (62.1) 2,316.8 --------- --------- Net obligation recognized in the Consolidated Balance Sheet....... $41,595.1 $40,018.2 ========= =========
The following table summarizes the principal assumptions used in determining the actuarial value of the APBO:
1995 1994 ---- ---- Weighted average discount rate.............................................. 7.5 % 8.8 % Weighted average rate of increase in future compensation levels related to pay-related life insurance................................................ 4.3 % 4.2 % Base weighted average health-care cost trend rate (a) 1995...................................................................... 8.7 % 1996...................................................................... 6.5 % Ultimate sustained weighted average health-care cost trend rate in 2002..... 5.0 %(b) 5.5 %
- ------------------------- (a) Current year trend rate assumed at beginning of year is adjusted to actual in determining year-end obligations. (b) Rate remains at 6.5% through 1999, and then decreases on a linear basis through 2002, to the ultimate weighted average trend rate of 5.0%. The following decreases would result from a one percentage point increase in the weighted average discount rates:
DECEMBER 31, --------------------- 1995 1994 ------ ------ (DOLLARS IN MILLIONS) APBO................................................................... $4,500 $3,800
II-26 40 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following increases would result from a one percentage point increase in the weighted average health-care cost trend rates:
YEARS ENDED DECEMBER 31, ------------------ 1995 1994 ------ ------ (DOLLARS IN MILLIONS) APBO..................................................................... $5,000 $3,950 Service and interest components of postretirement expense................ $ 470 $ 600
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 13. PENSIONS General Motors has a number of defined benefit pension plans covering substantially all employees. Plans covering U.S. and Canadian represented employees generally provide benefits of negotiated stated amounts for each year of service as well as significant supplemental benefits for employees who retire with 30 years of service before normal retirement age. The benefits provided by the plans covering U.S. and Canadian salaried employees, and employees in certain foreign locations, are generally based on years of service and the employee's salary history. General Motors also has certain nonqualified pension plans covering executives which are based on targeted wage replacement percentages and are unfunded. In March 1995, the Corporation contributed to the General Motors Hourly-Rate Employees Pension Plan (Hourly Plan) 173,163,187 shares of Class E common stock, having an aggregate fair market value of approximately $6.3 billion (determined by an independent valuation expert retained by the Trustee) at the time of contribution. The contribution was made under the terms of an agreement between the Corporation and the Pension Benefit Guaranty Corporation (the PBGC). Subject to the terms of the agreement, the Corporation will defer the use of the funding credits that would otherwise result from such cash and stock contributions. Consequently, the Corporation will continue to make regular cash contributions to the Hourly Plan over the next several years. The agreement with the PBGC also provides flexibility to the Corporation by granting a release of EDS from liability, if any, under Title IV of the Employee Retirement Income Security Act (ERISA) for the Corporation's U.S. pension plans, in the event EDS were to leave the Corporation's control group under certain circumstances (Note 2). In addition, in connection with the contribution of the shares of Class E common stock, the U.S. Department of Labor granted an exemption with respect to, among other things, limits otherwise applicable under ERISA on the amount of Class E common stock that could legally be held by the Hourly Plan. The measurement date used for the Corporation's principal U.S. plans was changed in 1994 from October 1 to December 31, primarily to align the measurement date with the year-end consolidated financial statement date. The measurement dates for the EDS and Hughes U.S. plans are October 1 and December 1, respectively. For non-U.S. plans, the measurement dates used are October 1 for certain foreign plans and December 1 for Canadian plans. Plan assets are primarily invested in U.S. Government obligations, equity and fixed income securities, commingled pension trust funds, insurance contracts, and the Corporation's $1 2/3 par value and Class E common stocks (valued as of the 1995 measurement date at $1,414.4 million and $7,464.5 million, respectively). General Motors' funding policy with respect to its qualified plans is to contribute annually not II-27 41 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED less than the minimum required by applicable law and regulation. General Motors made pension contributions to the U.S. plans of $10,364.6 million in 1995, $7,655.6 million in 1994, and $4,387.9 million in 1993. Total pension expense for General Motors amounted to $2,103.0 million in 1995, $3,677.4 million in 1994, and $2,684.9 million in 1993. Programs for early retirement were offered to certain employees during 1995, 1994, and 1993. The pension related cost of these programs was $67.0 million, $88.9 million, and $659.3 million, respectively, of which $67.0 million, $88.9 million, and $229.4 million was expensed during 1995, 1994, and 1993, respectively. In 1993, the remaining cost of $429.9 million was offset against certain training fund accruals, based upon an agreement with represented hourly employees. Net periodic pension cost and total pension expense of U.S. plans and plans of subsidiaries outside the United States included the following components:
NON- U.S. PLANS U.S. PLANS ---------- ---------- (DOLLARS IN MILLIONS) YEAR ENDED DECEMBER 31, 1995 Benefits earned during the year..................................... $ 989.2 $ 187.0 Interest accrued on benefits earned in prior years.................. 4,916.4 684.0 Return on assets Actual gain....................................................... (12,156.3) (675.8) Less deferred gain................................................ 6,624.7 213.4 Net amortization.................................................... 1,054.0 117.7 ---------- ---------- Net periodic pension cost........................................... 1,428.0 526.3 Termination, curtailment, and settlement benefits................... 50.5 25.1 Other-primarily minor pension plans................................. 9.3 63.8 ---------- ---------- Total pension expense........................................ $ 1,487.8 $ 615.2 ========= ======== YEAR ENDED DECEMBER 31, 1994 Benefits earned during the year..................................... $ 1,207.0 $ 223.7 Interest accrued on benefits earned in prior years.................. 4,466.6 617.7 Return on assets Actual gain....................................................... (1,161.3) (105.0) Plus deferred loss................................................ (3,312.0) (285.2) Net amortization.................................................... 1,323.5 174.0 ---------- ---------- Net periodic pension cost........................................... 2,523.8 625.2 Termination, curtailment, and settlement benefits................... 399.6 61.4 Other-primarily minor pension plans................................. 12.9 54.5 ---------- ---------- Total pension expense........................................ $ 2,936.3 $ 741.1 ========= ======== YEAR ENDED DECEMBER 31, 1993 Benefits earned during the year..................................... $ 939.9 $ 133.1 Interest accrued on benefits earned in prior years.................. 4,258.9 473.9 Return on assets Actual gain....................................................... (7,159.0) (775.6) Less deferred gain................................................ 3,329.1 453.1 Net amortization.................................................... 647.7 67.7 ---------- ---------- Net periodic pension cost........................................... 2,016.6 352.2 Termination, curtailment, and settlement benefits................... 202.8 26.6 Other-primarily minor pension plans................................. 12.1 74.6 ---------- ---------- Total pension expense........................................ $ 2,231.5 $ 453.4 ========= ========
II-28 42 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The tables below reconcile the funded status of General Motors' U.S. and non-U.S. plans for which SFAS No. 87, Employers' Accounting for Pensions, has been adopted with amounts recognized in the Consolidated Balance Sheet.
DECEMBER 31, -------------------------------------------------- 1995 1994 ----------------------- ----------------------- ASSETS ACCUM. ASSETS ACCUM. EXCEED BENEFITS EXCEED BENEFITS ACCUM. EXCEED ACCUM. EXCEED BENEFITS ASSETS BENEFITS ASSETS --------- ---------- --------- ---------- (DOLLARS IN MILLIONS) U.S. PLANS Actuarial present value of benefits based on service to date and present pay levels Vested........................................ $24,557.6 $ 34,327.4 $20,631.9 $ 28,799.4 Nonvested..................................... 1,826.1 7,600.4 1,654.7 6,488.0 --------- ---------- --------- ---------- Accumulated benefit obligation.................. 26,383.7 41,927.8 22,286.6 35,287.4 Additional amounts related to projected pay increases..................................... 2,734.3 238.3 1,985.5 192.4 --------- ---------- --------- ---------- Total projected benefit obligation (PBO) based on service to date............................ 29,118.0 42,166.1 24,272.1 35,479.8 Plan assets at fair value....................... 29,699.8 38,581.5 25,827.9 24,579.7 --------- ---------- --------- ---------- PBO (in excess of) less than plan assets........ 581.8 (3,584.6) 1,555.8 (10,900.1) Unamortized net amount resulting from changes in plan experience and actuarial assumptions..... 5,891.0 7,269.1 4,180.1 5,567.4 Unamortized prior service cost.................. 1,276.2 5,166.4 1,357.5 5,887.2 Unamortized net obligation (asset) at date of adoption...................................... (844.0) 519.6 (1,035.7) 624.3 Adjustment for unfunded pension liabilities..... -- (12,716.8) -- (11,886.5) --------- ---------- --------- ---------- Net prepaid pension cost (accrued liability) recognized in the Consolidated Balance Sheet............ $ 6,905.0 $ (3,346.3) $ 6,057.7 $(10,707.7) ========= ========== ========= ========== NON-U.S. PLANS Actuarial present value of benefits based on service to date and present pay levels Vested........................................ $ 2,278.2 $ 5,546.2 $ 1,945.8 $ 4,535.9 Nonvested..................................... 78.6 167.9 68.8 148.0 --------- ---------- --------- ---------- Accumulated benefit obligation.................. 2,356.8 5,714.1 2,014.6 4,683.9 Additional amounts related to projected pay increases..................................... 361.1 574.5 316.6 425.4 --------- ---------- --------- ---------- Total PBO based on service to date.............. 2,717.9 6,288.6 2,331.2 5,109.3 Plan assets at fair value....................... 3,023.7 2,415.3 2,673.3 1,543.1 --------- ---------- --------- ---------- PBO (in excess of) less than plan assets........ 305.8 (3,873.3) 342.1 (3,566.2) Unamortized net amount resulting from changes in plan experience and actuarial assumptions..... 550.6 786.8 455.4 394.7 Unamortized prior service cost.................. 175.8 911.4 192.1 962.1 Unamortized net obligation (asset) at date of adoption...................................... (167.1) 226.1 (218.6) 229.9 Adjustment for unfunded pension liabilities..... -- (1,411.0) -- (1,206.7) --------- ---------- --------- ---------- Net prepaid pension cost (accrued liability) recognized in the Consolidated Balance Sheet............ $ 865.1 $ (3,360.0) $ 771.0 $ (3,186.2) ========= ========== ========= ==========
II-29 43 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The assumptions for non-U.S. plans were developed on a basis consistent with that for U.S. plans, adjusted to reflect prevailing economic conditions and interest rate environments. Assumptions used to determine the pension expense and the actuarial value of the PBO were as shown below:
YEARS ENDED DECEMBER 31, ------------- 1995 1994 ---- ---- Weighted average discount rate U.S. plans.................................................................. 7.0% 8.5% Non-U.S. plans.............................................................. 8.0 9.0 Rate of increase in future compensation levels* U.S. plans.................................................................. 5.1 5.2 Non-U.S. plans.............................................................. 4.5 4.8 Expected long-term rate of return on plan assets U.S. plans.................................................................. 10.0 10.0 Non-U.S. plans.............................................................. 9.9 9.8
- ------------------------- * Benefits under the hourly plans are generally not based on wages and therefore no benefit escalation beyond existing negotiated or anticipated increases was included. NOTE 14. OTHER LIABILITIES AND DEFERRED CREDITS
DECEMBER 31, ---------------------- 1995 1994 --------- --------- (DOLLARS IN MILLIONS) Warranties, dealer and customer allowances, claims, discounts, etc. ... $10,508.8 $11,598.1 Customer deposits...................................................... 7,325.1 2,022.2 Unpaid insurance losses, loss adjustment expenses, and unearned insurance premiums................................................... 2,921.6 2,985.6 Plant closings (excludes environmental)................................ 2,612.3 3,103.6 Environmental cleanup.................................................. 691.9 693.7 Employee benefits (excludes postemployment)............................ 2,376.8 2,437.0 Postemployment benefits................................................ 2,219.4 2,193.8 Governmental and other contract related................................ 970.3 777.8 Payrolls............................................................... 2,034.7 1,844.4 Taxes, other than income taxes......................................... 1,498.1 1,569.8 Deferred credits....................................................... 1,496.2 1,666.3 Insurance.............................................................. 1,199.7 1,022.9 Interest............................................................... 2,277.3 3,023.2 Industrial Development Bonds........................................... 623.0 632.9 Other.................................................................. 8,131.4 7,296.0 --------- --------- Total............................................................. $46,886.6 $42,867.3 ========= =========
NOTE 15. SPECIAL PROVISION FOR SCHEDULED PLANT CLOSINGS General Motors previously established a plant closing reserve to provide for estimates of costs related to plant closures, including employee job security and supplemental unemployment compensation benefits. The 1993 operating results reflect a pre-tax increase of $950 million to the plant closing reserve ($589 million after taxes, or $0.83 per share of $1 2/3 par value common stock). The 1993 increase to the reserve resulted from II-30 44 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED changes in assumptions, primarily regarding the amount and duration of job security and supplemental unemployment benefits expected to be paid to employees, given the terms of the Corporation's 1993 collective bargaining agreements. Hughes maintains a restructuring reserve that was established in 1992 to provide for a reduction of Hughes' worldwide employment, a major facilities consolidation, and a reevaluation of certain non-strategic businesses. In 1994 and 1993, the Hughes restructuring reserve was increased by $35 million and $78 million, respectively, primarily due to changes in the estimated loss on disposition of two subsidiaries. During 1995, 1994, and 1993, a total of $712.6 million, $727.1 million, and $1,127.2 million, respectively, was charged against the reserves, primarily related to employee job security costs. Included in the charges to the reserves were $5.9 million, $4.5 million, and $12.6 million of environmental costs in 1995, 1994, and 1993, respectively. In 1994, the plant closing reserve was decreased to reflect a $401.9 million discount for only the postemployment benefits portion of the reserve due to the Corporation's use of discounting in its method of adoption of SFAS No. 112. In 1995, the plant closing reserve was increased by $215.4 million for the effects of accretion and a change in the interest rate used to discount the postemployment benefits. The plant closing reserve includes estimates of costs related to plant disposals and for employee job security and supplemental unemployment benefits which are subject to change in the near term (although not currently anticipated) due to changes in assumptions and the period over which such costs are expected to be incurred. NOTE 16. COMMITMENTS AND CONTINGENT LIABILITIES Minimum future commitments under operating leases having noncancellable lease terms in excess of one year, primarily for real property, aggregating $6,475.5 million, are payable $1,002.4 million in 1996, $799.1 million in 1997, $677.8 million in 1998, $638.4 million in 1999, $599.1 million in 2000, and $2,758.7 million in 2001 and thereafter. Certain of the leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases were $1,751.9 million in 1995, $1,560.9 million in 1994, and $1,472.4 million in 1993. In 1973, Hughes Aircraft Company filed a lawsuit against the U.S. Government in the U.S. Court of Claims for infringement of a patent utilized in the design of satellites ("the Williams Patent"). In late 1983, the U.S. Court of Appeals ruled that the patent was valid and that the Government had infringed the patent. In June 1994, the U.S. Court of Claims issued a decision awarding Hughes damages of $114 million. Both parties to the lawsuit have appealed the judgment, with Hughes asserting that the award did not adequately compensate it for damages suffered. In the opinion of the 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 Hughes' financial statements pending the outcome of the case, resolution could result in a gain that would be material to the earnings of General Motors attributable to Class H common stock. General Motors is subject to potential liability under government regulations and various claims and legal actions which are pending or may be asserted against them. Some of the pending actions purport to be class actions. The aggregate ultimate liability of General Motors under these government regulations, and under these claims and actions, was not determinable at December 31, 1995. 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. NOTE 17. STOCKHOLDERS' EQUITY Holders of $1 2/3 par value, Class E, and Class H common stocks are entitled to one, one-eighth, and one-half vote per share, respectively, on all matters submitted to the stockholders for a vote. The liquidation rights of common stockholders are based on per-share liquidation units of the various classes and are subject to II-31 45 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED certain adjustments if outstanding common stock is subdivided, by stock split or otherwise, or if shares of one class of common stock are issued as a dividend to holders of another class of common stock. At December 31, 1995, each share of $1 2/3 par value, Class E, and Class H common stocks was entitled to a liquidation unit of the same as the vote per share. Holders of Class E and Class H common stocks have no direct rights in the equity or assets of EDS or Hughes, but rather have rights in the equity and assets of General Motors (which includes 100% of the stock of EDS and Hughes). The Corporation's Certificate of Incorporation provides, generally, that if at any time the Corporation should sell, liquidate, or otherwise dispose of substantially all of EDS, Hughes Aircraft Company, or the other businesses of Hughes, shares of the Corporation's $1 2/3 par value common stock will automatically be exchanged for Class E or Class H common stock, respectively. After December 31, 1995, the Board may exchange $1 2/3 par value common stock for Class E or Class H common stock, respectively, if the Board has declared and paid certain minimum cash dividends during each of the last five years preceding the exchange. Based on the dividends paid on the Class E and Class H common stock in 1991 through 1995, the dividend condition described above would be satisfied in 1996. In the event any of the aforementioned exchanges were to occur, the Corporation's Certificate of Incorporation provides that the Class E or Class H common stockholders would receive $1 2/3 par value common stock having a market value at the time of the exchange equal to 120% of the market value of the Class E or Class H common stock exchanged (see Note 2). The Corporation held an option to call 15 million shares of Class H common stock subject to put options issued to the HHMI. In March 1995, the put and call rights expired unexercised. As a result, $1.5 million was reclassified to Class H common stock and $448.5 million was reclassified to capital surplus. Holders of Series C Depositary Shares are entitled to receive cumulative preferential dividends from the date of issue at the quarterly rate of $0.8125 per share. The Series C Depositary Shares are convertible at any time at the option of the holder into shares of Class E common stock. On February 5, 1996, the Corporation announced that the Board had authorized the redemption on February 22, 1996 of all of the Corporation's outstanding Series C Preference Shares, which are represented by Series C Depositary Shares. The redemption price will be $51.95 per Series C Depositary Share, plus accrued and unpaid dividends of $0.47, for a total redemption price of $52.42 per Series C Depositary Share. In May 1995, the Corporation concluded a tender offer, which began in April 1995, under which it purchased for $1.3 billion of cash (i) 24.3 million depositary shares, each representing one-fourth of a share of its Series B 9 1/8% Preference Stock, at a purchase price of $27.50 per depositary share, (ii) 9.6 million depositary shares, each representing one-fourth of a share of its Series D 7.92% Preference Stock, at a purchase price of $26.375 per depositary share, and (iii) 12.9 million depositary shares, each representing one-fourth of a share of its Series G 9.12% Preference Stock, at a purchase price of $28.25 per depositary share. The repurchase had an unfavorable impact of $0.22 per share of $1 2/3 par value common stock. This was comprised of 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. In June 1994, the Corporation converted all 17,825,000 outstanding shares of its Series A Conversion Preference Stock (Preference Equity Redemption Cumulative Stock or PERCS) into shares of $1 2/3 par value common stock. The Corporation originally issued this stock in June 1991 at a price of $41.375 per share. Holders of the Preference Stock received 0.992435 shares of $1 2/3 par value common stock for each share of Preference Stock called for conversion, plus $0.1655 in cash as consideration for the accrued and unpaid II-32 46 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED dividend. Fractional shares of $1 2/3 par value common stock were paid in cash. A total of 17.7 million shares of $1 2/3 par value common stock were issued in this conversion.
YEARS ENDED DECEMBER 31, ----------------------------------- 1995 1994 1993 --------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Capital Stock Preferred Stock, without par value, cumulative dividends (authorized, 6,000,000 shares) $5.00 series, stated value $100 per share, redeemable at Corporation option at $120 per share Outstanding at beginning of the year............................ $ -- $ -- $ 153.0 Redeemed by the Corporation during the year..................... -- -- (153.0) --------- --------- --------- Outstanding at end of the year.................................. -- -- -- --------- --------- --------- $3.75 series, stated value $100 per share, redeemable at Corporation option at $100 per share Outstanding at beginning of the year............................ -- -- 81.4 Redeemed by the Corporation during the year..................... -- -- (81.4) --------- --------- --------- Outstanding at end of the year.................................. -- -- -- --------- --------- --------- Preference Stock, $0.10 par value (authorized, 100,000,000 shares) E series, convertible one-for-four at fixed dates into Class E common stock Issued at beginning of the year................................. -- -- 0.3 Converted into shares of Class E common stock................... -- -- (0.3) --------- --------- --------- Issued at end of the year....................................... -- -- -- --------- --------- --------- Series A Conversion, mandatorily convertible one-for-one on July 1, 1994 into $1 2/3 par value common stock Issued at beginning of the year (17,825,000 shares)............. -- 1.8 1.8 Converted into shares of $1 2/3 par value common stock (17,825,000 shares).......................................... -- (1.8) -- --------- --------- --------- Issued at end of the year (17,825,000 shares in 1993)........... -- -- 1.8 --------- --------- --------- Series B 9 1/8% Depositary Shares, stated value $25 per share, redeemable at Corporation option on or after January 1, 1999 Issued at beginning of the year (44,300,000 shares)............. 1.1 1.1 1.1 Reacquired under tender offer (24,279,414 shares)............... (0.6) -- -- --------- --------- --------- Issued at end of the year (20,020,586 shares, equivalent to 5,005,147 shares of nonconvertible Series B 9 1/8% Preference Stock, stated value $100 per share).......................... 0.5 1.1 1.1 --------- --------- --------- Series C Depositary Shares, liquidation preference $50 per share, convertible one for 1.4078 into Class E common stock, callable at Corporation option on or after February 19, 1996 Issued at beginning of the year (31,880,600 shares)............. 0.3 0.3 0.3 Converted into shares of Class E common stock (91,497 shares)... -- -- -- --------- --------- --------- Issued at end of the year (31,789,103 shares, equivalent to 3,178,910 shares of Series C Convertible Preference Stock)... 0.3 0.3 0.3 --------- --------- --------- Series D 7.92% Depositary Shares, stated value $25 per share, redeemable at Corporation option on or after August 1, 1999 Issued at beginning of the year (15,700,000 shares)............. 0.4 0.4 0.4 Reacquired under tender offer (9,630,091 shares)................ (0.3) -- -- --------- --------- --------- Issued at end of the year (6,069,909 shares, equivalent to 1,517,477 shares of Series D 7.92% Preference Stock)......... 0.1 0.4 0.4 --------- --------- --------- Series G 9.12% Depositary Shares, stated value $25 per share, redeemable at Corporation option on or after January 1, 2001 Issued at beginning of the year (23,000,000 shares)............. 0.6 0.6 0.6 Reacquired under tender offer (12,920,101 shares)............... (0.3) -- -- --------- --------- --------- Issued at end of the year (10,079,899 shares, equivalent to 2,519,975 shares of Series G 9.12% Preference Stock)......... 0.3 0.6 0.6 --------- --------- --------- Total Preference Stocks.................................... $ 1.2 $ 2.4 $ 4.2 --------- --------- ---------
II-33 47 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED DECEMBER 31, ----------------------------------- 1995 1994 1993 --------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Common Stock, $1 2/3 par value (authorized, 2,000,000,000 shares) Issued at beginning of the year (754,345,782 shares in 1995)...... $ 1,257.2 $ 1,200.2 $ 1,178.1 Reacquired on the open market (9,510,687 shares in 1995).......... (15.8) -- -- Issued during the year (8,163,237 shares in 1995)................. 13.6 27.6 22.1 Series A conversion (9,941 shares in 1995)........................ -- 29.4 -- --------- --------- --------- Issued at end of the year (753,008,273 shares in 1995, 754,345,782 in 1994, and 720,105,471 in 1993)............................... 1,255.0 1,257.2 1,200.2 --------- --------- --------- Class E Common Stock, $0.10 par value (authorized, 1,000,000,000 shares) Issued at beginning of the year (268,125,255 shares in 1995)...... 26.8 26.3 24.2 Reacquired on the open market (25,950 shares in 1995)............. -- -- -- Issued during the year (1,420,872 shares in 1995)................. 0.2 0.5 2.1 Issued in conjunction with U.S. Hourly-Rate Employees Pension Plan contribution (173,163,187 shares in 1995)....................... 17.3 -- -- Series C conversion (128,802 shares in 1995)...................... -- -- -- --------- --------- --------- Issued at end of the year (442,812,166 shares in 1995, 268,125,255 in 1994, and 263,089,320 in 1993)............................... 44.3 26.8 26.3 --------- --------- --------- Class H Common Stock, $0.10 par value (authorized, 600,000,000 shares) Issued at beginning of the year (78,720,022 shares in 1995)....... 7.9 7.6 7.0 Issued during the year (3,431,992 shares in 1995)................. 0.3 0.3 0.6 Reclassification of shares formerly subject to repurchase from HHMI (15,000,000 shares in 1995)................................ 1.5 -- -- --------- --------- --------- Issued at end of the year (97,152,014 shares in 1995, 78,720,022 in 1994, and 75,705,433 in 1993)................................ 9.7 7.9 7.6 --------- --------- --------- Total capital stock at end of the year..................... $ 1,310.2 $ 1,294.3 $ 1,238.3 ========= ========= ========= Capital Surplus (principally additional paid-in capital) Balance at beginning of the year.................................. $13,149.4 $12,003.4 $10,971.2 Preference stock Amounts in excess of par value of Depositary shares reacquired under tender offer.............. (1,132.2) -- -- Series E shares converted.................................... -- -- (171.2) Series A shares converted.................................... -- (720.5) -- Series C shares converted.................................... (4.5) -- -- $1 2/3 par value common stock Amounts in excess of par value of Shares issued................................................ 342.9 870.2 612.6 Shares reacquired on the open market......................... (378.1) -- -- Series A shares converted.................................... -- 692.8 -- Class E common stock Amounts in excess of par value of Series C shares converted.................................... 4.5 -- -- Series E shares converted.................................... -- -- 170.2 Shares issued during the year................................ 85.1 188.7 257.2 Shares reacquired on the open market......................... (1.3) -- -- Shares contributed to the U.S. Hourly-Rate Employees Pension Plan....................................................... 6,241.5 -- -- Class H common stock Amounts in excess of par value of Shares issued................................................ 115.1 114.8 164.0 Reclassification of shares formerly subject to repurchase from HHMI.................................................. 448.5 -- -- Shares reacquired on the open market......................... -- -- (0.6) --------- --------- --------- Balance at end of the year................................... $18,870.9 $13,149.4 $12,003.4 ========= ========= =========
II-34 48 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED DECEMBER 31, ----------------------------------- 1995 1994 1993 --------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net Income Retained for Use in the Business (Accumulated Deficit) Balance at beginning of the year.................................... $ 1,785.8 $(2,002.9) $(3,354.2) --------- --------- --------- Income before cumulative effect of accounting changes............... 6,932.5 5,658.7 2,465.8 Cumulative effect of accounting changes............................. (51.8) (758.1) -- --------- --------- --------- Net income.......................................................... 6,880.7 4,900.6 2,465.8 --------- --------- --------- Total........................................................ 8,666.5 2,897.7 (888.4) --------- --------- --------- Cash dividends Preferred stock, $5.00 series, $1.68 per share in 1993............ -- -- 2.6 Preferred stock, $3.75 series, $1.26 per share in 1993............ -- -- 1.0 Preference stock, E-I series, $1.42 per share in 1993............. -- -- 4.6 Preference stock, Series A Conversion, $1.66 per share in 1994 and $3.31 in 1993................................................... -- 32.5 59.0 Depositary Shares, Series B, $2.28 per share in 1995, 1994, and 1993............................................................ 59.5 101.1 101.1 Depositary Shares, Series C, $3.25 per share in 1995, 1994, and 1993............................................................ 103.5 103.6 103.6 Depositary Shares, Series D, $1.98 per share in 1995, 1994, and 1993............................................................ 16.8 31.1 31.1 Depositary Shares, Series G, $2.28 per share in 1995 and 1994 and $2.34 in 1993................................................... 30.4 52.4 53.8 $1 2/3 par value common stock, $1.10 per share in 1995 and $0.80 in 1994 and 1993................................................ 824.2 592.6 565.8 Class E common stock, $0.52 per share in 1995, $0.48 in 1994, and $0.40 in 1993................................................... 205.4 124.8 97.2 Class H common stock, $0.92 per share in 1995, $0.80 in 1994, and $0.72 in 1993................................................... 87.9 73.8 64.1 --------- --------- --------- Total cash dividends......................................... 1,327.7 1,111.9 1,083.9 --------- --------- --------- Less redemption price of preference and preferred stock in excess of stated value...................................................... 153.4 -- 30.6 --------- --------- --------- Balance at end of the year................................. 7,185.4 1,785.8 (2,002.9) ========= ========= ========= Minimum Pension Liability Adjustment (Note 13) Balance at beginning of the year.................................... (3,548.4) (5,311.2) (2,925.3) Change during the year.............................................. (1,187.9) 1,762.8 (2,385.9) --------- --------- --------- Balance at end of the year................................. (4,736.3) (3,548.4) (5,311.2) ========= ========= ========= Accumulated Foreign Currency Translation Adjustments Balance at beginning of the year.................................... (100.4) (494.4) (155.9) Changes during the year -- net of tax (benefit) of $215.9, $263.8, and $(210.0), respectively........................................ 322.9 394.0 (338.5) --------- --------- --------- Balance at end of the year................................. 222.5 (100.4) (494.4) ========= ========= ========= Net Unrealized Gains (Losses) on Investments in Certain Debt and Equity Securities Balance at beginning of the year.................................... 243.1 164.3 241.6 Cumulative effect of adopting SFAS No. 115.......................... -- 241.0 -- Changes during the year............................................. 249.7 (162.2) (77.3) --------- --------- --------- Balance at end of the year................................. 492.8 243.1 164.3 ========= ========= ========= Total Stockholders' Equity............................................ $23,345.5 $12,823.8 $ 5,597.5 ========= ========= ========= Memo: Retained earnings (accumulated deficit) attributable to: $1 2/3 par value common stock..................................... $ 3,854.0 $ (778.8) $(4,080.1) Class E common stock.............................................. 2,254.1 1,663.9 1,344.3 Class H common stock.............................................. 1,077.3 900.7 732.9 --------- --------- --------- Total........................................................ $ 7,185.4 $ 1,785.8 $(2,002.9) ========= ========= =========
II-35 49 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 18. EARNINGS PER SHARE ATTRIBUTABLE TO AND DIVIDENDS ON COMMON STOCKS Earnings per share attributable to common stocks have been determined based on the relative amounts available for the payment of dividends to holders of $1 2/3 par value, Class E, and Class H common stocks. The allocation of earnings attributable to such common stocks and the calculation of the related amounts per share are computed by considering the weighted average number of common shares outstanding and common stock equivalents, to the extent the effect of such equivalents is not antidilutive. Operations of the incentive plans and the assumed exercise of stock options do not have a material dilutive effect on earnings per share at this time. Dividends on the $1 2/3 par value common stock are declared out of the earnings of General Motors, excluding the Available Separate Consolidated Net Income of EDS and Hughes. Dividends on the Class E and Class H common stocks are declared out of the Available Separate Consolidated Net Income of EDS and Hughes, respectively, earned since the acquisition by the Corporation. The Available Separate Consolidated Net Income of EDS and Hughes is determined quarterly and is equal to the separate consolidated net income of EDS and Hughes, respectively, excluding the effects of purchase accounting adjustments arising at the time of the respective acquisition, multiplied by a fraction, the numerator of which is a number equal to the weighted average number of shares of Class E (438.9 million during the fourth quarter of 1995) or Class H (96.5 million during the fourth quarter of 1995) common stock outstanding during the period and the denominator of which is 483.7 million for Class E stock and 399.9 million for Class H stock during the fourth quarter of 1995. Comparable numerators for the fourth quarters of 1994 and 1993 were 261.9 million and 253.5 million for Class E stock and 93.3 million and 88.7 million for Class H stock. Comparable denominators for the fourth quarters of 1994 and 1993 were 481.7 million and 480.6 million, respectively, for Class E stock and 399.9 million for Class H stock in the fourth quarters of both years. The denominators used in determining the Available Separate Consolidated Net Income of EDS and Hughes are adjusted as deemed appropriate by the Board to reflect subdivisions or combinations of the Class E and Class H common stocks and to reflect certain transfers of capital to or from EDS and Hughes. The Board's discretion to make such adjustments is limited by criteria set forth in the Corporation's Certificate of Incorporation. In this regard, the Board has generally caused the denominators to decrease as shares are purchased by EDS or Hughes, and to increase as such shares are used, at EDS or Hughes expense, for EDS or Hughes employee benefit plans or acquisitions. Dividends may be paid on common stocks only when, as, and if declared by the Board 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 E and Class H common stocks is to pay cash dividends approximately equal to 30% and 35% of the Available Separate Consolidated Net Income of EDS and Hughes, respectively, for the prior year. Notwithstanding the current dividend policy, the Board declared a dividend on the Class H common stock for each of the quarters of 1995, 1994, and 1993, which was based on an annual rate higher than 35% of the Available Separate Consolidated Net Income of Hughes for the preceding year. NOTE 19. PROFIT SHARING PLANS The profit sharing formula for most U.S. employees provides a range of percentage payouts when the Corporation's manufacturing, wholesale marketing, defense, electronics, and computer service operations U.S. income before income taxes with the financing and insurance operations reflected on an equity basis exceeds various minimum annual returns on U.S. sales and revenues. Both the percentage payout and the minimum returns are as agreed to by General Motors and eligible U.S. employees. General Motors' pre-tax income from U.S. operations in 1995 and 1994 resulted in a profit sharing payout of approximately $250 million and $185 II-36 50 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED million, respectively. General Motors' pre-tax loss from U.S. operations in 1993 precluded a payment under the profit sharing formula. NOTE 20. STOCK INCENTIVE PLANS General Motors' stock incentive plans consist of the General Motors Amended 1987 Stock Incentive Plan (the "GMSIP"), the 1984 Electronic Data Systems Corporation Stock Incentive Plan (the "EDS Plan"), and the Hughes Electronics Corporation Incentive Plan (the "Hughes Plan"). The GMSIP is administered by the Executive Compensation Committee of the Board. Under the GMSIP, 39.8 million shares of $1 2/3 par value, 12.2 million shares of Class E, and 5.9 million shares of Class H common stock may be granted from June 1, 1992 through May 31, 1997, of which 17.0 million, 10.7 million, and 3.6 million shares, respectively, were available for grants at December 31, 1995. Option prices are 100% of fair market value on the dates of grant, and the options generally expire 10 years from the dates of grant, subject to earlier termination under certain conditions. Under the EDS Plan, EDS may grant shares and rights or options to acquire up to 160 million shares of Class E common stock through October 17, 2004, of which 93.3 million shares were available for grants at December 31, 1995. No options were outstanding as of December 31, 1995, 1994, or 1993. Under the EDS Plan, approximately 55.3 million shares of Class E common stock have also been granted to key employees at stock prices up to $0.025 per share. Such shares generally vest over a 10-year period from the date of grant. Approximately 19.8 million shares were not yet vested at December 31, 1995. Under the Hughes Plan, Hughes may grant shares, rights, or options to acquire up to 20 million shares of Class H common stock through May 31, 1997, of which 3.9 million shares were available for grant at December 31, 1995. Option prices are 100% of fair market value on the dates of grant, and the options generally expire 10 years from the dates of grant, subject to earlier termination under certain conditions. Changes in the status of outstanding options under the GMSIP and the Hughes Plan were as follows:
GMSIP OPTION SHARES UNDER $1 2/3 PAR VALUE COMMON PRICES OPTION - ------------------------------------------------------------------ ------------- ------------ Outstanding at January 1, 1993.................................... $33.97-$48.07 22,068,746 Granted........................................................... 33.88- 44.00 5,526,855 Exercised......................................................... 33.97- 48.07 (4,303,326) Terminated........................................................ 33.88- 48.07 (531,218) ---------- Outstanding at December 31, 1993................................ 33.88- 48.07 22,761,057 Granted........................................................... 37.32- 59.07 6,159,395 Exercised......................................................... 33.88- 48.07 (3,305,513) Terminated........................................................ 33.88- 59.07 (340,161) ---------- Outstanding at December 31, 1994................................ 33.88- 59.07 25,274,778 Granted........................................................... 39.25- 47.50 6,600,115 Exercised......................................................... 33.88- 48.07 (2,248,627) Terminated........................................................ 33.88- 59.07 (346,140) ---------- Outstanding at December 31, 1995................................ $33.88-$59.07 29,280,126 ========== Memo: Options exercisable at December 31, 1995.......................... 19,963,479 ==========
II-37 51 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
HUGHES PLAN OPTION SHARES UNDER CLASS H COMMON PRICES OPTION - ------------------------------------------------------------------ ------------- ------------ Outstanding at January 1, 1993.................................... $17.07-$30.25 6,516,755 Granted........................................................... 28.00- 28.56 2,027,260 Exercised......................................................... 17.07- 30.25 (1,960,162) Terminated........................................................ 17.07- 30.25 (217,845) ------------ Outstanding at December 31, 1993................................ 17.07- 30.25 6,366,008 Granted........................................................... 36.75 1,612,640 Exercised......................................................... 17.07- 30.25 (712,107) Terminated........................................................ 17.07- 36.75 (202,220) ------------ Outstanding at December 31, 1994................................ 17.07- 36.75 7,064,321 Granted........................................................... 39.94 1,537,350 Exercised......................................................... 17.07- 36.75 (1,929,393) Terminated........................................................ 28.00- 36.75 (14,425) ------------ Outstanding at December 31, 1995................................ $17.07-$39.94 6,657,853 ========== Memo: Options exercisable at December 31, 1995.......................... 4,422,618 ==========
NOTE 21. SEGMENT REPORTING INDUSTRY SEGMENTS While the major portion of General Motors' operations is derived from the automotive products industry segment, General Motors also has financing and insurance and information technology industry segments, and produces products and provides services in other industry segments. The automotive products segment consists of the design, manufacture, assembly, and sale of automobiles, trucks, and related parts and accessories. The financing and insurance operations assist in the merchandising of General Motors' products as well as other products. GMAC offers financial services and certain types of insurance to dealers and customers. In addition, GMAC is engaged in mortgage banking and investment services. The information technology operations relate to the design, installation, and operation of business information systems. The other products segment consists of military vehicles, radar and weapon control systems, guided missile systems, and defense and commercial satellites; the design, installation, and operation of telecommunication systems; as well as the design, development, and manufacture of locomotives. Because of the high degree of integration, substantial interdivisional and intersegment transfers of materials and services are made. Intersegment sales and revenues are made at negotiated selling prices. Substantially all of the products in the automotive segment are marketed through retail dealers and through distributors and jobbers in the United States, Canada, and Mexico, and through distributors and dealers overseas. II-38 52 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Information concerning operations by industry segment as of and for each of the three years ended December 31, follows:
FINANCING & AUTOMOTIVE INSURANCE INFORMATION OTHER PRODUCTS OPERATIONS TECHNOLOGY PRODUCTS TOTAL ---------- ----------- ---------- --------- ---------- (DOLLARS IN MILLIONS) 1995 Net Sales and Revenues Outside........................... $132,159.0 $11,664.0 $ 8,531.0 $11,507.1 $163,861.1 Intersegment...................... 102.8 -- 3,891.1 -- -- ---------- --------- --------- --------- ---------- Total(1)....................... $132,261.8 $11,664.0 $ 12,422.1 $11,507.1 $163,861.1 Operating Profit.................... $ 6,101.4 N/A(2) $ 1,529.0 $ 538.0 $ 8,168.4 ---------- --------- --------- --------- ---------- Identifiable Assets at Year-End..... $ 91,162.0 $94,469.4 $ 10,908.9 $17,371.8 $213,912.1 ---------- --------- --------- --------- ---------- Depreciation and Amortization....... $ 5,990.0 $ 4,426.9 $ 1,107.8 $ 497.0 $ 12,021.7 ---------- --------- --------- --------- ---------- Capital Expenditures................ $ 8,215.8 $ 133.0 $ 1,261.5 $ 467.0 $ 10,077.3 ========== ========= ========= ========= ========== 1994 Net Sales and Revenues Outside........................... $123,253.4 $ 9,418.8 $ 6,412.9 $11,506.4 $150,591.5 Intersegment...................... 416.9 -- 3,547.2 -- -- ---------- --------- --------- --------- ---------- Total(1)....................... $123,670.3 $ 9,418.8 $ 9,960.1 $11,506.4 $150,591.5 ---------- --------- --------- --------- ---------- Operating Profit.................... $ 6,116.0 N/A(2) $ 1,214.5 $ 890.8 $ 8,221.3 ---------- --------- --------- --------- ---------- Identifiable Assets at Year-End..... $ 88,064.5 $84,554.6 $ 8,901.7 $13,879.1 $195,399.9 ---------- --------- --------- --------- ---------- Depreciation and Amortization....... $ 5,655.2 $ 3,301.5 $ 800.2 $ 494.4 $ 10,251.3 ---------- --------- --------- --------- ---------- Capital Expenditures................ $ 5,545.4 $ 132.8 $ 1,186.0 $ 360.9 $ 7,225.1 ========== ========= ========= ========= ========== 1993 Net Sales and Revenues Outside........................... $107,908.5 $ 8,752.0 $ 5,183.6 $11,777.8 $133,621.9 Intersegment...................... 118.7 -- 3,323.7 0.2 -- ---------- --------- --------- --------- ---------- Total(1)....................... $108,027.2 $ 8,752.0 $ 8,507.3 $11,778.0 $133,621.9 ---------- --------- --------- --------- ---------- Operating Profit.................... $ 1,625.7 N/A(2) $ 1,076.4 $ (171.7) $ 2,530.4 ---------- --------- --------- --------- ---------- Identifiable Assets at Year-End..... $ 81,009.0 $79,352.3 $ 7,086.4 $16,454.7 $183,902.4 ---------- --------- --------- --------- ---------- Depreciation and Amortization....... $ 5,281.9 $ 2,892.6 $ 661.7 $ 605.8 $ 9,442.0 ---------- --------- --------- --------- ---------- Capital Expenditures................ $ 5,164.8 $ 118.5 $ 816.4 $ 371.0 $ 6,470.7 ========== ========= ========= ========= ==========
- ------------------------- (1) After elimination of intersegment transactions. (2) Financing and Insurance Operations do not report Operating Profit. II-39 53 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED A reconciliation of Outside Net Sales and Revenues to Total Net Sales and Revenues, and of Operating Profit to Income before Income Taxes detailed in the Consolidated Statement of Income and a reconciliation of Identifiable Assets to Total Assets displayed in the Consolidated Balance Sheet follow:
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 1995 1994 1993 ---------- ---------- ---------- (DOLLARS IN MILLIONS) Outside Net Sales and Revenues reported on the previous page...................................... $163,861.1 $150,591.5 $133,621.9 Other Income......................................... 4,967.5 4,359.7 4,597.6 ---------- ---------- ---------- Total Net Sales and Revenues.................... $168,828.6 $154,951.2 $138,219.5 ========== ========== ========== Total Operating Profit reported on the previous page............................................... $ 8,168.4 $ 8,221.3 $ 2,530.4 Financing and Insurance Operations................... 1,783.2 1,439.8 1,572.8 Other Corporate Income and Expenses Less Intersegment Transactions....................................... (175.3) (1,307.8) (1,527.9) ---------- ---------- ---------- Income before Income Taxes...................... $ 9,776.3 $ 8,353.3 $ 2,575.3 ========== ========== ========== Identifiable Assets reported on the previous page.... $213,912.1 $195,399.9 $183,902.4 Corporate Assets..................................... 5,687.9 5,648.2 7,207.9 Eliminations......................................... (2,476.6) (2,449.4) (2,909.4) ---------- ---------- ---------- Total Assets.................................... $217,123.4 $198,598.7 $188,200.9 ========== ========== ==========
GEOGRAPHIC SEGMENTS Net sales and revenues, income before cumulative effect of accounting change, net income, total and net assets, and average number of employees in the U.S., Other North America (Canada and Mexico), and in locations outside North America are summarized below and on the next page. Income before cumulative effect of accounting change and net income are after provisions for deferred income taxes applicable to that portion of the undistributed earnings deemed to be not permanently invested, less available tax credits and deductions, and appropriate consolidating adjustments. Interarea sales and revenues are made at negotiated selling prices. Average number of employees for 1995 includes NCRS employees through May.
AS OF AND FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- OTHER UNITED NORTH LATIN ALL STATES AMERICA EUROPE AMERICA OTHER TOTAL* ---------- --------- --------- -------- -------- ---------- (DOLLARS IN MILLIONS) 1995 Net Sales and Revenues Outside (excluding GMAC)....... $107,999.8 $ 7,214.6 $29,205.9 $6,014.6 $1,762.2 $152,197.1 GMAC and related operations.... 8,124.8 985.8 2,191.5 118.9 243.0 11,664.0 Other income................... 3,688.8 120.5 638.8 330.6 188.8 4,967.5 ---------- --------- --------- -------- -------- ---------- Subtotal outside............ 119,813.4 8,320.9 32,036.2 6,464.1 2,194.0 168,828.6 Interarea...................... 12,781.0 17,997.6 1,054.7 621.2 59.0 -- ---------- --------- --------- -------- -------- ---------- Total....................... $132,594.4 $26,318.5 $33,090.9 $7,085.3 $2,253.0 $168,828.6 ========== ========= ========= ======== ======== ==========
- ------------------------- * After elimination of interarea transactions. II-40 54 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
AS OF AND FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- OTHER UNITED NORTH LATIN ALL STATES AMERICA EUROPE AMERICA OTHER TOTAL* ---------- --------- --------- -------- -------- ---------- (DOLLARS IN MILLIONS) 1995 (CONCLUDED) Income Before Cumulative Effect of Accounting Change........... $ 3,134.7 $ 1,148.2 $ 1,579.0 $ 713.5 $ 297.5 $ 6,932.5 ---------- --------- --------- -------- -------- ---------- Net Income....................... $ 3,082.9 $ 1,148.2 $ 1,579.0 $ 713.5 $ 297.5 $ 6,880.7 ---------- --------- --------- -------- -------- ---------- Total Assets..................... $163,065.0 $14,151.9 $34,792.1 $4,883.2 $4,479.9 $217,123.4 ---------- --------- --------- -------- -------- ---------- Net Assets....................... $ 6,450.1 $ 4,638.4 $ 8,540.1 $3,028.5 $1,550.1 $ 23,345.5 ---------- --------- --------- -------- -------- ---------- Average Number of Employees (in thousands)..................... 437 108 129 29 6 709 ========== ========= ========= ======== ======== ========== 1994 Net Sales and Revenues Outside (excluding GMAC)....... $101,185.6 $ 8,376.7 $24,849.5 $5,304.6 $1,456.4 $141,172.8 GMAC and related operations.... 6,531.2 781.0 1,894.2 57.2 155.2 9,418.8 Other income................... 3,193.5 177.7 483.5 354.8 150.1 4,359.6 ---------- --------- --------- -------- -------- ---------- Subtotal outside............ 110,910.3 9,335.4 27,227.2 5,716.6 1,761.7 154,951.2 Interarea...................... 11,476.9 13,607.4 753.7 90.2 59.2 -- ---------- --------- --------- -------- -------- ---------- Total....................... $122,387.2 $22,942.8 $27,980.9 $5,806.8 $1,820.9 $154,951.2 ========== ========= ========= ======== ======== ========== Income Before Cumulative Effect of Accounting Change........... $ 2,075.5 $ 1,177.3 $ 1,337.1 $ 828.5 $ 256.9 $ 5,658.7 ---------- --------- --------- -------- -------- ---------- Net Income....................... $ 1,361.9 $ 1,132.8 $ 1,337.1 $ 828.5 $ 256.9 $ 4,900.6 ---------- --------- --------- -------- -------- ---------- Total Assets..................... $154,175.7 $13,765.9 $29,523.6 $4,023.6 $3,463.4 $198,598.7 ---------- --------- --------- -------- -------- ---------- Net Assets....................... $ (1,178.2) $ 4,724.0 $ 6,719.3 $2,178.2 $1,065.3 $ 12,823.8 ---------- --------- --------- -------- -------- ---------- Average Number of Employees (in thousands)..................... 437 101 126 27 6 697 ========== ========= ========= ======== ======== ========== 1993 Net Sales and Revenues Outside (excluding GMAC)....... $ 89,868.0 $ 7,311.5 $21,847.3 $4,595.0 $1,248.1 $124,869.9 GMAC and related operations.... 5,921.7 682.0 1,947.6 52.5 148.2 8,752.0 Other income................... 3,783.5 210.0 345.2 191.3 67.6 4,597.6 ---------- --------- --------- -------- -------- ---------- Subtotal outside............ 99,573.2 8,203.5 24,140.1 4,838.8 1,463.9 138,219.5 Interarea...................... 10,094.7 13,416.4 433.9 166.9 30.8 -- ---------- --------- --------- -------- -------- ---------- Total....................... $109,667.9 $21,619.9 $24,574.0 $5,005.7 $1,494.7 $138,219.5 ========== ========= ========= ======== ======== ========== Net Income....................... $ 190.1 680.8 $ 604.7 $ 798.0 $ 160.4 $ 2,465.8 ---------- --------- --------- -------- -------- ---------- Total Assets..................... $151,343.5 $10,963.7 $23,395.0 $3,113.4 $2,672.8 $188,200.9 ---------- --------- --------- -------- -------- ---------- Net Assets....................... $ (7,315.6) $ 4,516.3 $ 5,967.3 $2,054.9 $1,001.2 $ 5,597.5 ---------- --------- --------- -------- -------- ---------- Average Number of Employees (in thousands)..................... 448 99 131 27 6 711 ========== ========= ========= ======== ======== ==========
- ------------------------- * After elimination of interarea transactions. II-41 55 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 22. GENERAL MOTORS ACCEPTANCE CORPORATION AND SUBSIDIARIES CONDENSED GMAC CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 --------- -------- -------- (DOLLARS IN MILLIONS) Financing Revenue Retail and lease financing................................. $ 3,291.6 $2,955.0 $3,673.4 Operating leases........................................... 6,285.0 4,855.7 3,870.9 Wholesale and term loans................................... 2,087.4 1,608.1 1,207.7 ---------- -------- -------- Total financing revenue................................. 11,664.0 9,418.8 8,752.0 Interest and discount........................................ 4,936.3 4,230.9 4,721.2 Depreciation on operating leases............................. 4,304.8 3,233.8 2,702.0 ---------- -------- -------- Net financing revenue................................... 2,422.9 1,954.1 1,328.8 Insurance premiums earned.................................... 1,082.4 1,127.6 1,107.2 Other income................................................. 2,116.8 1,598.6 2,624.3 ---------- -------- -------- Net Financing Revenue and Other......................... 5,622.1 4,680.3 5,060.3 Expenses..................................................... 3,838.9 3,240.5 3,487.5 ---------- -------- -------- Income before income taxes.............................. 1,783.2 1,439.8 1,572.8 Income taxes................................................. 752.2 512.7 591.7 ---------- -------- -------- Income before cumulative effect of accounting change.... 1,031.0 927.1 981.1 Cumulative effect of accounting change....................... -- (7.4)* -- ---------- -------- -------- Net Income............................................ $ 1,031.0 $ 919.7 $ 981.1 ========== ======== ======== Cash dividends paid to General Motors........................ $ 950.0 $ 875.0 $1,250.0 ========== ======== ========
- ------------------------- * GMAC adopted SFAS No. 112 effective January 1, 1994. CONDENSED GMAC CONSOLIDATED BALANCE SHEET
DECEMBER 31, ----------------------- 1995 1994 --------- --------- (DOLLARS IN MILLIONS) Cash and cash equivalents............................................. $ 1,448.6 $ 1,339.5 Investments in securities............................................. 4,328.2 3,891.7 Finance receivables -- net............................................ 59,330.4 54,625.1 Net investment in operating leases.................................... 22,134.9 17,809.2 Notes receivable from General Motors.................................. -- 1,080.5 Other assets.......................................................... 7,330.9 6,791.4 --------- --------- Total Assets..................................................... $94,573.0 $85,537.4 ========= ========= Short-term debt....................................................... $43,871.8 $35,114.8 Accounts payable and other liabilities (including General Motors -- $1,787.6 and $1,867.3).............................................. 11,381.3 10,989.3 Long-term debt........................................................ 31,050.6 31,539.6 Stockholder's equity.................................................. 8,269.3 7,893.7 --------- --------- Total Liabilities and Stockholder's Equity....................... $94,573.0 $85,537.4 ========= =========
II-42 56 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CONDENSED GMAC CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------------- 1995 1994 1993 ----------- ----------- ----------- (DOLLARS IN MILLIONS) Net Cash Provided by Operating Activities.............. $ 4,998.7 $ 4,735.8 $ 4,901.8 ----------- ----------- ----------- Cash Flows from Investing Activities Finance receivables -- acquisitions.................... (163,033.3) (156,579.8) (103,396.3) Finance receivables -- liquidations.................... 132,242.6 137,598.4 92,808.6 Notes receivable from General Motors................... 1,080.5 275.0 10,207.7 Operating leases -- acquisitions....................... (14,034.6) (13,086.8) (6,971.3) Operating leases -- liquidations....................... 5,642.5 3,569.5 2,572.7 Investments in securities -- acquisitions.............. (12,723.0) (11,715.3) (10,976.1) Investments in securities -- liquidations.............. 12,397.3 11,495.2 10,676.7 Proceeds from sales of receivables -- wholesale........ 20,718.2 13,098.9 -- Proceeds from sales of receivables -- retail........... 5,264.3 5,701.1 13,072.2 Due and deferred from receivable sales................. 231.9 322.9 (618.4) Other.................................................. 579.4 (612.5) 449.1 ----------- ----------- ----------- Net Cash Provided by (Used in) Investing Activities...................................... (11,634.2) (9,933.4) 7,824.9 ----------- ----------- ----------- Cash Flows from Financing Activities Debt with original maturities 90 days and over -- proceeds....... 47,807.0 46,348.0 38,577.4 -- liquidations... (44,138.7) (46,541.3) (45,148.0) Debt with original maturities less than 90 days -- net change............................................... 4,026.5 3,540.8 (4,744.0) Cash dividends paid to General Motors.................. (950.0) (875.0) (1,250.0) Proceeds from issuance of stock to General Motors...... -- 35.0 -- ----------- ----------- ----------- Net Cash Provided by (Used in) Financing Activities...................................... 6,744.8 2,507.5 (12,564.6) ----------- ----------- ----------- Effect of exchange rate changes on cash and cash equivalents.......................................... (0.2) 1.5 (5.1) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents... 109.1 (2,688.6) 157.0 Cash and cash equivalents at beginning of the year..... 1,339.5 4,028.1 3,871.1 ----------- ----------- ----------- Cash and cash equivalents at end of the year...... $ 1,448.6 $ 1,339.5 $ 4,028.1 =========== =========== =========== Supplementary cash flow information Interest paid........................................ $ 4,783.3 $ 4,223.7 $ 4,819.1 Income taxes paid (refundable)....................... $ 210.9 $ (16.0) $ 430.5
INVESTMENTS IN SECURITIES GMAC's bonds, equity securities, notes, certificates of deposit, other investments, and preferred stocks with mandatory redemption terms are carried at fair value.
DECEMBER 31, 1995 ------------------------------------------------ FAIR UNREALIZED UNREALIZED Type of Security COST VALUE GAINS LOSSES -------- -------- ---------- ---------- (DOLLARS IN MILLIONS) Bonds, notes, and other securities United States Government and governmental agencies and authorities................................. $ 268.0 $ 279.4 $ 11.5 $ (0.1) States, municipalities, and political subdivisions.................................... 1,720.8 1,825.0 112.7 (8.5) Other.............................................. 1,621.3 1,674.1 54.5 (1.7) -------- -------- ------ ------ Total debt securities................................ 3,610.1 3,778.5 178.7 (10.3) Equity securities.................................... 280.0 549.7 284.6 (14.9) -------- -------- ------ ------ Total investments in securities................. $3,890.1 $4,328.2 $463.3 $(25.2) ======== ======== ====== ======
II-43 57 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
DECEMBER 31, 1994 ------------------------------------------------ FAIR UNREALIZED UNREALIZED Type of Security COST VALUE GAINS LOSSES -------- -------- ---------- ---------- (DOLLARS IN MILLIONS) Bonds, notes, and other securities United States Government and governmental agencies and authorities................................. $ 298.5 $ 285.0 $ 0.3 $ (13.8) States, municipalities, and political subdivisions.................................... 1,813.3 1,747.4 38.0 (103.9) Other.............................................. 1,417.0 1,387.3 4.2 (33.9) -------- -------- ------ ------- Total debt securities................................ 3,528.8 3,419.7 42.5 (151.6) Equity securities.................................... 280.9 472.0 203.2 (12.1) -------- -------- ------ ------- Total investments in securities............... $3,809.7 $3,891.7 $245.7 $ (163.7) ======== ======== ====== =======
The distribution of maturities of GMAC's debt securities is summarized below:
DECEMBER 31, -------------------------------------------- 1995 1994 -------------------- -------------------- FAIR Maturity COST VALUE COST -------- -------- -------- (DOLLARS IN MILLIONS) Due in one year or less............................... $ 265.5 $ 269.6 $ 177.6 $ 179.0 Due after one year through five years................. 900.8 935.2 637.9 631.5 Due after five years through 10 years................. 1,020.4 1,084.5 997.9 968.8 Due after 10 years.................................... 861.9 925.7 1,094.3 1,027.4 Mortgage-backed securities............................ 561.5 563.5 621.1 613.0 -------- -------- -------- -------- Total debt securities.......................... $3,610.1 $3,778.5 $3,528.8 $3,419.7 ======== ======== ======== ========
The following table summarizes proceeds, gains, and losses realized from the sale of investment securities:
YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) Debt Securities Sale Proceeds................................................ $1,370.9 $1,036.4 $2,093.4 Gross Realized Gains......................................... 21.4 15.0 58.6 Gross Realized Losses........................................ 15.5 18.9 13.3 Equity Securities Sale Proceeds................................................ $ 202.7 $ 185.1 $ 258.6 Gross Realized Gains......................................... 87.4 80.5 160.5 Gross Realized Losses........................................ 6.9 11.9 2.3
* * * II-44 58 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION SELECTED QUARTERLY DATA (UNAUDITED)
1995 QUARTERS ----------------------------------------------------- 1ST 2ND 3RD 4TH --------- --------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net sales and revenues................................. $43,285.0 $44,146.2 $37,462.9 $43,934.5 ========= ========= ========= ========= Income before income taxes............................. $ 3,479.7 $ 3,217.2 $ 803.4 $ 2,276.0(1) U.S., foreign, and other income taxes.................. 1,325.7 947.1 161.0(2) 410.0(1) --------- --------- --------- --------- Income before cumulative effect of accounting change............................................. 2,154.0 2,270.1 642.4 1,866.0 Cumulative effect of accounting change................. (51.8)(3) -- -- -- --------- --------- --------- --------- Net income........................................... 2,102.2 2,270.1 642.4 1,866.0 Dividends on preference stocks......................... 72.0 199.5(4) 41.4 50.7 --------- --------- --------- --------- Income on common stocks.............................. $ 2,030.2 $ 2,070.6 $ 601.0 $ 1,815.3 ========= ========= ========= ========= Earnings attributable to common stocks $1 2/3 par value before cumulative effect of accounting change.................................. $ 1,896.3 $ 1,796.0 $ 316.7 $ 1,499.8 Cumulative effect of accounting change............... (51.8)(3) -- -- -- --------- --------- --------- --------- Net earnings attributable to $1 2/3 par value........ $ 1,844.5 $ 1,796.0 $ 316.7 $ 1,499.8 ========= ========= ========= ========= Net earnings attributable to Class E................. $ 122.4 $ 205.8 $ 222.9 $ 244.4 ========= ========= ========= ========= Net earnings attributable to Class H................. $ 63.3 $ 68.8 $ 61.4 $ 71.1 ========= ========= ========= ========= Average number of shares of common stocks outstanding (in millions) $1 2/3 par value..................................... 752.6 746.3 748.2 751.5 Class E.............................................. 300.0 438.7(5) 438.8 438.9 Class H.............................................. 94.2 95.4 95.9 96.5 Earnings per share attributable to common stocks $1 2/3 par value before cumulative effect of accounting change.................................. $ 2.51 $2.39 $0.42 $1.98 Cumulative effect of accounting change............... (0.07)(3) -- -- -- ------ ----- ----- ----- Net earnings attributable to $1 2/3 par value........ $ 2.44 $2.39 $0.42 $1.98 ====== ===== ===== ===== Net earnings attributable to Class E................. $ 0.42 $0.47 $0.51 $0.56 ====== ===== ===== ===== Net earnings attributable to Class H................. $ 0.67 $0.72 $0.64 $0.74 ====== ===== ===== ===== Cash dividends per share of common stocks $1 2/3 par value..................................... $0.20 $0.30 $0.30 $0.30 Class E.............................................. 0.13 0.13 0.13 0.13 Class H.............................................. 0.23 0.23 0.23 0.23 Price range of common stocks $1 2/3 par value(6): High............................ $45.63 $49.00 $51.88 $53.13 Low............................. 37.25 42.38 45.38 43.38 Class E(6): High............................ 41.38 45.25 47.50 52.63 Low............................. 36.88 38.38 41.50 43.88 Class H(6): High............................ 41.75 41.63 42.75 50.00 Low............................. 33.25 37.75 39.13 39.50
- ------------------------- (1) Income taxes and interest expense in the fourth quarter reflect benefits related to the resolution of worldwide prior year income tax issues. Income taxes also reflects the benefit of a U.S. net operating loss carryback -- for tax purposes only -- to years with higher tax rates. (2) The effective income tax rate in the third quarter reflects tax benefits from the mix of foreign income and foreign income taxes. (3) In November 1995, the Corporation adopted, retroactive to January 1, 1995, the provisions of the EITF consensus on Issue No. 95-1. The unfavorable cumulative effect of this accounting change was $51.8 million, or $0.07 per share of $1 2/3 par value common stock. Previously reported first quarter results have been restated to reflect the effects of adoption. The effect on other 1995 quarters was not material. (4) Includes a $153.4 million tender offer premium associated with the repurchase of a portion of the Series B, D, and G preference stock. (5) Reflects Class E common stock contribution to the U.S. Hourly Pension Plan. (6) The principal market is the New York Stock Exchange and prices are based on the Composite Tape. $1 2/3 par value common stock is also listed on the Chicago, Pacific, and Philadelphia stock exchanges. As of December 31, 1995, there were 625,652 holders of record of $1 2/3 par value common stock, 272,096 holders of record of Class E common stock, and 267,052 holders of record of Class H common stock. II-45 59 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION -- CONTINUED SELECTED QUARTERLY DATA (UNAUDITED) -- CONCLUDED
1994 QUARTERS ------------------------------------------------------- 1ST 2ND 3RD 4TH --------- --------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net sales and revenues.............................. $37,495.4 $40,392.2 $34,510.3 $42,553.3 ========= ========= ========= ========= Income before income taxes.......................... $ 2,452.1 $ 3,086.2 $ 453.6 $ 2,361.4 U.S., foreign, and other income taxes (credit)...... 840.3 1,163.4 (98.4)(1) 789.3 --------- --------- --------- --------- Income before cumulative effect of accounting change.......................................... 1,611.8 1,922.8 552.0 1,572.1 Cumulative effect of accounting change.............. (758.1)(2) -- -- -- --------- --------- --------- --------- Net income...................................... 853.7 1,922.8 552.0 1,572.1 Dividends on preference stocks...................... 86.8 89.7 72.1 72.1 --------- --------- --------- --------- Income on common stocks......................... $ 766.9 $ 1,833.1 $ 479.9 $ 1,500.0 ========= ========= ========= ========= Earnings attributable to common stocks $1 2/3 par value before cumulative effect of accounting change............................. $ 1,362.1 $ 1,665.3 $ 306.0 $ 1,311.8 Cumulative effect of accounting change.......... (751.3)(2) -- -- -- --------- --------- --------- --------- Net earnings attributable to $1 2/3 par value... $ 610.8 $ 1,665.3 $ 306.0 $ 1,311.8 ========= ========= ========= ========= Net earnings attributable to Class E............ $ 92.1 $ 106.5 $ 117.3 $ 128.5 ========= ========= ========= ========= Class H before cumulative effect of accounting change........................................ $ 70.8 $ 61.3 $ 56.6 $ 59.7 Cumulative effect of accounting change.......... (6.8)(2) -- -- -- --------- --------- --------- --------- Net earnings attributable to Class H............ $ 64.0 $ 61.3 $ 56.6 $ 59.7 ========= ========= ========= ========= Average number of shares of common stocks outstanding (in millions) $1 2/3 par value................................ 725.3 733.1 752.7 753.7 Class E......................................... 257.9 260.1 261.2 261.9 Class H......................................... 90.6 91.7 92.7 93.3 Earnings per share attributable to common stocks $1 2/3 par value before cumulative effect of accounting change............................. $ 1.86 $2.23 $0.40 $1.74 Cumulative effect of accounting change.......... (1.05)(2) -- -- -- ------ ----- ----- ----- Net earnings attributable to $1 2/3 par value... $ 0.81 $2.23 $0.40 $1.74 ====== ===== ===== ===== Net earnings attributable to Class E............ $ 0.36 $0.41 $0.45 $0.49 ====== ===== ===== ===== Class H before cumulative effect of accounting change........................................ $ 0.78 $0.67 $0.61 $0.64 Cumulative effect of accounting change.......... (0.08)(2) -- -- -- ------ ----- ----- ----- Net earnings attributable to Class H............ $ 0.70 $0.67 $0.61 $0.64 ====== ===== ===== ===== Cash dividends per share of common stocks $1 2/3 par value................................ $0.20 $0.20 $0.20 $0.20 Class E......................................... 0.12 0.12 0.12 0.12 Class H......................................... 0.20 0.20 0.20 0.20 Price range of common stocks $1 2/3 par value: High............................ $65.38 $60.13 $53.38 $48.38 Low............................. 52.00 49.75 46.25 36.13 Class E: High............................ 36.88 38.00 38.50 39.50 Low............................. 27.50 32.88 33.00 34.75 Class H: High............................ 40.38 38.75 38.00 37.75 Low............................. 32.63 31.75 34.63 31.00
- ------------------------- (1) The income tax credit in the third quarter is primarily a function of the low level of pre-tax income, a low effect tax rate for foreign operations, and a favorable adjustment related to book tax accruals which had been established in prior years. (2) Effective January 1, 1994, General Motors adopted SFAS No. 112. The unfavorable cumulative effect of adopting SFAS No. 112 was $758.1 million, or $751.3 million, $1.05 per share, attributable to $1 2/3 par value common stock and $6.8 million, $0.08 per share, attributable to Class H common stock. II-46 60 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION -- CONTINUED SELECTED FINANCIAL DATA (UNAUDITED)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------- 1995 1994 1993 ---------- ---------- ---------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net sales and revenues............................ $168,828.6 $154,951.2 $138,219.5 Income before income taxes........................ $ 9,776.3 $ 8,353.3 $ 2,575.3 Percentage of sales and revenues.................. 5.8% 5.4% 1.9% ========== ========== ========== Net income........................................ $ 6,880.7(1) $ 4,900.6 $ 2,465.8 Income on common stocks........................... $ 6,517.1 $ 4,579.9 $ 2,109.0 Rate of return on average common stockholders' equity.......................................... 54.2%(2) 79.9%(2) 104.2%(2) ========== ========== ========== $1 2/3 par value common stock Earnings attributable to........................ $ 5,457.0(1) $ 3,893.9(3) $ 1,537.3 Cash dividends.................................. 824.2 592.6 565.8 ---------- ---------- ---------- Net income retained............................. $ 4,632.8 $ 3,301.3 $ 971.5 ========== ========== ========== Earnings per share.............................. $7.21(1) $5.15(3) $2.13 Cash dividends per share........................ 1.10 0.80 0.80 ---------- ---------- ---------- Net income retained per share................... $6.11 $4.35 $1.33 ========== ========== ========== Class E common stock Earnings attributable to........................ $ 795.5 $ 444.4 $ 367.2 Cash dividends.................................. 205.4 124.8 97.2 ---------- ---------- ---------- Net income retained............................. $ 590.1 $ 319.6 $ 270.0 ========== ========== ========== Earnings per share.............................. $1.96 $1.71 $1.51 Cash dividends per share........................ 0.52 0.48 0.40 ---------- ---------- ---------- Net income retained per share................... $1.44 $1.23 $1.11 ========== ========== ========== Class H common stock Earnings attributable to........................ $ 264.6 $ 241.6(3) $ 204.5 Cash dividends.................................. 87.9 73.8 64.1 ---------- ---------- ---------- Net income retained............................. $ 176.7 $ 167.8 $ 140.4 ========== ========== ========== Earnings per share.............................. $2.77 $2.62(3) $2.30 Cash dividends per share........................ 0.92 0.80 0.72 ---------- ---------- ---------- Net income retained per share................... $1.85 $1.82 $1.58 ========== ========== ========== Average number of shares of common stocks outstanding (in millions) $1 2/3 par value................................ 749.7 741.3 710.2 Class E......................................... 404.6 260.3 243.0 Class H......................................... 95.5 92.1 88.6 Cash dividends on capital stocks as a % of net income.......................................... 19.3% 22.7% 44.0% Expenditures for real estate, plants, and equipment....................................... $ 6,351.4 $ 4,883.7 $ 3,822.1 Expenditures for special tools.................... $ 3,725.9 $ 2,341.4 $ 2,648.6 Cash and marketable securities.................... $ 16,642.9 $ 16,075.6 $ 17,962.7 Working capital (with GMAC on an equity basis).... $ 2,390.5 $ 700.9 $ 2,822.2 Current ratio (with GMAC on an equity basis)...... 1.06 1.02 1.08 Total assets...................................... $217,123.4 $198,598.7 $188,200.9 Long-term debt and capitalized leases (with GMAC on an equity basis)............................. $ 6,134.0 $ 6,218.7 $ 6,383.6
- ------------------------- See notes on page II-49. II-47 61 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION -- CONTINUED SELECTED FINANCIAL DATA (UNAUDITED) -- CONTINUED
AS OF AND FOR THE YEARS ENDED DECEMBER 31, ----------------------------- 1992 1991 ---------- ---------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net sales and revenues........................................ $132,242.2 $123,108.8 Loss before income taxes...................................... $ (3,333.1) $ (5,892.3) Percentage of sales and revenues.............................. (2.5)% (4.8)% ========== ========== Net loss...................................................... $(23,498.3) $ (4,452.8) Loss on common stocks......................................... $(23,804.6) $ (4,523.2) Rate of return on average common stockholders' equity......... (169.3)%(2) (15.9)% ========== ========== $1 2/3 par value common stock Loss attributable to........................................ $(23,940.7) (4) $ (4,851.4) (5) Cash dividends.............................................. 945.4 983.4 ---------- ---------- Net loss accumulated........................................ $(24,886.1) $ (5,834.8) ========== ========== Loss per share.............................................. $(38.28) (4) $(7.97) (5) Cash dividends per share.................................... 1.40 1.60 ---------- ---------- Net loss accumulated per share.............................. $(39.68) $(9.57) ========== ========== Class E common stock Earnings attributable to.................................... $ 278.4 $ 223.6(5) Cash dividends.............................................. 76.1 62.5 ---------- ---------- Net income retained......................................... $ 202.3 $ 161.1 ========== ========== Earnings per share.......................................... $1.33 $1.14(5) Cash dividends per share.................................... 0.36 0.32 ---------- ---------- Net income retained per share............................... $0.97 $0.82 ========== ========== Class H common stock Earnings (Loss) attributable to............................. $ (142.3) (4) $ 104.6(5) Cash dividends.............................................. 53.3 54.3 ---------- ---------- Net income retained (loss accumulated)...................... $ (195.6) $ 50.3 ========== ========== Earnings (Loss) per share................................... $(2.29) (4) $1.39(5) Cash dividends per share.................................... 0.72 0.72 ---------- ---------- Net income retained (loss accumulated) per share............ $(3.01) $0.67 ========== ========== Average number of shares of common stocks outstanding (in millions) $1 2/3 par value............................................ 670.5 614.6 Class E..................................................... 209.1 195.3 Class H..................................................... 75.3 73.7 Cash dividends on capital stocks as a % of net income......... N/A N/A Expenditures for real estate, plants, and equipment........... $ 4,336.7 $ 4,255.1 Expenditures for special tools................................ $ 2,252.9 $ 2,956.8 Cash and marketable securities................................ $ 15,107.7 $ 10,192.4 Working capital (with GMAC on an equity basis)................ $ 10,938.6 $ 10,807.1 Current ratio (with GMAC on an equity basis).................. 1.32 1.36 Total assets.................................................. $190,196.0 $184,074.6 Long-term debt and capitalized leases (with GMAC on an equity basis)...................................................... $ 7,055.4 $ 6,699.1
- ------------------------- See notes on page II-49. II-48 62 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION -- CONCLUDED SELECTED FINANCIAL DATA (UNAUDITED) -- CONCLUDED - ------------------------- (1) In November 1995, the Corporation adopted, retroactive to January 1, 1995, the provisions of the EITF consensus on Issue No. 95-1. The unfavorable effect of this accounting change was $51.8 million, or $0.07 per share of $1 2/3 par value common stock. (2) The high returns in 1995, 1994, and 1993 compared to the large negative return in 1992 reflect the adoption of SFAS No. 106 and its impact on lowering average common stockholders' equity. (3) General Motors adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits, effective January 1, 1994. The unfavorable cumulative effect of adopting SFAS No. 112 was $751.3 million or $1.05 per share of $1 2/3 par value and $6.8 million or $0.08 per share of Class H common stock. (4) General Motors adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, effective January 1, 1992. The unfavorable cumulative effect of adopting SFAS No. 106 was $20,687.3 million or $33.38 per share of $1 2/3 par value and $150.4 million or $2.08 per share of Class H common stock. Also effective January 1, 1992, Hughes changed its revenue recognition policy for certain commercial businesses. The unfavorable effect of this change on 1992 earnings was $32.8 million or $0.05 per share of $1 2/3 par value and $7.2 million or $0.10 per share of Class H common stock. (5) Effective January 1, 1991, accounting procedures were changed to include in inventory general purpose spare parts previously charged directly to expense. The effect of this change on 1991 earnings was a favorable adjustment of $302.7 million or $0.50 per share of $1 2/3 par value and $3.8 million or $0.04 per share of Class H common stock. Also, General Motors adopted SFAS No. 109, Accounting for Income Taxes, effective January 1, 1991. The favorable (unfavorable) cumulative effect of adopting SFAS No. 109 was $230.5 million or $0.38 per share of $1 2/3 par value, ($6.1) million or ($0.03) per share of Class E, and $8.3 million or $0.09 per share of Class H common stock. II-49 63 MANAGEMENT'S DISCUSSION AND ANALYSIS GM-NAO/DELPHI FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, -------------------------------------------- 1995 1994 1993 ---------- ---------- ---------- (DOLLARS IN MILLIONS) Net Sales Vehicles and service parts................... $ 95,936.0 $ 91,767.6 $ 80,553.1 Components................................... 26,425.5 26,096.7 25,090.1 Intrasector eliminations..................... (19,108.6) (19,731.8) (19,678.7) ---------- ---------- ---------- Total Net Sales......................... 103,252.9 98,132.5 85,964.5 ---------- ---------- ---------- Pre-tax Income (Loss).......................... 3,346.4 1,589.3 (2,387.7) Income Taxes (Benefit)......................... 962.7 268.4 (1,336.2) Earnings of Nonconsolidated Affiliates......... 63.6 61.0 39.8 Cumulative effect of accounting changes........ (51.8)(1) (704.6)(2) -- ---------- ---------- ---------- Net Income (Loss)....................... $ 2,395.5 $ 677.3 $ (1,011.7) ========== ========== ========== Profit (Loss) Margin(3)................. 2.3% 0.7% (1.2)% Depreciation and Amortization.................. $4,663.6 $4,324.2 $4,224.7 Capital Expenditures........................... $6,012.8 $3,976.0 $3,560.7 Worldwide Employment at December 31, (in thousands)................................... 434 431 436
- ------------------------- (1) In November 1995, the provisions of Issue No. 95-1 of the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF) were retroactively adopted to January 1, 1995, which had an unfavorable impact of $51.8 million. (2) Statement of Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for Postemployment Benefits, was adopted effective January 1, 1994, which had an unfavorable impact of $704.6 million. (3) Profit (loss) margin represents net income (loss) as a percent of net sales. GM-NAO/DELPHI FINANCIAL REVIEW The net income of GM-NAO/Delphi, which represents the combined results for GM-NAO and Delphi Automotive Systems, totaled $2.4 billion, or 2.3% of net sales, an increase of $1.7 billion from 1994. Excluding accounting changes, 1995 net income was $2.4 billion, up $1.0 billion from the 1994 net income of $1.4 billion. The improved profitability reflected revenue growth and savings from continued global sourcing and lean manufacturing strategies. Net sales were $103.3 billion for 1995, an increase of $5.2 billion over 1994. The net sales increase resulted from a 23,000 unit increase in wholesale sales to nearly 5.6 million units as well as favorable price retention and an increase of approximately 9% in Delphi's non-GM-NAO vehicle sales. These increases were partially offset by a year-over-year shift in vehicle sales from the large/luxury segments to the small/compact segments. GM's North American vehicle deliveries were 5.3 million units in 1995, which resulted in a market share of 32.3%, unchanged from 1994. GM has maintained its position as the #1 vehicle producer in North America for over 60 years. During 1995, GM-NAO increased its market share in both Canada and Mexico reflecting the favorable customer reaction to new products. However, in the U.S., market share was adversely affected by continuing capacity constraints for the most popular truck models. II-50 64 VEHICLE UNIT DELIVERIES OF CARS AND TRUCKS -- GM-NAO
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------------------- 1995 1994 1993 --------------------------- --------------------------- --------------------------- GM AS GM AS GM AS A % OF A % OF A % OF INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY -------- ----- -------- -------- ----- -------- -------- ----- -------- (UNITS IN THOUSANDS) United States Cars............................... 8,636 2,956 34.2% 8,991 3,079 34.3% 8,519 2,927 34.4% Trucks............................. 6,483 1,939 29.9% 6,422 1,984 30.9% 5,682 1,786 31.4% ------ ----- ------ ----- ------ ----- Total United States(1)........... 15,119 4,895 32.4% 15,413 5,063 32.8% 14,201 4,713 33.2% Other North America Canada............................. 1,165 385 33.0% 1,258 410 32.6% 1,190 378 31.8% Mexico............................. 225 48 21.4% 620 113 18.2% 607 107 17.6% ------ ----- ------ ----- ------ ----- Total North America.............. 16,509 5,328 32.3% 17,291 5,586 32.3% 15,998 5,198 32.5% ====== ===== ====== ===== ====== ===== WHOLESALE SALES -- GM-NAO Cars............................... 3,352 3,353 3,238 Trucks............................. 2,208 2,184 1,968 ----- ----- ----- Total............................ 5,560 5,537 5,206 ===== ===== =====
- ------------------------- (1) Industry deliveries include foreign brands of 4,052,000 units or 26.8% in 1995, 4,136,000 units or 26.8% in 1994, and 3,723,000 units or 26.2% in 1993. During 1994, net sales increased $12.1 billion or 14.1% compared to net sales of $86.0 billion for 1993. The increased net sales in 1994 primarily resulted from higher wholesale sales in line with vehicle deliveries. GM-NAO vehicle deliveries increased 7.5% during 1994, slightly below the full-year industry delivery increase of 8.1%. Significant cost savings were achieved in the two primary drivers of costs -- material and manufacturing. Material cost reductions in 1995 and 1994 resulted from on-going efforts led by our worldwide purchasing team, while our lean manufacturing initiatives increased efficiency and quality. Manufacturing cost savings in 1995 also reflected lower pension costs from improved funding of U.S. pension plans. The manufacturing cost savings in 1995 and 1994 were partially offset by increased safety and emissions costs and spending to support new product development. Increased truck production, in response to market demand, and trimming of unneeded capacity resulted in capacity utilization increasing from 77% in 1993 to 87% in 1995. Pre-tax income for 1995 increased by $1.76 billion to $3.35 billion, compared to $1.59 billion for 1994 and a pre-tax loss of $2.39 billion for 1993. The 1995 increase in the pre-tax income reflected the material and manufacturing efficiencies and lower interest expense, partially offset by increased depreciation and amortization associated with new equipment and special tools. The 1994 improvement is principally attributable to increased volume and material and manufacturing efficiencies, partially offset by increased new product development expenditures. The effective income (benefit) tax rate for 1995 was 28.8% compared to 16.9% for 1994 and (56.0%) for 1993. The 1995 effective income tax rate reflected a U.S. net operating loss -- for tax purposes only -- that will be carried back to prior years that were subject to higher income tax rates. The 1994 effective income tax rate reflected favorable tax positions in Canada and Mexico, while the higher than normal 1993 income tax benefits resulted from the favorable impact of the increase in the U.S. corporate income tax rate. The higher rate resulted in benefits because of GM-NAO/Delphi's net deferred tax asset position. On March 22, 1996, General Motors reached an agreement with the United Auto Workers Local 696 in Dayton, Ohio that ended a work stoppage that had ceased production at 26 of its 29 North American assembly plants and at certain of its automotive component plants. General Motors estimates that the work stoppage will have an unfavorable effect of approximately $900 million after tax, or $1.20 per share of $1 2/3 par value common stock, on its operating results for the first quarter of 1996. Statements regarding the effect of the work stoppage and the estimated unfavorable impact on GM's operating results are forward-looking statements which by their nature are subject to numerous uncertainties that could cause actual results to vary. II-51 65 GMIO FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, --------------------------------------- 1995 1994 1993 --------- --------- --------- (DOLLARS IN MILLIONS) Net Sales............................................... $32,111.6 $28,086.5 $24,942.4 --------- --------- --------- Pre-tax Income.......................................... 1,600.6 2,231.5 1,393.7 Income Taxes............................................ 161.5 817.6 228.3 Earnings (Loss) of Nonconsolidated Affiliates........... 204.5 161.3 (179.4) --------- --------- --------- Net Income GM Europe............................................. 796.4 694.9 243.7 Other International................................... 847.2 880.3 742.3 --------- --------- --------- Total Net Income................................. $ 1,643.6 $ 1,575.2 $ 986.0 ========= ========= ========= Profit Margin.................................... 5.1% 5.6% 4.0% Depreciation and Amortization........................... $1,364.3 $1,202.0 $ 985.3 Capital Expenditures.................................... $2,086.1 $1,387.5 $1,509.2 Worldwide Employment at December 31, (in thousands)..... 103 102 107
GMIO FINANCIAL REVIEW GMIO further improved profitability in 1995 with net income of $1,643.6 million compared with $1,575.2 million in 1994 and $986.0 million in 1993. The increased net income in 1995 and 1994 resulted from significant improvements in GM Europe's (GME) earnings and continued strong financial results from our Latin American Operations. Total net sales for GMIO increased by $4.0 billion, or 14.2%, to $32.1 billion in 1995 compared with $28.1 billion in 1994. Net sales for 1994 were $3.2 billion, or 12.9% higher than 1993. At the pre-tax level, GMIO recorded income of $1,600.6 million which was down significantly from the 1994 pre-tax income of $2,231.5 million. During 1994, pre-tax income increased $837.8 million compared to 1993. The reduction in pre-tax income in 1995 was largely the result of adverse foreign exchange rate movements of approximately $600 million, material and labor cost pressures in Latin America, and start-up and launch costs associated with the introduction in Europe of the new Opel/Vauxhall Vectra. These higher 1995 costs were partially offset by increased volume worldwide. The 1994 results reflected increased volume worldwide, partially offset by substantial business development costs of expanding GMIO's operations in the fast growing Latin American and Asian and Pacific regions. With a favorable income tax position compared to 1994 and growth in the earnings of nonconsolidated affiliates, GMIO was able to attain a 5.1% profit margin in 1995 compared to 5.6% in 1994 and 4.0% in 1993. Looking at the regional split of net income, GMIO's net income improvement in 1995 and 1994 resulted from gains from GME, although the balance of GMIO's operations generated $847.2 million and $880.3 million of net income in 1995 and 1994, respectively. GME's net income improved from $694.9 million in 1994 to $796.4 million in 1995, a $101.5 million, or 14.6%, increase. During 1994, GME's net income more than doubled, compared to net income of $243.7 million in 1993. The improvement in 1995 reflected volume gains, material and manufacturing cost reductions, and a favorable income tax rate, partially offset by negative exchange rate movements and costs associated with the new Vectra model introduction in the second half of the year. The increase in net income for GME from 1993 to 1994 resulted from strong volume gains, lower employment -- separation costs, and manufacturing -- and material-cost reductions. II-52 66 VEHICLE UNIT DELIVERIES OF CARS AND TRUCKS -- GMIO
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------------ 1995 1994 1993 -------------------------- -------------------------- -------------------------- GM AS A GM AS A GM AS A % OF % OF % OF INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY INDUSTRY GM INDUSTRY -------- ----- ------- -------- ----- ------- -------- ----- ------- (UNITS IN THOUSANDS) INTERNATIONAL Europe Germany....................... 3,586 581 16.2% 3,470 553 15.9% 3,455 547 15.8% United Kingdom................ 2,179 335 15.4% 2,139 347 16.2% 1,975 340 17.2% Other West Europe............. 7,680 751 9.8% 7,815 751 9.6% 7,196 671 9.3% ------ ----- ------ ----- ------ ----- Total West Europe........ 13,445 1,667 12.4% 13,424 1,651 12.3% 12,626 1,558 12.3% Central/East Europe........... 1,816 58 3.2% 1,764 53 3.0% 2,949 64 2.2% ------ ----- ------ ----- ------ ----- Total Europe............. 15,261 1,725 11.3% 15,188 1,704 11.2% 15,575 1,622 10.4% ------ ----- ------ ----- ------ ----- Latin America, Africa and the Middle East (LAAMO) Brazil........................ 1,728 348 20.2% 1,398 269 19.3% 1,135 255 22.5% Venezuela..................... 89 28 31.6% 75 22 30.0% 125 31 24.8% Other Latin American.......... 993 127 12.8% 1,189 125 10.5% 1,015 121 11.9% ------ ----- ------ ----- ------ ----- Total Latin America...... 2,810 503 17.9% 2,662 416 15.6% 2,275 407 17.9% Africa........................ 615 80 13.0% 501 63 12.5% 518 57 11.0% Middle East................... 534 64 11.9% 607 63 10.4% 730 72 9.9% ------ ----- ------ ----- ------ ----- Total LAAMO.............. 3,959 647 16.3% 3,770 542 14.4% 3,523 536 15.2% ------ ----- ------ ----- ------ ----- Asian and Pacific Australia..................... 643 129 20.2% 616 122 19.8% 556 102 18.3% Other Asian and Pacific....... 12,306 495 4.0% 11,854 425 3.6% 11,152 393 3.5% ------ ----- ------ ----- ------ ----- Total Asian and Pacific............... 12,949 624 4.8% 12,470 547 4.4% 11,708 495 4.2% ------ ----- ------ ----- ------ ----- Total International...... 32,169 2,996 9.3% 31,428 2,793 8.9% 30,806 2,653 8.6% ====== ===== ====== ===== ====== ===== WHOLESALE SALES -- GMIO Cars.......................... 2,233 2,127 1,931 Trucks........................ 774 664 648 ----- ----- ----- Total.................... 3,007 2,791 2,579 ===== ===== =====
In the remainder of GMIO's operations, 1995 net income declined marginally from the $880.3 million reported in 1994 -- a $33.1 million, or 3.8%, reduction - -- and net income for 1994 increased 18.6% compared to 1993. The primary causes of the decline in 1995 were the impact of the government initiated "Popular Car" program in Brazil which negatively impacted sales mix; adverse exchange rate movements; material and labor costs pressures in Latin America; and continued growth-related expenditures in the Asian and Pacific region. These negative factors were partially offset by a favorable income tax rate, improved volumes, and income gains from nonconsolidated affiliates -- particularly Isuzu. The improvement in 1994 compared to 1993 resulted from industry expansions in Latin America and the Asian and Pacific region and improved results from nonconsolidated affiliates, partially offset by capacity constraints in Brazil, the timing of start-up operations in Argentina, and substantial business development costs. Finally, as an indication of its continued commitment to leadership in the international automotive business, GMIO's capital expenditures in 1995 totaled approximately $2.1 billion, nearly 50% more than the $1.4 billion spent in 1994, which was down slightly compared to 1993. II-53 67 GMAC FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, ------------------------------------- 1995 1994 1993 --------- --------- --------- (DOLLARS IN MILLIONS) Financing Revenue Retail and lease financing.............................. $3,291.6 $2,955.0 $3,673.4 Operating leases........................................ 6,285.0 4,855.7 3,870.9 Wholesale and term loans................................ 2,087.4 1,608.1 1,207.7 --------- --------- --------- Total Financing Revenue.............................. 11,664.0 9,418.8 8,752.0 Interest and discount..................................... 4,936.3 4,230.9 4,721.2 Depreciation on operating leases.......................... 4,304.8 3,233.8 2,702.0 --------- --------- --------- Net Financing Revenue................................ 2,422.9 1,954.1 1,328.8 Other income and insurance premiums earned................ 3,199.2 2,726.2 3,731.5 Expenses.................................................. 3,838.9 3,240.5 3,487.5 --------- --------- --------- Pre-tax Income............................................ 1,783.2 1,439.8 1,572.8 Income Taxes.............................................. 752.2 512.7 591.7 Cumulative effect of accounting change(1)................. -- (7.4) -- --------- --------- --------- $1,031.0 $ 919.7 $ 981.1 Net Income........................................... ========= ========= ========= Average Earning Assets.................................... $83,301.9 $74,451.2 $75,659.8 Return on Average Equity.................................. 12.5% 11.6% 11.9% Worldwide Employment at December 31, (in thousands)....... 17 17 18
- ------------------------- (1) GMAC adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits, effective January 1, 1994. The unfavorable cumulative effect of adopting SFAS No. 112 was $7.4 million. II-54 68 GMAC FINANCIAL REVIEW Consolidated net income for GMAC totaled $1,031.0 million in 1995, including net income from financing operations of $868.4 million, which increased $66.2 million over 1994. The improvement resulted primarily from more favorable financing margins and higher average earning asset levels, principally finance receivables and operating leases. Net income from financing operations in 1994 totaled $802.2 million, an increase of $11.6 million over 1993, reflecting continued positive credit loss experience and a more favorable U.S. funding mix than in 1993. Insurance operations contributed $162.6 million to 1995 consolidated net income, with improved underwriting results and higher realized capital gains factoring significantly in the $45.1 million improvement over 1994 performance, to bring results closer to 1993 earnings of $190.5 million. Consolidated financing revenue totaled $11,664.0 million in 1995. The improvement from 1994 to 1995 was attributable to increased revenues in all areas of the business, while the 1994 increase over 1993 was primarily attributable to increased operating lease and wholesale revenues. Retail and lease financing revenue, at $3,291.6 million for 1995, increased primarily from a higher average amount financed per new unit, partially offset by a decline in GMAC penetration of retail delivery financing. The decrease in 1994 retail and lease financing revenues compared to 1993 primarily reflected a lower asset level due to net asset liquidations through the sale of retail finance receivables over the 1990 through 1993 period. Operating lease revenue, net of depreciation, reached $1,980.2 million in 1995, compared to $1,621.9 million in 1994 and $1,168.9 million in 1993, as leasing continued to gain popularity among consumers. During 1995, 1994, and 1993, GMAC financed 26.4%, 26.2%, and 27.8%, respectively, of GM's retail vehicle deliveries, amid continued competitive pressures from other providers of vehicle financing. In 1995, wholesale and term loan financing revenue amounted to $2,087.4 million. The growth over 1994 revenue was primarily due to increased dealer inventories and higher floor plan financing rates, while the 1994 improvement over 1993 reflected the December 1993 resumption of wholesale financing activities formerly transacted by GM. Interest and discount expense increased to $4,936.3 million during 1995, $705.4 million above 1994, due to increased funding levels and higher interest rates. The 1994 interest and discount expense was $490.3 million below 1993 because of a more favorable year-to-year funding mix. Consolidated net financing revenue increased to $2,422.9 million in 1995, $468.8 million and $1,094.1 million higher than the respective 1994 and 1993 results. Other income and insurance premiums totaled $3,199.2 million in 1995, compared to $2,726.2 million and $3,731.5 million in 1994 and 1993, respectively. Higher fee and investment income at GMAC Mortgage Group accounted for a majority of the increase during 1995 compared to 1994. The decrease between 1994 and 1993 was largely due to lower interest and service fees from GM. Revenue growth in 1995 was partially offset by an increase in total expenses to $3,838.9 million. The largest single component of the increase was the $448.8 million provision for financing losses, which increased from $177.3 million in 1994, due to increased vehicle charge-off experience in the U.S. In addition, other expenses in 1995 were $3,390.1 million, up from $3,063.2 million in 1994, reflecting higher salaries and benefits and operating costs. In comparison, total expenses in 1994 decreased slightly from 1993, primarily due to a $123.5 million reduction in the loss provision and lower intangible asset amortization. GMAC's effective income tax rate for 1995 was 42.2%, compared to 35.6% in 1994 and 37.6% in 1993, with the 1995 increase over 1994 reflecting higher U.S. and foreign taxes assessed on foreign-sourced income. The 1994 decrease from 1993 was attributable to reductions in tax accruals for prior years based upon periodic assessments of the adequacy of such reserves. II-55 69 EDS FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 --------- -------- -------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Systems and Other Contracts Revenues Outside customers........................................... $ 8,531.0 $6,412.9 $5,183.6 GM and affiliates........................................... 3,891.1 3,547.2 3,323.7 --------- -------- -------- Total Systems and Other Contracts Revenues............... 12,422.1 9,960.1 8,507.3 --------- -------- -------- Pre-tax Income................................................ 1,467.0 1,284.2 1,131.3 Income Taxes.................................................. 528.1 462.3 407.3 --------- -------- -------- Separate Consolidated Net Income............................ $ 938.9 $ 821.9 $ 724.0 ========= ======== ======== Net Earnings Attributable to Class E Common Stock on a Per Share Basis................................................. $1.96 $1.71 $1.51 Cash Dividends Per Share of Class E Common Stock.............. $0.52 $0.48 $0.40 Depreciation and Amortization................................. $1,107.8 $771.1 $626.8 Capital Expenditures.......................................... $1,261.5 $1,186.0 $816.4 Worldwide Employment at December 31, (in thousands)........... 96 81 70
II-56 70 EDS FINANCIAL REVIEW EDS' separate consolidated net income for 1995 increased 14% to $938.9 million, compared with $821.9 million in 1994 and $724.0 million in 1993. Earnings per share attributable to Class E common stock were $1.96, $1.71, and $1.51 per share for 1995, 1994, and 1993, respectively, based on EDS' Available Separate Consolidated Net Income as described in Note 18 to the Consolidated Financial Statements. Total revenues for EDS rose to $12,422.1 million for the year ended December 31, 1995, representing an increase of 25%. The comparative percentage increases for 1994 and 1993 were 17% and 4%, respectively. The increase in 1995 was attributable to full-year revenues on contracts which began in late 1994 and to revenues related to acquisitions, primarily the A.T. Kearney acquisition in 1995. Revenues from customers other than GM increased 33% to $8,531.0 million compared with a 24% increase in 1994 and an 8% increase in 1993. Revenues related to GM were $3,891.1 million, $3,547.2 million and $3,323.7 million in 1995, 1994, and 1993, respectively. Total revenues from outside the U.S. were $3,701.1 million, or 30% of total revenues in 1995 compared with $2,584.5 million, or 26%, in 1994 and $1,928.3 million, or 23%, in 1993. Total domestic revenues from customers other than GM were $5,794.9 million, $4,611.2 million, and $4,004.5 million in 1995, 1994, and 1993, respectively. Cost of revenues as a percentage of systems and other contracts revenues was 77% in 1995, compared with 76% in 1994 and 75% in 1993. Selling, general, and administrative expenses increased 9% in 1995 to $1,291.5 million from $1,187.1 million in 1994, which increased 18% from 1993. Selling, general, and administrative expenses were 10% of systems and other contracts revenues in 1995, down from 12% in 1994 and 1993 due to the fixed nature of certain of these costs. Interest expense increased to $120.8 million in 1995, compared with $51.7 million in 1994 and $34.5 million in 1993. The increase in 1995 resulted from the issuance of $350 million of 6.85% notes due May 15, 2000, and $300 million of 7.125% notes due May 15, 2005, as well as from other increased borrowings, which were used to purchase property and equipment, participate in business combinations, and make other contract-related investments to support business growth. EDS' separate consolidated net income excludes expenses of $38.8 million, $29.1 million, and $34.9 million in 1995, 1994, and 1993, respectively, relating to purchase accounting adjustments associated with GM's acquisition of EDS in 1984. II-57 71 HUGHES FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 --------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net Sales Outside customers..................................... $ 9,528.8 $ 9,108.7 $ 9,062.8 GM and affiliates..................................... 5,185.5 4,953.6 4,387.4 --------- --------- --------- Total Net Sales.................................... 14,714.3 14,062.3 13,450.2 Other income -- net..................................... 57.5 37.1 67.3 --------- --------- --------- Total Revenues..................................... 14,771.8 14,099.4 13,517.5 --------- --------- --------- Pre-tax Income.......................................... 1,593.9 1,528.6 1,370.4 Income Taxes............................................ 645.6 572.8 572.6 Cumulative effect of accounting change.................. -- (30.4) -- --------- --------- --------- Net Income......................................... $ 948.3 $ 925.4(1) $ 797.8 ========= ========= ========= Earnings Used for Computation of Available Separate Consolidated Net Income(2)....................... $ 1,107.8 $ 1,049.2(1) $ 921.6 ========= ========= ========= Net Earnings Attributable to Class H Common Stock on a Per Share Basis....................................... $2.77 $2.62(1) $2.30 Cash Dividends Per Share of Class H Common Stock........ $0.92 $0.80 $0.72 Depreciation and Amortization(2)........................ $487.7 $470.2 $503.5 Capital Expenditures(3)................................. $820.3 $746.3 $580.0 Worldwide Employment at December 31, (in thousands)..... 84 79 78
- ------------------------- (1) Includes unfavorable cumulative effect of the SFAS No. 112 accounting change of $30.4 million, or $0.08 per Class H share. (2) Excludes amortization and adjustment of GM purchase accounting adjustments of $159.5 million, $123.8 million, and $123.8 million for 1995, 1994, and 1993, respectively, related to GM's acquisition of Hughes Aircraft Company. (3) Includes expenditures related to telecommunications and other equipment amounting to $274.6 million, $255.8 million, and $131.1 million, in 1995, 1994, and 1993, respectively. SEGMENT HIGHLIGHTS Automotive Electronics Revenues................................................. $5,561.3 $5,221.7 $4,453.4 Net Sales................................................ $5,479.7 $5,170.6 $4,451.0 Operating Profit(1)...................................... $ 869.0 $ 794.8 $ 624.3 Operating Profit Margin(2)............................... 15.9% 15.4% 14.0% Telecommunications and Space Revenues................................................. $3,092.7 $2,596.2 $2,238.3 Net Sales................................................ $3,075.8 $2,633.8 $2,135.8 Operating Profit(1)...................................... $ 189.2 $ 271.0 $ 209.6 Operating Profit Margin(2)............................... 6.2% 10.3% 9.8% Aerospace and Defense Systems Revenues................................................. $5,945.4 $6,023.6 $6,472.2 Net Sales................................................ $5,899.7 $6,007.3 $6,442.9 Operating Profit(1)...................................... $ 688.0 $ 663.6 $ 664.2 Operating Profit Margin(2)............................... 11.7% 11.0% 10.3%
- ------------------------- (1) Net sales less total costs and expenses other than interest expense and amortization of purchase accounting adjustments related to GM's purchase of Hughes Aircraft Company. (2) Operating profit as a percentage of net sales. II-58 72 HUGHES FINANCIAL REVIEW Hughes Electronics reported net income of $948.3 million in 1995, compared to $925.4 million and $797.8 million in 1994 and 1993, respectively. The 1994 net income includes the unfavorable cumulative effect of adopting SFAS No. 112 of $30.4 million. Excluding amortization and adjustment 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 $1,107.8 million in 1995 compared to $1,049.2 million in 1994 and $921.6 million in 1993. The improved earnings for 1995 and 1994 were due primarily to increased revenues and on-going cost-reduction efforts, partially offset by the planned increase in expenses associated with the commencement of operations and continued expansion of DIRECTV(R). Total revenues increased to $14,771.8 million in 1995, compared to $14,099.4 million in 1994 and $13,517.5 million in 1993. Revenues in the Automotive Electronics segment increased in 1995 to $5,561.3 million compared to $5,221.7 million and $4,453.4 million in 1994 and 1993, respectively. The increase in Automotive Electronics revenues in 1995 and 1994 resulted from an increase in Hughes-supplied electronic content in GM vehicles produced in North America, and continued growth of sales to international and non-GM customers. In addition, the 1994 increase reflected an increase in GM-NAO vehicle production during 1994. Revenues from the Telecommunications and Space segment increased to $3,092.7 million in 1995 compared to $2,596.2 million and $2,238.3 million in 1994 and 1993, respectively. The increase in both years reflected increased sales of satellites, Galaxy transponders, cellular communications equipment, and private business networks. The commencement of DIRECTV service in 1994 and DIRECTV subscriber growth in 1995 also contributed to the revenue gains. Revenues from the Aerospace and Defense Systems segment decreased to $5,945.4 million compared to $6,023.6 million in 1994 and $6,472.2 million in 1993. The decreases in 1995 and 1994 revenues resulted from lower production rates and planned terminations on several defense programs. The decrease in 1995 revenues was partially offset by additional revenues resulting from the acquisition of the CAE-Link training and simulation business. The operating profit margin as a percentage of net sales, excluding amortization of purchase accounting adjustments related to GM's purchase of Hughes Aircraft Company, was 11.3% in 1995 compared to 11.6% for 1994 and 10.9% in 1993. The decrease in 1995 compared to 1994 was primarily a result of increased operating expenses associated with the continued expansion of DIRECTV in 1995, partially offset by higher margins in the Automotive Electronics and Aerospace and Defense Systems segments resulting from cost-reduction programs. The improvement in 1994 compared to 1993 also relates primarily to higher margins resulting from such cost-reduction efforts. Hughes recorded pre-tax charges of $76.1 million, $35.0 million, and $55.0 million in 1995, 1994, and 1993, respectively, relating to the disposition of certain non-strategic businesses. Pre-tax income for 1993 also included a gain of $89.7 million related to the sale of a 30% ownership interest in Japan Communications Satellite Company, Inc. Hughes' effective income tax rate was 40.5% in 1995 compared to 37.5% in 1994 and 41.8% in 1993. The lower effective income tax rate in 1994 resulted from the recognition of capital loss carryforward benefits. II-59 73 RESULTS OF OPERATIONS WITH GMAC ON AN EQUITY BASIS To facilitate analysis, the following financial statements present financial data for the Corporation's manufacturing, wholesale marketing, defense, electronics, and computer service operations with the financing and insurance operations 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 GMAC ON AN EQUITY BASIS
YEARS ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 ---------- ---------- ---------- (DOLLARS IN MILLIONS) Net Sales and Revenues(1)................................ $152,614.5 $141,576.0 $125,252.7 ---------- ---------- ---------- Costs and Expenses Cost of sales and other operating charges, exclusive of items listed below.................................. 126,545.8 117,290.8 106,497.1 Selling, general, and administrative expenses.......... 11,489.8 10,574.7 9,765.7 Depreciation of real estate, plants, and equipment..... 4,211.8 3,868.4 3,824.7 Amortization of special tools.......................... 3,212.0 2,900.7 2,535.3 Amortization of intangible assets...................... 171.1 180.7 189.3 Special provision for scheduled plant closings......... -- -- 950.0 ---------- ---------- ---------- Total Costs and Expenses.......................... 145,630.5 134,815.3 123,762.1 ---------- ---------- ---------- Operating Income......................................... 6,984.0 6,760.7 1,490.6 Other income less income deductions -- net(2)............ 1,220.8 1,251.8 1,195.3 Interest expense......................................... (464.6) (1,304.5) (1,510.9) ---------- ---------- ---------- Income before Income Taxes............................... 7,740.2 6,708.0 1,175.0 Income taxes (benefit)................................... 2,091.6 2,181.9 (482.1) ---------- ---------- ---------- Income after Income Taxes................................ 5,648.6 4,526.1 1,657.1 Earnings of nonconsolidated affiliates................... 1,283.9 1,125.2 808.7 ---------- ---------- ---------- Income before cumulative effect of accounting changes.... 6,932.5 5,651.3 2,465.8 Cumulative effect of accounting changes(3)............... (51.8) (750.7) -- ---------- ---------- ---------- Net Income........................................ $ 6,880.7 $ 4,900.6 $ 2,465.8 ========== ========== ========== Profit Margin..................................... 4.5% 3.5% 2.0%
- ------------------------- (1) Includes sales to nonconsolidated affiliates of $1,214.6 million in 1995, $1,134.1 million in 1994, and $1,059.2 million in 1993. (2) Includes a loss on the sale of NCRS' net assets of $147.8 million in 1995 and a loss on the sale of AGT of $305.6 million in 1993. (3) Effective January 1, 1995 the Corporation adopted EITF Issue No. 95-1 and effective January 1, 1994 the Corporation adopted SFAS No. 112. Not included in 1994 is the unfavorable cumulative effect on GMAC earnings of $7.4 million of adopting SFAS No. 112 because the cumulative effect is included in earnings of nonconsolidated affiliates. II-60 74 Net income in 1995 was $6,880.7 million, or $7.21 per share of $1 2/3 par value common stock, compared with net income of $4,900.6 million in 1994, or $5.15 per share of $1 2/3 par value common stock, and net income of $2,465.8 million in 1993, or $2.13 per share of $1 2/3 par value common stock. The increased net income for 1995 was achieved as a result of earnings improvement by the five major business sectors.
1995 O/(U) 1995 1994* 1994 -------- -------- -------- (DOLLARS IN MILLIONS) GM-NAO/Delphi............................... $2,395.5 $ 677.3 $1,718.2 GMIO........................................ 1,643.6 1,575.2 68.4 GMAC........................................ 1,031.0 919.7 111.3 EDS......................................... 938.9 821.9 117.0 Hughes...................................... 1,107.8 1,049.2 58.6 Other....................................... (236.1) (142.7) (93.4) -------- -------- -------- Total.................................. $6,880.7 $4,900.6 $1,980.1 ======== ======== ========
- ------------------------- * Reflects 1995 reclassifications Reference should be made to the Financial Reviews for GM-NAO/Delphi, GMIO, GMAC, EDS, and Hughes, that are presented on pages II-50 through II-59 and are incorporated herein by reference to supplement the information presented below. Net sales and revenues increased $11.0 billion to $152.6 billion in 1995, compared to $141.6 billion and $125.3 billion in 1994 and 1993, respectively. The year-over-year increase was primarily due to increased wholesale vehicle sales, lower sales incentives, and an improved mix of retail and fleet sales in North America; increased wholesale vehicle sales outside of North America; and the continued expansion of EDS and Hughes. The gross margin percentage was 17.1% for 1995, compared to 17.2% and 15.0% in 1994 and 1993, respectively. The slight decrease in the gross margin percentage for 1995 compared to 1994 primarily resulted from labor cost pressures in Latin America; foreign exchange rate movements in Europe, Brazil, and Venezuela; vehicle launch costs in Europe; and increased corporate-wide engineering expenses to support new product development. These higher 1995 costs were partially offset by material and manufacturing cost savings for GM-NAO, Delphi, and GMIO in connection with ongoing global sourcing initiatives and efforts to increase efficiency and quality. The improvement from 1993 to 1994 resulted from lower material cost, improved manufacturing performance, and a reduction in hourly employment despite increased vehicle production. Other operating expenses totaled $19.1 billion in 1995 compared to $17.5 billion in 1994 and $17.3 billion in 1993. The increases in other operating expenses in 1995 and 1994 reflect increased depreciation and amortization in connection with production and quality improvements worldwide. Other operating expenses for 1993 included a $950 million increase to the plant closing reserve. Other income less income deductions approximated $1.2 billion in 1995, 1994, and 1993. The amount reported for 1995 includes a $147.8 million loss associated with the Corporation's sale of the net assets of National Car Rental System (NCRS), and the 1993 total includes a $305.6 million loss on the sale of Allison Gas Turbine Division. The effective income (benefit) tax rate for 1995 was 27.0% compared to 32.5% in 1994 and (41.0%) in 1993. The 1995 effective income tax rate resulted from the resolution of numerous prior year tax issues worldwide, efficient utilization of a net operating loss carryback, tax benefits associated with the mix of foreign earnings and foreign income taxes, and tax benefits relating to the sale of the net assets of NCRS. The $10.4 billion of pension contributions helped generate a net operating loss -- for income tax purposes -- in 1995 which will be carried back to prior years during which General Motors was subject to higher tax rates. The lower 1995 interest expense compared to 1994 resulted from the reversal of interest related to income tax II-61 75 issues resolved in 1995 and the revaluation of the remaining reserve. The interest had been accrued for more than 10 years on numerous items. There also was a reduction in the current year interest accrued on outstanding tax issues. General Motors realized an overall tax benefit in 1993, primarily relating to a $444.3 million favorable impact of the increase in the U.S. corporate income tax rate. The higher tax rate resulted in a benefit because of General Motors' net deferred tax asset position. The Corporation used $1.3 billion of cash during 1995 to purchase 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. In November 1995, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF) reached a consensus on its Issue No. 95-1, Revenue Recognition on Sales with a Guaranteed Minimum Resale Value. The EITF determined that manufacturers should account for such transactions as leases. Accordingly, the Corporation's revenue recognition policy on sales to daily rental car companies was modified 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 of $1 2/3 par value common stock), and increases at December 31, 1995 in net equipment on operating leases of $4.4 billion and other liabilities and deferred credits of $4.6 billion. The effect on future periods is not expected to be material. Results for 1994 included a $758.1 million after-tax charge reflecting the unfavorable effect of adopting SFAS No. 112 effective January 1, 1994. Of this amount, $7.4 million relates to GMAC and is included in earnings of nonconsolidated affiliates. The profit margin has improved 2.5 percentage points since 1993, and was 4.5%, 3.5%, and 2.0% in 1995, 1994, and 1993, respectively. However, the results are short of General Motors' goal of an average annual profit margin of at least 5% over the automotive industry business cycle. LIQUIDITY AND CAPITAL RESOURCES WITH GMAC ON AN EQUITY BASIS Total cash and marketable securities at December 31, 1995 were $10.9 billion, down from $11.0 billion a year earlier as a result of cash used for pension funding, increased capital expenditures, and the preference stock tender offer, each of which is discussed in further detail in later sections of this analysis. General Motors is still on track to accumulate its targeted $13.0 billion of cash and marketable securities in order to continue to fund product development programs throughout the next downturn in the business cycle. The Corporation continued to improve its financial condition in 1995 and 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 in the aggregate provide $30.3 billion of committed bank credit availability. Of this amount, $3.0 billion is directly available to the Corporation. At year-end 1995, unused short-term credit facilities, including those relating to GMAC, totaled approximately $22.9 billion and unused long-term credit facilities (including GMAC) totaled approximately $20.1 billion, compared with $18.5 billion and $19.2 billion, respectively, at the end of 1994. Long-term debt was $5,967.8 million at the end of 1995, a decrease of $114.5 million compared to 1994. The ratio of long-term debt to the total of long-term debt and stockholders' equity was 20.4% at December 31, 1995 and 32.2% at December 31, 1994. The ratio of long-term debt and short-term loans payable to the total of this debt and stockholders' equity was 26.5% at the end of 1995 and 35.6% at the end of 1994. Net liquidity, calculated as cash and marketable securities less the total of loans payable, long-term debt and capitalized leases, declined $1.5 billion to $2.3 billion, primarily due to increased notes payable of EDS, significant cash contributions to the worldwide pension funds, and the preference stock repurchase. EDS' increased debt balances reflected EDS' capital requirements to expand its business. Excluding EDS, net liquidity was $3.8 billion. II-62 76 CONSOLIDATED BALANCE SHEET WITH GMAC ON AN EQUITY BASIS
DECEMBER 31, ------------------------- 1995 1994 ---------- ---------- (DOLLARS IN MILLIONS) ASSETS Cash and cash equivalents........................................... $ 9,595.7 $ 9,731.4 Other marketable securities......................................... 1,270.4 1,245.0 ---------- ---------- Total cash and marketable securities........................... 10,866.1 10,976.4 Accounts and notes receivable -- net Trade............................................................. 8,513.7 7,873.1 Nonconsolidated affiliates........................................ 2,256.8 2,080.4 Inventories -- net.................................................. 11,529.5 10,127.8 Contracts in process -- net......................................... 2,469.2 2,265.4 Net equipment on operating leases................................... 4,392.6 -- Deferred income taxes and other..................................... 5,820.3 6,455.6 ---------- ---------- Total Current Assets........................................... 45,848.2 39,778.7 Equity in Net Assets of Nonconsolidated Affiliates.................. 9,983.0 9,204.3 Deferred Income Taxes............................................... 16,783.2 16,318.6 Other Investments and Miscellaneous Assets.......................... 13,757.5 14,835.5 Property -- Net..................................................... 37,609.6 34,661.4 Intangible Assets -- Net............................................ 11,261.8 11,536.4 ---------- ---------- Total Assets................................................... $135,243.3 $126,334.9 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable.................................................... $ 10,975.7 $ 10,905.0 Loans payable....................................................... 2,434.7 993.7 Income taxes payable................................................ 126.9 144.7 Accrued liabilities and customer deposits........................... 29,920.4 26,584.4 Stocks subject to repurchase........................................ -- 450.0 ---------- ---------- Total Current Liabilities...................................... 43,457.7 39,077.8 Long-Term Debt...................................................... 5,967.8 6,082.3 Payable to GMAC..................................................... -- 1,212.5 Capitalized Leases.................................................. 166.2 136.4 Postretirement Benefits Other Than Pensions......................... 39,001.0 37,348.0 Pensions............................................................ 5,744.9 11,223.1 Other Liabilities and Deferred Income Taxes......................... 16,058.9 16,752.2 Deferred Credits.................................................... 1,501.3 1,678.8 Stockholders' Equity................................................ 23,345.5 12,823.8 ---------- ---------- Total Liabilities and Stockholders' Equity..................... $135,243.3 $126,334.9 ========= =========
Stocks subject to repurchase at December 31, 1994 consisted of 15 million shares of Class H common stock subject to put options issued to the Howard Hughes Medical Institute (HHMI) and exercisable at $30 per share on March 1, 1995. The Corporation held an option to call HHMI's shares until February 28, 1995 at $37.50 per share. The put and call rights expired unexercised. As a result, $1.5 million was transferred to Class H common stock and $448.5 million was transferred to capital surplus. In 1994, the Corporation converted all 17,285,000 outstanding shares of its Series A Conversion Preference Stock (Preference Equity Redemption Cumulative Stock or PERCS) into shares of $1 2/3 par value common stock. A total of 17.7 million shares of $1 2/3 par value common stock was issued in this conversion. Book value per share of $1 2/3 par value common stock was $24.37 at the end of 1995, versus $11.18 a year earlier and $1.65 at the end of 1993. Book value per share of Class E common stock increased to $3.11 from $1.43 and $0.21 at the end of 1994 and 1993, respectively. Book value per share of Class H common stock increased to $12.20 from $5.59 and $0.83 at the end of 1994 and 1993, respectively. Book value per share was determined based on the liquidation rights of the various classes of common stock. II-63 77 CONSOLIDATED STATEMENT OF CASH FLOWS WITH GMAC ON AN EQUITY BASIS
YEARS ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 ---------- --------- ---------- (DOLLARS IN MILLIONS) Cash Flows from Operating Activities Income before cumulative effect of accounting changes........... $ 6,932.5 $ 5,651.3(1) $ 2,465.8 Adjustments to reconcile income before cumulative effect of accounting changes to net cash provided by operating activities Depreciation and amortization................................. 7,594.9 6,949.8 6,549.3 Special provision for scheduled plant closings................ -- -- 950.0 Provision for inventory allowances............................ 77.5 53.1 44.1 Pension expense, net of cash contributions.................... (2,983.9) (5,096.1) (1,548.2) Pre-tax (gain) loss on sales of various assets................ 116.1 (17.6) 305.6 Provision for ongoing postretirement benefits other than pensions, net of cash payments.............................. 1,659.0 2,204.6 2,355.7 Change in deferred income taxes(2)............................ 1,139.9 584.5 (1,345.8) Undistributed (earnings) loss of non-consolidated affiliates.................................................. (309.4) (204.4) 448.1 Change in other operating assets and liabilities Accounts receivable......................................... (539.4) (1,428.7) (106.0) Inventories................................................. (1,487.0) (1,750.3) 240.3 Accounts payable............................................ (328.7) 1,224.0 552.2 Income taxes payable........................................ (9.9) (243.3) (353.1) Other liabilities(2)........................................ (731.0) 990.0 (455.9) Other....................................................... 756.6 (480.1) 1,304.2 ---------- --------- ---------- Net Cash Provided by Operating Activities......................... 11,887.2 8,436.8 11,406.3 ---------- --------- ---------- Cash Flows from Investing Activities Investment in companies, net of cash acquired................... (616.3) (246.6) (232.4) Expenditures for real estate, plants, and equipment............. (6,218.4) (4,750.9) (3,703.6) Expenditures for special tools.................................. (3,725.9) (2,341.4) (2,648.6) Proceeds from disposals of real estate, plants, and equipment... 450.9 240.9 447.1 Proceeds from the sale of various assets........................ 183.2 518.4 231.5 Expenditures related to the sale of NCRS' net assets............ (197.0) -- -- Change in other investing assets Investments in other marketable securities -- acquisitions.... (5,682.1) (2,757.0) (2,554.9) Investments in other marketable securities -- liquidations.... 5,656.7 2,237.0 2,585.6 Notes receivable.............................................. (54.3) 101.9 8,811.0 Operating leases -- net(2).................................... (583.9) (723.1) (470.7) ---------- --------- ---------- Net Cash Provided by (Used In) Investing Activities............... (10,787.1) (7,720.8) 2,465.0 ---------- --------- ---------- Cash Flows from Financing Activities Net increase (decrease) in loans payable........................ 931.8 (550.9) 252.5 Increase in long-term debt...................................... 1,533.9 798.7 989.6 Decrease in long-term debt...................................... (1,652.8) (934.8) (1,627.7) Net increase (decrease) in payable to GMAC...................... 311.1 (143.0) (10,207.7) Redemption of HHMI put options.................................. -- -- (315.0) Repurchases of common, preferred, and preference stocks......... (1,680.7) -- (265.6) Proceeds from issuing common stocks............................. 504.8 1,184.9 860.2 Cash dividends paid to stockholders............................. (1,327.7) (1,111.9) (1,083.9) ---------- --------- ---------- Net Cash Used in Financing Activities............................. (1,379.6) (757.0) (11,397.6) ---------- --------- ---------- Effect of Exchange Rate Changes on Cash and Cash Equivalents...... 143.8 9.9 81.2 ---------- --------- ---------- Net increase (decrease) in cash and cash equivalents.............. (135.7) (31.1) 2,554.9 Cash and cash equivalents at beginning of the year................ 9,731.4 9,762.5 7,207.6 ---------- --------- ---------- Cash and cash equivalents at end of the year...................... $ 9,595.7 $ 9,731.4 $ 9,762.5 ========== ========= ==========
- ------------------------- (1) Includes the unfavorable cumulative effect on GMAC earnings of $7.4 million from adopting SFAS No. 112. (2) Excluding effect of accounting changes. II-64 78 CASH FLOWS WITH GMAC ON AN EQUITY BASIS Net cash provided by operating activities was $11,887.2 million in 1995, $8,436.8 million in 1994, and $11,406.3 million in 1993. The increase in 1995 was primarily attributable to higher net income and depreciation, the sale of $600 million of accounts receivable during 1995, and a decrease in cash pension contributions in excess of pension expense. Depreciation expense increased as a result of higher capital expenditures in each of the last three years. Cash pension contributions for 1995 decreased compared to 1994; however, the Corporation made a non-cash pension contribution of Class E common shares, valued at approximately $6.3 billion, during 1995. Cash pension contributions exceeded pension expense by $2,983.9 million, $5,096.1 million, and $1,548.2 million in 1995, 1994, and 1993, respectively, as the Corporation continued its efforts to reduce the unfunded pension position. The decrease in cash provided from operating activities in 1994 compared to 1993 reflected cash pension contributions in excess of pension expense and an increase in net operating assets, partially offset by higher net income before the accounting change and an increase in depreciation expense. The Hughes restructuring reserve was increased by $35 million in 1994 and $78 million in 1993 primarily reflecting changes in the estimated loss on disposition of Hughes LAN Systems and Hughes Rediffusion Simulation Limited and related entities, respectively. In 1993, the Corporation increased its existing reserve for scheduled plant closings by $950 million as a result of changes in assumptions, primarily regarding the amount and duration of job security and supplemental unemployment benefits expected to be paid to employees, given the terms of the Corporation's collective bargaining agreements. During 1995, 1994, and 1993, $503.8 million, $498.8 million, and $599.6 million, respectively, was charged against the Corporation's plant closing reserve, primarily related to employee job security costs. Charges against the Hughes restructuring reserve amounted to $208.8 million in 1995, $228.3 million in 1994, and $527.6 million in 1993. The charges in 1995 and 1994 were predominantly facilities costs, while the 1993 charges were comprised of facilities costs, severance, business disposition costs, and other. At December 31, 1995, the combined total of the plant closing and restructuring reserves (excluding environmental) was $2,612.3 million, which included $2,477.9 million for GM-NAO plant closings and $134.4 million for the Hughes restructuring. The reserve balance primarily includes people related costs, on a discounted basis, and certain other noncash items such as asset write-downs. Total future cash expenditures for GM-NAO plant closings will be approximately $2,650 million. The future employee job security costs (approximately three-quarters of the future cash expenditures) will be expended during the period between the closing of the plants and the time the affected employees are redeployed, retire, or otherwise terminate their employment. The majority of such spending will occur over the next five years. Most of the facility costs will be expended in varying amounts over the next four years. Cash outflows are influenced by, among other items, efficient and effective management of the work force and the timing of plant closings. Approximately $119.3 million of the Hughes restructuring reserve balance, primarily relating to facilities consolidation, will require future cash outflows, the predominant portion of which will occur over the next two years. The balance of the Hughes reserve represents non-cash items. The Corporation has made substantial progress toward achieving its plan of realigning GM-NAO's plant capacity and the improved operating results and cash flow are partly a result of these actions. Further incremental benefits are anticipated as execution of the plan is completed. Hughes' operating results and cash flow were favorably affected by cost reductions resulting from the restructuring. Net cash used in investing activities amounted to $10,787.1 million in 1995 and $7,720.8 million in 1994, compared to net cash provided by investing activities of $2,465.0 million in 1993. Net cash used in investing activities in 1995 and 1994 consisted primarily of capital expenditures, including special tools. Worldwide capital expenditures for real estate, plants, and equipment and special tools were $9.9 billion in 1995, $7.1 billion in 1994, and $6.4 billion in 1993. Expenditures in 1995 were devoted primarily to improve efficiency and quality, to increase truck assembly capacity, and to increase the Corporation's global presence. II-65 79 Of the 1995 worldwide expenditures for real estate, plants, and equipment, and special tools, approximately 68% were in the U.S. (70% in 1994 and 71% in 1993), 8% in Canada and Mexico (10% in 1994 and 5% in 1993), and 24% overseas (20% in 1994 and 24% in 1993). Commitments for capital spending, including special tools, were $4.9 billion at December 31, 1995. Capital expenditures for 1996 are estimated to be approximately $10.5 billion. Net cash used in financing activities was $1,379.6 million in 1995 compared to $757.0 million in 1994 and $11,397.6 million in 1993. Net cash used in financing activities in 1995 primarily reflected $1,286.7 million used to repurchase preference stock and $1,327.7 million in cash dividends paid to stockholders, partially offset by an increase in total loans payable of $931.8 million. Cash used in financing activities in 1994 reflected a net decrease in long-term debt and loans payable, and cash dividends paid to stockholders, partially offset by proceeds from issuing common stocks, primarily for employee benefit plans. Cash flows from investing and financing activities in 1993 were affected by the discontinuation of the Corporation's financing of certain dealer wholesale receivables and the use of the related proceeds to retire certain intercompany financing arrangements with GMAC. In 1993, the Corporation redeemed all of the $5.00 Series and $3.75 Series of Preferred Stock for $265.0 million. In May 1995, the Corporation concluded a tender offer, under which it purchased for $1.3 billion of cash (i) 24.3 million depositary shares each representing one-fourth of a share of its Series B 9 1/8% Preference Stock, at a purchase price of $27.50 per share, (ii) 9.6 million depositary shares, each representing one-fourth of a share of its Series D 7.92% Preference Stock at a purchase price of $26.375 per depositary share, and (iii) 12.9 million depositary shares, each representing one-fourth of a share of its Series G 9.12% Preference Stock, at a purchase price of $28.25 per depositary share. LIQUIDITY AND CAPITAL RESOURCES FOR GMAC At the end of 1995, GMAC owned assets and serviced automotive receivables for others which totaled $105.5 billion, an increase of $8.0 billion over year-end 1994. Earning assets, which accounted for $90.5 billion of total assets, increased by $8.4 billion from 1994. The increase in earning assets was primarily attributable to increases in finance receivables and operating leases. Consolidated finance receivables, net of unearned income, totaled $59.3 billion at December 31, 1995, an increase of $4.7 billion over 1994 year-end. The increase was primarily attributable to a higher average amount financed per new vehicle retail contract in the U.S. GMAC's operating lease assets, net of depreciation, totaled $22.1 billion at year-end 1995, $4.3 billion over year-end 1994. The increase primarily reflected a continued trend of new lease volume exceeding maturities and terminations. GMAC's liquidity, as well as its ability to profit from ongoing acquisition activity, is in a large part dependent upon its timely access to capital and the costs associated with raising funds in different segments of the capital markets. In this regard, GMAC regularly accesses the short-, medium-, and long-term debt markets, principally through commercial paper, medium-term notes, and underwritten transactions. Also, GMAC continues to use an asset securitization program as an alternative funding source with net proceeds totaling $5.5 billion and $6.1 billion during 1995 and 1994, respectively. As of December 31, 1995, GMAC's total borrowings were $74.9 billion, an increase of $8.2 billion over the $66.7 billion outstanding at the end of 1994. The higher amount of outstanding borrowings was attributable to increased funding requirements for higher earning asset levels. Consequently, GMAC's ratio of debt to total stockholder's equity at December 31, 1995 was 9.1:1, up from 8.4:1 at the end of 1994. GMAC maintains substantial bank lines of credit. At December 31, 1995, GMAC maintained or had access to approximately $30.4 billion of unused credit lines with banks worldwide, an increase of $4.7 billion compared to 1994. II-66 80 CASH FLOW FOR GMAC Cash provided by operating and financing activities in 1995 totaled $5.0 billion and $6.7 billion, respectively. Such cash was used in investing activities, principally for expansion of the finance receivables and operating lease portfolios, totaling $11.6 billion. In 1994, cash provided by operating and financing activities totaled $4.7 billion and $2.5 billion, respectively. Such cash was used for investing activities totaling $9.9 billion, primarily for acquiring operating lease assets, with a resultant decrease in cash and cash equivalents amounting to $2.7 billion. The 1994 decrease in cash and cash equivalents resulted from a planned reduction in liquidity reserve requirements due to improved access to capital markets. In 1993, cash provided by operating activities totaled $4.9 billion. A net reduction in finance receivables (resulting from sales of finance receivables) factored significantly in the $7.8 billion provided by investing activities. Such cash was used in financing activities totaling $12.6 billion, principally to reduce debt. Reference should be made to the condensed GMAC financial statements included in Note 22 to the Consolidated Financial Statements. EDS SPLIT-OFF The GM Board of Directors (the "GM Board") has approved a split-off (the "Split-Off") of EDS to the holders of General Motors' Class E Common Stock in a transaction that is tax-free for U.S. Federal income tax purposes. GM's Board has determined that the Split-Off and related transactions are in the best interests of, and fair to, General Motors and each class of GM common stockholders. The Split-Off will be submitted for approval by the common stockholders of General Motors and, if approved, is expected to be consummated in the second quarter of 1996. No assurances can be given that the Split-Off will occur. The principal terms of the Split-Off include a revised Master Services Agreement and other agreements between GM and EDS relating to information technology ("IT") services to be provided after the Split-Off (collectively, the "IT Services Agreements") and a special payment of $500 million to be made by EDS to GM in connection with the Split-Off (the "Special Inter-Company Payment"). If the Split-Off is not completed, EDS would continue as an indirect wholly-owned subsidiary of GM and no Special Inter-Company Payment would be made. Under such circumstances, the existing contractual arrangements between GM and EDS with respect to IT services would continue with such changes as General Motors and EDS may from time to time agree upon or as the GM Board upon recommendation of its Capital Stock Committee may from time to time determine to be fair to all classes of GM common stockholders. The IT Services Agreements contemplate that EDS would continue to serve as GM's principal supplier of IT services for an initial term of ten years, which may be extended by agreement of the parties, and that the IT services to be provided by EDS after the Split-Off will generally be similar to those provided to General Motors under the existing Master Agreement that serves as a framework for individual services agreements between GM and EDS (collectively, together with the existing Master Agreement, the "Existing IT Services Agreements"). IT services that will be considered to be "in-scope" for purposes of the IT Services Agreements accounted for approximately $3.4 billion of approximately $3.9 billion in the aggregate of revenues received by EDS from GM in 1995. The balance of EDS' 1995 revenues from GM was attributable to services that, to the extent sourced from EDS, will continue to be contracted for outside the framework of the Master Services Agreement. Under the terms of the IT Services Agreements, certain of the Existing IT Services Agreements applicable to particular units, sectors or other organizations within General Motors will be extended for additional terms of between approximately one and three years beyond their current expiration dates. In addition, EDS will provide to General Motors certain plant floor automation services in North America that it has not previously provided. The IT Services Agreements provide that certain significant changes will be made to the pricing and terms of services provided by EDS. Among other things, the parties have agreed that the rates charged by EDS to General Motors for certain information processing activities and communications services will be reduced and that the parties will work together to achieve increased targets for structural cost II-67 81 reductions. General Motors will also be given the right to competitively bid and, subject to certain restrictions, outsource a limited portion of its IT service requirements to third party providers. In addition, commencing in 1997, the payment terms relating to IT services provided by EDS will be revised over a two-year period to extend the due dates for payments from General Motors. The Master Services Agreement provides for termination in the event of material default by either party, non-payment by GM, the insolvency of either party and certain changes in control of EDS. The GM Board believes that the changes reflected in the Master Services Agreement are necessary (i) in light of the fact that, after the Split-Off, EDS will no longer be a subsidiary of General Motors and the Capital Stock committee of the GM Board of Directors will no longer be able to monitor the IT service arrangements between the parties; (ii) to reflect the evolutionary nature of the General Motors-EDS customer relationship and the IT services industry; and (iii) to provide additional assurance to General Motors, as EDS' largest customer, that the IT services performed by EDS will remain competitive. The Special Inter-Company Payment has been included as one of the terms of the Split-Off in order to enable the GM Board of Directors to determine that the Split-Off is fair to all classes of GM common stockholders. The Special Inter-Company Payment will be paid by EDS to GM at such time as the Split-Off occurs. In determining the amount of the Special Inter-Company Payment, the GM Board gave consideration to, among other things, a $50.0 million allowance to EDS relating to the resolution of various uncertain, contingent or other matters arising out of the separation of GM and EDS. Statements about the effect of the proposed Split-Off and the impact of the agreement relating to IT services after the proposed Split-Off are forward-looking statements which by their nature are subject to numerous uncertainties that could cause actual results to vary. Further information about the terms of the proposed Split-Off is included in EDS' Management's Discussion and Analysis set forth in Exhibit 99(a) to this Annual Report on Form 10-K and additional information will be set forth in a joint consent solicitation statement and prospectus of GM and EDS to be filed with the Securities and Exchange Commission and distributed to GM common stockholders in connection with the submission of the Split-Off for approval by such stockholders. No offering of securities of EDS in connection with the proposed Split-Off will be made other than by means of such prospectus. HEALTH CARE EXPENSE AND OTHER POSTRETIREMENT BENEFITS As described in Note 12 to the Consolidated Financial Statements, SFAS No. 106 requires the cost of postretirement medical, dental, vision, and life insurance to retirees and eligible dependents to be recognized in the financial statements during the period employees provide services to General Motors. Costs for medical, dental, vision, and life insurance claims provided to employees during active service are expensed as incurred (pay-as-you-go) and are not covered by SFAS No. 106. The components of the 1995 SFAS No. 106 expense and the 1995 U.S. health care cost and cash expenditures are set forth below (excluding cash expenditures for EDS and Hughes' non-automotive employees, but including GMAC). In determining 1996 expense the favorable impact on the accumulated postretirement benefit obligation of the reduction in the health care trend rate assumption will be substantially offset by the unfavorable impact of the decline in the health care discount rate. II-68 82 SFAS No. 106 has no effect on cash flow since General Motors continues its practice of paying postretirement benefits (other than pensions) when incurred. Nonetheless, General Motors is committed to reducing the burden of continuing health care cost increases.
YEAR ENDED DECEMBER 31, 1995 -------------------------------------------- SFAS NO. 106 HEALTH CARE PAY-AS-YOU-GO EXPENSE COST COST* ------------ ----------- ------------- (DOLLARS IN MILLIONS) GM U.S. Operations Health Care -- SFAS No. 106 Expense................................. $3,166 $3,166 $ -- Retired Employees Pay-As-You-Go..................................... -- -- 1,699 Active Employees Pay-As-You-Go..................................... -- 1,871 1,871 ------ ------ ------ Total Health Care................................. 3,166 $5,037 $3,570 ====== ====== SFAS No. 106 Ongoing Expense Life Insurance....................................... 344 Other Subsidiaries -- Health Care and Life Insurance......................................... 130 ------ Total SFAS No. 106................................ $3,640 ======
- ------------------------- * Pay-as-you-go amounts for 1994 were $1,616 million for retirees, $1,845 million for active employees and $3,461 million in total. 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. GM CARD The Corporation and certain of its subsidiaries sponsor a credit card program, entitled the GM Card program, introduced in the U.S. in September 1992 and subsequently in Canada, Australia, Brazil, and the United Kingdom. A cardholder's use of the card generates entitlements to rebates which can be used solely in connection with the cardholder's purchase or lease of a new General Motors vehicle. As the sponsor of the GM Card program, General Motors does not provide consumer credit. The program is used as a marketing tool to strengthen brand loyalty and to ultimately increase product sales. Independent banks issue the GM Card and are responsible for evaluating, extending, and funding credit to the cardholders, and are fully responsible for any credit card losses with no recourse against General Motors. In the U.S., GM Card rebates accumulate at a rate equal to 5% of all spending for goods or services charged to the GM Card up to a maximum rebate amount of $500 per year on the Blue Card and $1,000 per year on the Gold Card. Additional rebates may be earned when the GM Card is used to make purchases from non-bank marketing partners. The rebates, which expire in 7 years, may be applied over and above all sales allowances in the market at the time of vehicle purchase or lease. General Motors is solely responsible to cardholders for rebates. Provisions for GM Card rebates are recorded as reductions in revenue at the time of vehicle sale. General Motors has the right to prospectively modify the plan. Rebates redeemed worldwide during 1995, 1994, and 1993 were $299.4 million, $149.8 million, and $33.6 million, respectively. Cardholder rebates available worldwide for future redemption when the cardholder purchases or leases a new General Motors vehicle amounted (net of deferred program income) to $2.5 billion and $1.6 billion at December 31, 1995 and 1994, respectively. The Corporation anticipates that profits from II-69 83 incremental sales resulting from the GM Card program along with deferred program income will more than offset future rebate costs associated with the GM Card. DERIVATIVE INSTRUMENTS General Motors is an international corporation with operations in over 50 countries in the world, which naturally exposes it to a variety of financial risks. These financial risks are principally the effects of movements in foreign exchange rates on transactions not denominated in U.S. dollars, and, to a lesser extent, changes in interest rates on its net cost of borrowings. In addition, General Motors is hedging its use of metals in the physical and financial commodities markets. The impact of such financial exposures on General Motors' annual income is relatively small compared with the impact of changes in vehicle sales volumes and operating margins. These financial exposures are monitored and managed in accordance with General Motors' policies and procedures. With respect to foreign exchange, General Motors has foreign exchange exposures at many of its domestic and foreign operations related to buying, selling, and financing in currencies other than the local currency. General Motors' most significant foreign currency exposures relate to major North American countries (Canada and Mexico), Western European countries (primarily Germany, United Kingdom, Spain, Belgium, and France), Japan, and Brazil. The magnitude of these exposures varies significantly over time depending upon the strength of local automotive markets and sourcing decisions. The Corporation and its subsidiaries enter into agreements related to the management of certain foreign exchange exposures, primarily to hedge transaction risks. As a general practice, General Motors has not hedged the foreign exchange exposure related to either the translation of overseas earnings into U.S. dollars or the translation of overseas equity positions back to U.S. dollars. General Motors manages its market risk from exposure to changes in interest rates through various interest rate forward contracts and options both on debt and on GMAC's assets. At December 31, 1995 and 1994, the total notional amount of such financial instruments was approximately $16 billion and $14 billion, respectively. The $2 billion increase in the notional amount relates to GMAC, and its use of such instruments in the normal course of business to offset a companion asset or funding position as well as to adjust the fixed/floating nature of its funding position. Additional information regarding General Motors' accounting policies for and use of derivative financial instruments is contained in Notes 1, 9, 10, and 11 to the Consolidated Financial Statements. SECURITY RATINGS
CURRENT SECURITY RATINGS -------------------------------- S&P MOODY'S D&P FITCH ---- ------- ---- ----- GM/GMAC Long-Term Debt....................... A- A.3 A- A- GM Preference Stock.......................... BBB+ Baa1 BBB+ BBB+ GMAC Commercial Paper........................ A.2 P-1 D-1 F-1 Hughes Long-Term Debt........................ A- A.3 -- -- Hughes Commercial Paper...................... A.2 P-2 -- -- EDS Long-Term Debt........................... A* A.1 A+ A+** EDS Commercial Paper......................... A.1* P-1 D-1 F-1**
- ------------------------- * On CreditWatch with positive implications. ** On Fitch Alert with positive implications. Debt ratings by the various rating agencies reflect each agency's opinion of the ability of issuers to repay debt obligations punctually. Lower ratings generally result in higher borrowing costs. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating. II-70 84 In May 1995, Moody's Investors Service (Moody's) raised the long-term credit ratings of General Motors Corporation, GMAC, Hughes and certain related affiliates to A.3 from Baa1, seventh highest within the 10 investment grade ratings available from Moody's for long-term debt. Moody's defines A.3 bonds as having "upper-medium grade" quality, whereas the Baa1 rating signifies "medium grade" quality. In this action, the credit rating of GMAC's commercial paper was also raised from P-2 to P-1. Moody's employs its P-1 rating to indicate that an issuer's ability to repay is superior relative to other issuers, while the P-2 rating indicates that the issuer has a strong ability for repayment relative to other issuers. The ratings for commercial paper and term debt of EDS and the rating for commercial paper of Hughes were not affected by the action announced by Moody's. The rating for GM preference stock was upgraded two levels, to Baa1 from Baa3 (Baa3 is the lowest investment grade category). During 1995, Standard & Poor's Corporation (S&P) raised the long-term debt ratings of GM, GMAC, and Hughes from BBB+ to A-. The S&P A- credit rating is the seventh highest within the 10 investment grade ratings available from S&P for long-term debt, based on a strong capability to pay interest and repay principal, although somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Additionally, S&P raised its rating on GM's preference stock from BBB to BBB+, eighth highest within the 10 S&P investment grade ratings, affirmed its A.2 rating on GMAC's and Hughes' commercial paper, and raised its commercial paper rating of EDS to A.1 from A.2. The A.1 credit rating is the second highest within the four investment grade ratings available from S&P for commercial paper, indicating a strong degree of safety regarding timely payments. The senior debt (A) and commercial paper (A.1) rating on EDS remain on CreditWatch with positive implications. In addition, substantially all of the short-, medium-, and long-term debt issued by GMAC and the senior debt of GM and EDS is rated by Fitch Investors Service, Inc. (Fitch) and Duff & Phelps Credit Rating Co. (D&P). The senior debt of GM and GMAC is rated A- by both agencies, seventh highest within the 10 investment grade ratings available. Fitch's A- rating is assigned to bonds considered to be of high credit quality, with the obligor's ability to pay interest and repay principal considered to be strong. D&P's A- rating indicates adequate likelihood of timely payment of principal and interest. The senior debt of EDS is rated A+ by both agencies, fifth highest within the 10 investment grade ratings available. In January 1996, EDS senior debt was put on Fitch Alert with positive implications. GMAC's and EDS' commercial paper has received ratings of F-1 by Fitch, the second highest of four investment grade ratings available, which is assigned to short-term issues which possess a very strong credit quality based primarily on the existence of liquidity necessary to meet the obligation in a timely manner. In January 1996, EDS' commercial paper was put on Fitch Alert with positive implications. GMAC's and EDS' commercial paper is rated D-1 by D&P, the second highest of five investment grade ratings available which signifies a very high certainty of timely payment based on excellent liquidity factors and good fundamental protection factors. GM's preference shares are rated BBB+ by Fitch and D&P, the eighth highest of 10 investment grade ratings available. Preference issues assigned this rating by Fitch are considered reasonably safe but lack the projections of the "A" to "AAA" categories. This rating signifies that current results should be watched for possible signs of deterioration. Preference stock assigned this rating by D&P has below average projection factors but is still considered sufficient for prudent investment. DIVIDEND POLICY The Corporation's policy is to distribute dividends on its $1 2/3 par value common stock based on the outlook and indicated capital needs of the business. At the February 1996 meeting of the General Motors Board of Directors, the quarterly dividend on the $1 2/3 par value common stock was raised from $0.30 per share to $0.40 per share, a level that the Corporation believes will be sustainable throughout the automotive business cycle. With respect to Class E and Class H common stocks, the Corporation's current policy is to pay cash dividends approximately equal to 30% and 35% of the Available Separate Consolidated Net Income of EDS and Hughes, respectively, for the prior year. In February 1996, the Board of Directors increased the quarterly II-71 85 dividends on Class E common stock from $0.13 per share to $0.15 per share and on Class H common stock from $0.23 per share to $0.24 per share. Notwithstanding the current dividend policy, the dividends declared on the Class H common stock for each of the quarters of 1995, 1994, and 1993 were based on an annual rate higher than 35% of the Available Separate Consolidated Net Income of Hughes for the preceding year. DEFERRED INCOME TAXES General Motors' Consolidated Balance Sheet at December 31, 1995 included a net deferred tax asset of approximately $17.6 billion related to net future deductible temporary differences (see Note 6 to the Consolidated Financial Statements) in the U.S. of which approximately $15.5 billion relates to the obligation for postretirement benefits other than pensions. Realization of the net deferred tax asset is dependent upon profitable operations in the U.S. and future reversals of existing taxable temporary differences. Although realization is not assured, General Motors believes that it is more likely than not that such benefits will be realized through the reduction of future taxable income. Management has carefully considered various factors in assessing the probability of realizing these deferred tax benefits including: - Operating results of GMAC, EDS, and Hughes, which collectively generated U.S. pre-tax income of approximately $3.9 billion, $3.3 billion, and $3.4 billion in 1995, 1994, and 1993, respectively. - The operating results of GM-NAO/Delphi over the most recent three year period and overall financial forecasts of book and taxable income for the 1996-2000 period. Further improvements are expected by continuing to balance plant capacity pursuant to the plant closing plan, reduce material costs through global sourcing, increase efficiency through lean manufacturing, and reduce low profit fleet sales. - The ability to utilize tax planning, such as capitalization of research and experimentation costs for tax purposes, so that General Motors does not have, and does not expect to generate in the near future, any significant U.S. Federal tax net operating loss carryforwards. - The extended period of time over which the tax benefits can be utilized. Postretirement benefits become tax deductions over periods up to 50 years. - The fact that General Motors has never lost deferred Federal tax benefits due to the expiration of a U.S. net operating loss carryforward. Dividends received from foreign operations for U.S. Federal income tax purposes totaled approximately $0.2 billion, $1.1 billion, and $6.2 billion in 1995, 1994, and 1993, respectively. The significant level of dividends in 1993 was effected as part of GM's tax planning and global cash management initiatives, with the resulting U.S. Federal income tax effect being substantially offset by foreign tax credits. The reduced level of dividends in 1995 resulted from tax planning strategies related to the U.S. net operating loss carryback position -- for tax purposes only. It is anticipated that the dividends from foreign operations in 1996 will be substantially higher than those in 1995. PENSIONS At year-end 1995, General Motors' 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 a year ago ($9.3 billion U.S. and $3.3 billion non-U.S.). The improvement in the U.S. plans resulted from $10.4 billion in 1995 cash and non- cash pension contributions to U.S. hourly and salaried pension plans and asset returns in excess of the assumed 10% asset earnings rate, partially offset by the effect of a year-to-year 150 basis point decrease in the discount rate used to measure the pension obligation at the end of 1995 compared to 1994. Total worldwide pension contributions for the 1995 calendar year totaled $11.4 billion. On an economic basis, General Motors achieved a fully-funded status for its U.S. hourly and salaried pension plans at December 31, 1995, one year ahead of its stated goal. The economic measure of the U.S. hourly and salaried pension liability differs from the SFAS No. 87 basis required by generally accepted II-72 86 accounting principles, but General Motors believes it to be a better measure of General Motors' ongoing economic exposure for pension obligations and as such uses this measure to determine its funding. As a result of this fully funded status on an economic basis, it is anticipated that funding to the U.S. hourly and salaried plans will decline substantially in 1996 compared to 1995 levels. The economic basis discounts pension liabilities at the long-term asset earnings rate assumption (currently 10%) rather than at a year-end market rate as required by SFAS No. 87 (currently 7%). In periods of low interest rates, as in the current market environment, the SFAS No. 87 liability will generally exceed the liability calculated on an economic basis, whereas in periods of high interest rates the economic basis liability will generally exceed the SFAS No. 87 liability. During 1995, General Motors contributed $4.1 billion in cash to its U.S. hourly and salaried pension plans. In addition, during March 1995, the Corporation contributed to the General Motors Hourly-Rate Employees Pension Plan 173,163,187 shares of Class E common stock, having an aggregate fair market value on such date of approximately $6.3 billion (determined by an independent valuation expert retained by the Trustee). See Note 13 to the Consolidated Financial Statements for additional information on this contribution. The Class E common stock contribution to the U.S. hourly pension plan in 1995 increased the weighted average number of Class E shares outstanding which increased the allocation of EDS earnings to Class E common stock and decreased the allocation of EDS earnings to $1 2/3 par value common stock. The reduction in EDS earnings allocated to $1 2/3 par value common stock was more than offset by reduced pension expense as a result of the stock contribution. The relationship between the reduction in EDS earnings allocated to $1 2/3 par value common stock and reduced pension expense will vary from period to period. The stock contribution had no impact on Class E earnings per share since the increased allocation of EDS earnings to Class E common stock is offset by the higher weighted average number of Class E shares outstanding. ENVIRONMENTAL MATTERS General Motors is subject to various laws relating to the protection of the environment, and is in various stages of investigation or remediation for sites where contamination has been alleged. As disclosed in Note 14 to the Consolidated Financial Statements, other liabilities and deferred credits, the accrued liability for worldwide environmental cleanup was $691.9 million at December 31, 1995 and $693.7 million at December 31, 1994. In future periods, new laws or regulations, advances in technologies, and additional information about the ultimate remedy selected at new and existing sites, and General Motors' share of the cost of such remedies, could significantly change General Motors' estimates. Note 1 to the Consolidated Financial Statements, Significant Accounting Policies, describes the Corporation's methodology for estimating environmental liabilities. The process of estimating such liabilities is complex and is dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, uncertainty as to what remedy and technology will be required, the outcome of discussions with regulatory agencies and other potentially responsible parties (PRPs) at multi-party sites, the number and financial viability of other PRPs, and the timing of expenditures. In 1995, 1994, and 1993, General Motors expensed $133.5 million, $105.7 million, and $104.7 million, respectively, for environmental cleanup. In addition, worldwide capital expenditures, as discussed previously, include $132.6 million, $130.5 million, and $211.5 million in 1995, 1994, and 1993, respectively, for various environmental matters. II-73 87 EMPLOYMENT AND PAYROLLS
1995 1994 1993 --------- --------- --------- WORLDWIDE EMPLOYMENT AT DECEMBER 31, (in thousands) GM-NAO/Delphi......................................... 434 431 436 GMIO.................................................. 103 102 107 GMAC.................................................. 17 17 18 EDS................................................... 96 81 70 Hughes................................................ 84 79 78 NCRS(1)............................................... -- 6 6 Other................................................. 11 12 11 --- --- --- 745 728 726 Total number of employees.......................... === === === WORLDWIDE PAYROLLS (in millions)........................ $33,633.8 $31,737.3 $29,805.8 U.S. hourly payrolls (in millions)(2)(3)................ $13,708.2 $13,582.3 $12,438.9 Average labor cost per active hour worked-U.S. hourly(2)............................................. $43.13 $44.23 $42.72
- ------------------------- (1) Net assets sold as of May 1995. (2) Excludes EDS, Hughes' non-automotive employees, Saturn, and NCRS. (3) Includes employees "at work" (excludes laid-off employees receiving benefits). * * * * * II-74 88 PART III GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEMS 10 THROUGH 13 Certain information required by Part III (Items 10 through 13) of this form, other than the information set forth below, has been omitted because the Registrant intends to file a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of its fiscal year. EXECUTIVE OFFICERS OF THE REGISTRANT The names and ages of all executive officers of the Registrant at February 29, 1996 and their positions and offices with the Registrant on that date are as follows:
NAME AND (AGE) POSITIONS AND OFFICES - --------------------------------------------- ---------------------------------------------- John F. Smith, Jr. (57)...................... Chairman of the Board; Chief Executive Officer; President; Member, Finance Committee and Chairman, The President's Council Harry J. Pearce (53)......................... Vice Chairman of the Board; Member, The President's Council J. Michael Losh (49)......................... Executive Vice President; Chief Financial Officer; Member, The President's Council G. Richard Wagoner, Jr. (43)................. Executive Vice President; Member, The President's Council Louis R. Hughes (47)......................... Executive Vice President; Member, The President's Council
There are no family relationships, as defined, between any of the above executive officers, and there is no arrangement or understanding between any of the above executive officers and any other person pursuant to which he was selected as an officer. Each of the above executive officers was elected by the Board of Directors to hold office until the next annual election of officers and until his successor is elected and qualified or until his earlier resignation or removal. The Board of Directors elects the officers in conjunction with each annual meeting of the stockholders. Mr. John F. Smith, Jr. has been associated with General Motors since 1961. He was elected Executive Vice President in charge of International Operations in 1988. Effective August 1990, he was elected Vice Chairman of the Board of Directors. On April 6, 1992, Mr. Smith was elected President and Chief Operating Officer. Effective November 1992, he was elected Chief Executive Officer and President. On January 1, 1996, Mr. Smith became Chairman of the Board of Directors. Mr. Pearce has been associated with General Motors since 1985. In May 1987, he was elected Vice President and General Counsel of General Motors. Effective November 1992, he was elected Executive Vice President of General Motors with responsibility for the Industry-Government Relations Staff, Environmental Activities Staff (now Environmental and Energy Staff), Worldwide Economics, Electronic Data Systems Corporation and GM Hughes Electronics Corporation (now Hughes Electronics Corporation). In July 1994, he assumed responsibility for GM's Strategic Decision Center, Corporate Communications, Allison Transmission Division, Electro-Motive Division (now GM Locomotive Group), Urban and Community Affairs, Executive Compensation and Corporate Governance, and the Corporate Services Staff. He remained General Counsel through August 1, 1994. Effective January 1, 1996, Mr. Pearce was elected a director and became Vice Chairman of the Board of Directors. Mr. Losh has been associated with General Motors since 1964. In July 1984, he was elected Vice President of General Motors and General Manager of Pontiac Division. He was named General Manager of Oldsmobile Division in June 1989. Effective May 1992, he was elected Group Executive in charge of North III-1 89 American Vehicle Sales, Service, and Marketing. In July 1994, he was elected Executive Vice President and Chief Financial Officer of General Motors. Mr. Wagoner has been associated with General Motors since 1977. He was elected Vice President in charge of finance for General Motors Europe in June 1989. In July 1991, he was elected President and Managing Director of General Motors do Brasil. Effective November 1992, he was elected Executive Vice President and Chief Financial Officer of General Motors. In July 1994, he was named President of North American Operations. Mr. Hughes has been associated with General Motors since 1966. In March 1989, he was elected Chairman and Managing Director of Adam Opel AG. He was elected President of General Motors Europe and Vice President and Group Executive of General Motors in April 1992. Effective November 1992, he was elected Executive Vice President, International Operations of General Motors. In September 1994, he was named President of International Operations. III-2 90 PART IV GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE NO. --------------- (a) 1. All Financial Statements See Part II 2. Financial Statement Schedule II-Allowances for the Years Ended December 31, 1995, 1994, and 1993......................................... IV-3 3. Exhibits (Including Those Incorporated by Reference)
EXHIBIT NO. - --------- (3)(a) Restated Certificate of Incorporation as amended to May 26, 1994, incorporated by reference to Exhibit 3(i) to the Current Report on Form 8-K of General Motors Corporation dated May 26, 1994, and Amendment to Article Fourth of the Certificate of Incorporation -- Division III -- Preference Stock, by reason of the Certificates of Designations filed with the Secretary of State of the State of Delaware on September 14, 1987 and the Certificate of Decrease filed with the Secretary of State of the State of Delaware on September 29, 1987 (pertaining to the six series of Preference Stock contributed to the General Motors pension trusts), incorporated by reference to Exhibit 19 to the Quarterly Report on Form 10-Q of General Motors Corporation for the quarter ended June 30, 1990 in the Form SE of General Motors Corporation dated August 6, 1990; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on June 28, 1991 (pertaining to Series A Conversion Preference Stock), incorporated by reference to Exhibit 4(a) to Form S-8 Registration Statement No. 33-43744 in the Form SE of General Motors Corporation dated November 1, 1991; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on December 9, 1991 (pertaining to Series B 9 1/8% Preference Stock), incorporated by reference to Exhibit 4(a) to Form S-3 Registration Statement No. 33-45216 in the Form SE of General Motors Corporation dated January 27, 1992; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on February 14, 1992 (pertaining to Series C Convertible Preference Stock), incorporated by reference to Exhibit (3)(a) to the Annual Report on Form 10-K of General Motors Corporation for the year ended December 31, 1991 in the Form SE of General Motors Corporation dated March 20, 1992; as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on July 15, 1992 (pertaining to Series D 7.92% Preference Stock), incorporated by reference to Exhibit 3(a)(2) to the Quarterly Report on Form 10-Q of General Motors Corporation for the quarter ended June 30, 1992 in the Form SE of General Motors Corporation dated August 10, 1992; and as further amended by the Certificate of Designations filed with the Secretary of State of the State of Delaware on December 15, 1992 (pertaining to Series G 9.12% Preference Stock), incorporated by reference to Exhibit 4(a) to Form S-3 Registration Statement No. 33-49309 in the Form SE of General Motors Corporation dated January 25, 1993............................................................. N/A (b) By-Laws as amended to December 4, 1995, incorporated by reference to Exhibit 3(ii) to the Current Report on Form 8-K of General Motors Corporation dated December 4, 1995................................... N/A (4)(a) Form of Indenture relating to the $500,000,000 8 1/8% Debentures Due April 15, 2016 dated as of April 1, 1986 between General Motors Corporation and Citibank, N.A., Trustee, incorporated by reference to Exhibit 4 to Amendment No. 1 to Form S-3 Registration Statement No. 33-4452 and resolutions adopted by the Special Committee on April 15, 1986, incorporated by reference to Exhibit 4(a) to the Current Report on Form 8-K of General Motors Corporation dated April 24, 1986....... N/A
IV-1 91
EXHIBIT NO. PAGE NO. - --------- --------------- (4)(b) Form of Indenture relating to the $700,000,000 9 5/8% Notes Due December 1, 2000 and the $1,400,000,000 Medium-Term Note Program dated as of November 15, 1990 between General Motors Corporation and Citibank, N.A., Trustee, incorporated by reference to Exhibit 4(a) to Form S-3 Registration Statement No. 33-37737......................... N/A (c) Instruments defining the rights of holders of nonregistered debt of the Registrant have been omitted from this exhibit index because the amount of debt authorized under any such instrument does not exceed 10% of the total assets of the Registrant and its subsidiaries. The Registrant agrees to furnish a copy of any such instrument to the Commission upon request.............................................. N/A (d) Rights agreement dated as of March 12, 1996 between Electronic Data Systems Holding Corporation and The Bank of New York, Rights Agent, incorporated by reference to Exhibit 4(d) to the Current Report on Form 8-K of General Motors Corporation dated March 12, 1996.......... N/A (10)(a) The General Motors Hourly-Rate Employees Pension Plan, incorporated by reference to Exhibit (10)(a) to the Annual Report on Form 10-K for the year ended December 31, 1994..................................... N/A (b) General Motors Retirement Program for Salaried Employees, incorporated by reference to Exhibit (10)(b) to the Annual Report on Form 10-K for the year ended December 31, 1994....................... N/A (c)* General Motors Amended 1987 Stock Incentive Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 13, 1992..................................... N/A (d)* General Motors Performance Achievement Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 16, 1982..................................... N/A (e)* General Motors 1987 Performance Achievement Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 17, 1987..................................... N/A (f)* General Motors 1992 Performance Achievement Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 13, 1992..................................... N/A (11) Computation of Earnings Per Share Attributable to Common Stocks for the Three Years Ended December 31, 1995.............................. IV-6 (12) Computation of Ratios of Earnings to Fixed Charges for the Three Years Ended December 31, 1995........................................ IV-9 (21) Subsidiaries of the Registrant as of December 31, 1995............... IV-10 (23) Consents of Independent Auditors..................................... IV-19 and IV-21 (99)(a) Electronic Data Systems Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis............................................................. IV-20 (b) Hughes Electronics Corporation and Subsidiaries Consolidated Financial Statements and Management's Discussion and Analysis............................................................. IV-53 (27) Financial Data Schedule (for SEC information only)................... N/A (b) Reports on Form 8-K
Two reports on Form 8-K, dated October 2 and December 4, 1995, were filed during the quarter ended December 31, 1995 reporting amendments to the By-Laws. * Required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. IV-2 92 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SCHEDULE II -- ALLOWANCES
ADDITIONS ADDITIONS BALANCE AT CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER BALANCE AT DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR - ---------------------------------------------- ------------ ----------- ----------- ---------- ------------ (DOLLARS IN MILLIONS) FOR THE YEAR ENDED DECEMBER 31, 1995 Allowances Deducted from Assets(a) Finance receivables (unearned income)....... $3,309.9 $ -- $ 3,617.0 $3,004.4 $3,922.5 Accounts and notes receivable (for doubtful receivables).............................. 244.6 138.8 0.7 146.9(b) 237.2 Inventories (principally for obsolescence of service parts)............................ 177.8 77.5 -- 26.5(c) 228.8 Other investments and miscellaneous assets (receivables and other)................... 32.4 -- 0.4 -- 32.8 Miscellaneous allowances (insurance and mortgage)................................. 35.7 36.4 -- 13.0 59.1 -------- ------ -------- -------- -------- Total Allowances Deducted from Assets... $3,800.4 $ 252.7 $ 3,618.1 $3,190.8 $4,480.4 ======== ====== ======== ======== ======== FOR THE YEAR ENDED DECEMBER 31, 1994 Allowances Deducted from Assets(a) Finance receivables (unearned income)....... $3,195.1 $ -- $ 2,324.6 $2,209.8 $3,309.9 Accounts and notes receivable (for doubtful receivables).............................. 222.0 98.8 0.8 77.0(b) 244.6 Inventories (principally for obsolescence of service parts)............................ 149.3 53.1 -- 24.6(c) 177.8 Other investments and miscellaneous assets (receivables and other)................... 34.1 -- -- 1.7 32.4 Miscellaneous allowances (insurance and mortgage)................................. 24.4 28.0 -- 16.7 35.7 -------- ------ -------- -------- -------- Total Allowances Deducted from Assets... $3,624.9 $ 179.9 $ 2,325.4 $2,329.8 $3,800.4 ======== ====== ======== ======== ======== FOR THE YEAR ENDED DECEMBER 31, 1993 Allowances Deducted from Assets(a) Finance receivables (unearned income)....... $4,215.5 $ -- $ 3,260.4 $4,280.8 $3,195.1 Accounts and notes receivable (for doubtful receivables).............................. 215.6 106.2 3.1 102.9(b) 222.0 Inventories (principally for obsolescence of service parts)............................ 141.7 44.1 0.3 36.8(c) 149.3 Other investments and miscellaneous assets (receivables and other)................... 31.6 4.3 -- 1.8 34.1 Miscellaneous allowances (insurance and mortgage)................................. 17.8 9.5 -- 2.9 24.4 -------- ------ -------- -------- -------- Total Allowances Deducted from Assets... $4,622.2 $ 164.1 $ 3,263.8 $4,425.2 $3,624.9 ======== ====== ======== ======== ========
- ------------------------- Notes: (a) See analysis of allowance for financing losses in Note 4 to the Financial Statements. (b) Accounts written off. (c) Obsolete parts written off, etc. Reference should be made to the Notes to Consolidated Financial Statements. IV-3 93 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. GENERAL MOTORS CORPORATION ----------------------------------- (Registrant) Date: March 4, 1996 By /s/ JOHN F. SMITH, JR. ------------------------------------ (John F. Smith, Jr. Chairman of the Board of Directors, Chief Executive Officer, and President) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 4th day of March 1996 by the following persons on behalf of the Registrant and in the capacities indicated. SIGNATURE TITLE - ----------------------------------- ----------------------------------- /s/ JOHN F. SMITH, JR. Chairman of the Board of Directors, - ----------------------------------- Chief Executive Officer, and (John F. Smith, Jr.) President /s/ HARRY J. PEARCE Vice Chairman of the Board of - ----------------------------------- Directors (Harry J. Pearce) /s/ J. MICHAEL LOSH Executive Vice President and Chief - ----------------------------------- Financial Officer (J. Michael Losh) /s/ LEON J. KRAIN Vice President and Group Executive - ----------------------------------- (Leon J. Krain) /s/ JOHN D. FINNEGAN Vice President and Treasurer - ----------------------------------- (John D. Finnegan) /s/ WALLACE W. CREEK Comptroller - ----------------------------------- (Wallace W. Creek) /s/ JAMES H. HUMPHREY Chief Accounting Officer - ----------------------------------- (James H. Humphrey) IV-4 94 SIGNATURES -- CONCLUDED SIGNATURE TITLE - ----------------------------------- ----------------------------------- /s/ ANNE L. ARMSTRONG Director - ----------------------------------- (Anne L. Armstrong) /s/ JOHN H. BRYAN Director - ----------------------------------- (John H. Bryan) /s/ THOMAS E. EVERHART Director - ----------------------------------- (Thomas E. Everhart) /s/ CHARLES T. FISHER, III Director - ----------------------------------- (Charles T. Fisher, III) /s/ J. WILLARD MARRIOTT, JR. Director - ----------------------------------- (J. Willard Marriott, Jr.) /s/ ANN D. MCLAUGHLIN Director - ----------------------------------- (Ann D. McLaughlin) /s/ EDMUND T. PRATT, JR. Director - ----------------------------------- (Edmund T. Pratt, Jr.) /s/ JOHN G. SMALE Director - ----------------------------------- (John G. Smale) /s/ LOUIS W. SULLIVAN Director - ----------------------------------- (Louis W. Sullivan) /s/ DENNIS WEATHERSTONE Director - ----------------------------------- (Dennis Weatherstone) /s/ THOMAS H. WYMAN Director - ----------------------------------- (Thomas H. Wyman) IV-5 EX-11 2 EX-11 1 EXHIBIT 11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS
YEAR ENDED DECEMBER 31, 1995 ----------------------------------- $1 2/3 PAR VALUE CLASS E CLASS H COMMON COMMON COMMON STOCK STOCK STOCK --------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net income before cumulative effect of accounting change attributable to stocks..................................... $ 5,872.4 $ 795.5 $264.6 Premium on repurchase of preference stocks................... 153.4 -- -- Dividends on preference stocks............................... 210.2 -- -- -------- ------ ------ Earnings attributable to common stocks....................... 5,508.8 795.5 264.6 Dividends on common stocks................................... 824.2 205.4 87.9 -------- ------ ------ Undistributed earnings....................................... 4,684.6 590.1 176.7 Adjustments Change in earnings attributable to each class of common stock related to the assumed exercise of stock options(1).............................................. (8.9) 0.1 8.8 Dividends on assumed common stock transactions............. (6.5) -- (2.9) -------- ------ ------ Adjusted earnings attributable to common stocks.............. $ 4,669.2 $ 590.2 $182.6 ======== ====== ====== Weighted average shares outstanding (in millions)............ 749.7 404.6 95.5 Adjustment Assumed exercise of dilutive stock options(1).............. 6.0 -- 3.2 ------ ------ ----- Adjusted weighted average shares outstanding................. 755.7 404.6 98.7 ====== ====== ===== Per Share Data Earnings per share attributable to undistributed earnings on common stocks before cumulative effect of accounting change..................................................... $ 6.18 $ 1.46 $1.85 Cumulative effect of accounting change at January 1, 1995.... (0.07) -- -- Dividends.................................................... 1.10 0.52 0.92 Adjustment................................................... -- (0.02)(2) -- ------ ------ ----- Earnings per share attributable to common stocks............. $ 7.21 $ 1.96 $2.77 ====== ====== =====
- ------------------------- Note: The difference between fully diluted and primary earnings per share is immaterial. (1) The assumed exercise of stock options reflected by these adjustments has no effect on Class E or Class H common stock earnings per share, because to the extent that shares of Class E or Class H common stock deemed to be outstanding would increase, such increased shares would also increase the numerator of the fraction used to determine Available Separate Consolidated Net Income. (2) The per-share reported earnings attributable to Class E common stock of $1.96 equals the sum of the separate computations of each of the four quarters, consistent with the requirements for calculating earnings per share based on EDS earnings and the Class E denominator. The calendar year calculation shown above (based on 1995 weighted average outstanding Class E shares for the year) requires an adjustment of $0.02 due to the significant differences in the weighted average number of shares outstanding in each quarter resulting from the Class E stock contribution to the U.S. Hourly Pension Plan. IV-6 2 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS -- CONTINUED
YEAR ENDED DECEMBER 31, 1994 ----------------------------------- $1 2/3 PAR VALUE CLASS E CLASS H COMMON COMMON COMMON STOCK STOCK STOCK --------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net income attributable to stocks (before cumulative effect of accounting change)...................................... $ 4,965.9 $ 444.4 $248.4 Dividends on preference stocks............................... 320.7 -- -- -------- ------ ------ Earnings attributable to common stocks....................... 4,645.2 444.4 248.4 Dividends on common stocks................................... 592.6 124.8 73.8 -------- ------ ------ Undistributed earnings....................................... 4,052.6 319.6 174.6 Adjustments Add-back dividends on assumed conversion of preference stock................................................... 32.5 -- -- Change in earnings attributable to each class of common stock related to the assumed exercise of stock options*................................................ (5.3) -- 5.3 Dividends on assumed common stock transactions............. (10.4) -- (1.6) -------- ------ ------ Adjusted earnings attributable to common stocks.............. $ 4,069.4 $ 319.6 $178.3 ======== ====== ====== Weighted average shares outstanding (in millions)............ 741.3 260.3 92.1 Adjustments Shares issued on assumed conversion of preference stock*... 8.2 -- -- Assumed exercise of dilutive stock options*................ 4.8 -- 2.0 ----- ----- ---- Adjusted weighted average shares outstanding................. 754.3 260.3 94.1 ===== ===== ==== Per Share Data Earnings per share attributable to undistributed earnings on common stocks (before cumulative effect of accounting change).................................................... $ 5.40 $1.23 $ 1.90 Cumulative effect of accounting change at January 1, 1994.... (1.05) -- (0.08) Dividends.................................................... 0.80 0.48 0.80 ------ ----- ------ Earnings per share attributable to common stocks............. $ 5.15 $1.71 $ 2.62 ====== ===== ======
- ------------------------- Note: The difference between fully diluted and primary earnings per share is immaterial. * The assumed conversion of preference stock and exercise of stock options reflected by these adjustments has no effect on Class E or Class H common stock earnings per share, because to the extent that shares of Class E or Class H common stock deemed to be outstanding would increase, such increased shares would also increase the numerator of the fraction used to determine Available Separate Consolidated Net Income. IV-7 3 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS -- CONCLUDED
YEAR ENDED DECEMBER 31, 1993 ----------------------------------- $1 2/3 PAR VALUE CLASS E CLASS H COMMON COMMON COMMON STOCK STOCK STOCK --------- ------- ------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Net income attributable to stocks............................ $ 1,894.1 $ 367.2 $204.5 Dividends on preferred and preference stocks................. 356.8 -- -- -------- ------ ------ Earnings attributable to common stocks....................... 1,537.3 367.2 204.5 Dividends on common stocks................................... 565.8 97.2 64.1 -------- ------ ------ Undistributed earnings....................................... 971.5 270.0 140.4 Adjustments Add-back dividends on assumed conversion of preference stocks.................................................. 4.6 -- -- Change in earnings attributable to each class of common stock related to the assumed share transactions*........ (10.5) 10.5 -- Attributable to conversion of options*..................... (6.6) 0.1 6.5 Dividends on assumed common stock transactions............. (6.1) (2.8) (2.0) -------- ------ ------ Adjusted earnings attributable to common stocks.............. $ 952.9 $ 277.8 $144.9 ======== ====== ====== Weighted average shares outstanding (in millions)............ 710.2 243.0 88.6 Adjustments Shares issued on assumed conversion of preference stocks*................................................. -- 7.0 -- Assumed exercise of dilutive stock options*................ 7.5 -- 2.8 ----- ----- ---- Adjusted weighted average shares outstanding................. 717.7 250.0 91.4 ===== ===== ==== Per Share Data Earnings per share attributable to undistributed earnings on common stocks.............................................. $1.33 $1.11 $1.58 Dividends.................................................... 0.80 0.40 0.72 ----- ----- ----- Earnings per share attributable to common stocks............. $2.13 $1.51 $2.30 ===== ===== =====
- ------------------------- Note: The difference between fully diluted and primary earnings per share is immaterial. * The assumed conversion of preference stocks and exercise of stock options reflected by these adjustments has no effect on Class E or Class H common stock earnings per share, because to the extent that shares of Class E or Class H common stock deemed to be outstanding would increase, such increased shares would also increase the numerator of the fraction used to determine Available Separate Consolidated Net Income. IV-8 EX-12 3 EX-12 1 EXHIBIT 12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 --------- --------- -------- (DOLLARS IN MILLIONS) Income before cumulative effect of accounting change....... $ 6,932.5 $ 5,658.7 $2,465.8 United States, foreign, and other income taxes............. 2,843.8 2,694.6 109.5 Equity in (income) losses of associates.................... (187.5) (21.7) 18.1 Cash dividends received from associates.................... 16.2 10.0 5.0 Amortization of capitalized interest....................... 50.9 50.0 54.7 --------- --------- -------- Income before income taxes, undistributed (income) losses of associates, and amortization of capitalized interest................................................. 9,655.9 8,391.6 2,653.1 --------- --------- -------- Fixed charges included in net income Interest and related charges on debt..................... 5,678.3 5,035.7 5,552.0 Portion of rentals deemed to be interest................. 586.2 465.1 459.4 --------- --------- -------- Total fixed charges included in net income............ 6,264.5 5,500.8 6,011.4 --------- --------- -------- Earnings available for fixed charges....................... $15,920.4 $13,892.4 $8,664.5 ========= ========= ======== Fixed charges Fixed charges included in net income..................... $ 6,264.5 $ 5,500.8 $6,011.4 Interest capitalized in the period....................... 49.8 33.9 44.1 --------- --------- -------- Total fixed charges................................... $ 6,314.3 $ 5,534.7 $6,055.5 ========= ========= ======== Ratios of earnings to fixed charges........................ 2.52 2.51 1.43 ==== ==== ====
IV-9 EX-21 4 EX-21 1 EXHIBIT 21 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1995 Subsidiary companies of the Registrant are listed below. With respect to the companies named, all voting securities are owned directly or indirectly by the Registrant, except where otherwise indicated.
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION - ----------------------------------------------------------------------- --------------------- Subsidiaries included in the Registrant's consolidated financial statements AC Battery Corporation............................................... Michigan Adam Opel Aktiengesellschaft......................................... Germany ACG Deutschland GmbH (99% owned by subsidiary and 1% owned by Delphi France Automotive Systems)................................ Germany Asset Leasing GmbH (95% owned by subsidiary)...................... Germany Autohaus am Nordring GmbH, Berlin................................. Germany Carus Grundstucks-Vermietungsgesellschaft mbH & Co. Object Kuno 65 KG (94% owned by subsidiary)..................... Germany Carus Grundstucks-Vermietungsgesellschaft mbH & Co. Object Leo 40 KG (94% owned by subsidiary)...................... Germany GM Europe GmbH (99% owned by subsidiary and 1% owned by GM Service GmbH)............................................................ Germany GM Service GmbH................................................... Germany General Motors GmbH & Co. OHG (99% owned by subsidiary)........... Germany Opel-Automobilwerk Eisenach-PKW GmbH (80% owned by subsidiary).... Germany Opel Eisenach GmbH................................................ Germany Opel Hungary Automobile Production Ltd. .......................... Hungary Opel Turkiye Limited Sirketi (99.5% owned by subsidiary and 0.5% owned by General Motors Overseas Corporation).................... Turkey Saginaw Deutschland GmbH.......................................... Germany Arabian Battery Holding Company...................................... Delaware Arabian Financing Company............................................ Delaware Autocable Industries (Pty) Limited (51% owned by General Motors Corporation)...................................................... South Africa Automotive Battery Manufacturing, Inc. .............................. Delaware Battery Technology Services, Inc. ................................... Delaware Controladora General Motors, S.A. de C.V. ........................... Mexico Centro Tecnico Herramental, S.A. de C.V. (80% owned by subsidiary)...................................................... Mexico Componentes Para Automotores, S.A. de C.V. ....................... Mexico Alambrados Automotrices, S.A. de C.V. .......................... Mexico Cableados, S.A. de C.V. ........................................ Mexico Componentes Mecanicos de Matamoros, S.A. de C.V. ............... Mexico Ensamble de Cables y Componentes, S.A. de C.V. ................. Mexico Productos Delco de Chihuahua, S.A. de C.V. ..................... Mexico Sistemas Electricos y Conmutadores, S.A. de C.V. ............... Mexico General Motors de Mexico, S.A. de C.V. ........................... Mexico Sistemas Para Automotores de Mexico, S.A. de C.V. ................ Mexico Conductores y Componentes Electricos de Juarez, S.A. de C.V. ... Mexico Delphi Automotive Systems do Brasil Ltda. ........................... Brazil Sielin do Brasil S.A. ............................................ Brazil Delphi Automotive Systems, Inc. ..................................... Delaware Delphi Automotive Systems China, Inc. ............................... Delaware
IV-10 2
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION - ----------------------------------------------------------------------- --------------------- Delphi Automotive Systems Deutschland GmbH........................... Germany F&G Megamos Sicherheitselektronik GmbH............................ Germany Reinshagen GmbH................................................... Germany Delphi Automotive Systems Singapore PTE LTD.......................... Singapore Delphi Energy and Engine Management Systems (M) Sdn Bhd ............. Malaysia Delphi France Automotive Systems (50.4% owned by General Motors Corporation and 49.6% owned by Adam Opel Aktiengesellschaft)...... France ACG Italia S.r.1. (99% owned by subsidiary and 1% owned by Opel France S.A.)............................................ Italy ACGI S.p.A. (98% owned by subsidiary and 2% owned by Opel France S.A.)............................................ Italy Aura Srl (100% owned by subsidiary)............................. Italy DRB s.a./n.v. (51% owned by subsidiary)......................... France Diavia Aire, S.A. (100% owned by subsidiary).................... Italy Diavia S.r.1. (100% owned by subsidiary)........................ Italy Opel France S.A.(99% owned by subsidiary)....................... France Texton S.A. .................................................... France ENCI S.A.R.L. (99.8% owned by subsidiary).................... France Texton P.L.C. (97.5% owned by subsidiary).................... United Kingdom Delphi Steering (Malaysia) Sdn Bhd................................... Malaysia Electro-Motive Maintenance Operations Pty Ltd. ...................... Australia Electronic Data Systems Holding Corporation.......................... Delaware Electronic Data Systems Intermediate Corporation.................. Delaware Electronic Data Systems Corporation............................... Texas Alpha Joshua, Inc. ............................................. California Alpha Mariah, Inc. ............................................. California American Network Leasing Corporation............................ Nevada Appex, Inc. .................................................... Delaware Beta Mariah, Inc. .............................................. California Beta Willow, Inc. .............................................. California Deep Star, Inc. ................................................ California EDS Acquisition Corporation #4.................................. Delaware EDS Antares, Inc. .............................................. Nevada E.D.S. of Canada, Ltd. ......................................... Canada EDS Crisis Response Foundation.................................. Texas E.D.S. De Mexico, S.A. De C.V. ................................. Mexico EDS Electronic Financial Services, Inc. ........................ Delaware EDS Export Corporation.......................................... U.S. Virgin Islands EDS Fleet Services, Inc. ....................................... Texas EDS Global Services, Inc. ...................................... Delaware E.D.S. International Corporation................................ Texas EDS North America Holdings, Inc. ............................... Nevada EDS Personal Communications Corporation (87% owned by subsidiary and 13% by Appex, Inc.)........................................ Delaware EDS-Scicon, US Software Products Group Incorporated............. Delaware E.D.S. Spectrum Corporation..................................... Nevada EDS Technical Products Corporation.............................. Delaware EDS VLT Holdings, Inc. ......................................... Nevada E.D.S. World Corporation (Far East)............................. Nevada E.D.S. World Corporation (Netherlands).......................... Texas FACS Reorganizations, Inc. ..................................... New York Federal Computer Services Corporation (66.7% owned by subsidiary).................................................... Delaware
IV-11 3
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION - ----------------------------------------------------------------------- --------------------- Japan Systems Company Limited (51% owned by subsidiary)......... Japan A.T. Kearney, Inc. ............................................. Delaware A.T. Kearney International, Inc. ............................... Delaware Keisai Associados, C.A. ........................................ Venezuela Keisai Panama, S.A. ............................................ Panama M&SD Network Services, Inc. .................................... Delaware OAN Services, Inc. ............................................. Texas Oy EDS Electronic Data Systems Ab............................... Finland Power Investment Corporation.................................... Nevada PremiTech Corporation........................................... Texas Scicon Energy, Inc. ............................................ Delaware Scicon International Systems Company Incorporated............... Delaware Subarban Limited Liability Company (74.2% owned by subsidiary and 1.1% owned by EDS Technical Products Corporation).......... Nevada Telecommunications International, Inc. ......................... California Varitel, Inc. .................................................. California Ward FSC, Ltd. ................................................. Bermuda Exhaust Systems Corporation.......................................... Delaware GM Allison Japan Limited............................................. Japan GM Auto Receivables Co. ............................................. Delaware GMC Truck Motors Development Corporation............................. Delaware GM-DI Leasing Corporation............................................ Delaware GMLG Ltd. ........................................................... Delaware MLS USA, Inc. .................................................... Delaware GM Ovonic L.L.C. (60% owned by General Motors Corporation)........... Michigan General Motors Acceptance Corporation................................ New York Banque Opel (98% owned by subsidiary)............................. France Capital Auto Receivables, Inc. ................................... Delaware GM Finance HB (91% owned by subsidiary)........................... Sweden GMAC, Australia (Finance) Limited................................. Australia GMAC Auto Receivables Corporation................................. Delaware GMAC Comercial Automotriz Chile S.A. ............................. Chile GMAC Commercial Corporation....................................... Delaware GMAC del Ecuador S.A. ............................................ Ecuador GMAC Holding S.A. de C.V. (99.95% owned by subsidiary and .05% owned by various GMAC subsidiaries).............................. Mexico GMAC Arrendadora S.A. de C. V. .............................. Mexico General Motors Acceptance Corporation, S.A. de C.V. ......... Mexico Servicios GMAC S.A. de C.V. ................................. Mexico GMAC International Finance, B.V. ................................. Netherlands GMAC Italia Leasing S.p.A. ....................................... Italy GMAC Leasing Corporation.......................................... Delaware Patlan Corporation.............................................. Delaware Patlan Marina, Inc. ............................................ Michigan Patlan Restaurants, Inc. ....................................... Michigan GMAC Mortgage Corporation......................................... Michigan GMAC Commercial Mortgage Corporation............................ California GMAC Mortgage Corporation of PA................................. Pennsylvania GMAC Mortgage Holdings, Inc. ................................... Delaware GMAC Mortgage Securities II, Inc. .............................. Michigan GMAC RF, INC. .................................................. Michigan GMAC Overseas Finance Corporation N.V. ........................... Netherlands Antilles
IV-12 4
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION - ----------------------------------------------------------------------- --------------------- GMAC Sverige AB................................................... Sweden General Motors Acceptance Corporation, Australia.................. Delaware Holden National Leasing Limited (74.9% owned by subsidiary)..... Australia General Motors Acceptance Corporation of Canada, Limited.......... Canada Canadian Securitized Auto Receivables Corporation............... Canada GMAC Leaseco Limited............................................ Canada General Motors Acceptance Corporation, Colombia S.A. ............. Delaware General Motors Acceptance Corporation, Continental................ Delaware General Motors Acceptance Corporation Hungary Financial Services Limited Liability Company.............................. Hungary General Motors Acceptance Corporation International............... Delaware General Motors Acceptance Corporation Italia S.p.A. .............. Italy General Motors Acceptance Corporation Nederland N.V. ............. Netherlands GMAC Espana, S.A. de Financiacion............................... Spain General Motors Acceptance Corporation, North America.............. Delaware General Motors Acceptance Corporation (N.Z.) Limited.............. New Zealand General Motors Acceptance Corporation del Ecuador S.A. GMAC-Management (Holding)....................................... Ecuador General Motors Acceptance Corporation de Portugal -- Servicos Financeiros, S.A. (99% owned by subsidiary and 1% owned by General Motors Acceptance Corporation International).......... Portugal General Motors Acceptance Corporation, South America.............. Delaware General Motors Acceptance Corporation de Venezuela, C.A. ....... Venezuela General Motors Acceptance Corporation Suisse S.A. ................ Switzerland General Motors Austria Beteiligungsgesellschaft m.b.H. ........... Austria OPEL Leasinggesellschaft mbH (74% owned by subsidiary).......... Austria Motors Insurance Corporation...................................... New York Cadmic Agency Corporation....................................... Delaware Car Care Plan (Holdings) Limited (99.9% owned by subsidiary and 0.1% owned by GMOC Administrative Services Corporation)........ England Car Care Plan (Securities Division) Limited (99.9% owned by Car Care Plan (Holdings) Limited and 0.1% owned by GMOC Administrative Services Corporation)........................... England CIM Insurance Corporation....................................... New York MIC General Insurance Corporation............................... Indiana MIC Life Insurance Corporation.................................. Delaware MIC Property and Casualty Insurance Corporation................. Michigan MIC Re Corp. ................................................... Delaware MIC Services Corporation........................................ Delaware Motors Insurance Company Limited................................ England Motors Insurance Purchasing Group, Inc. ........................ Michigan Motors Mechanical Reinsurance Company, Limited.................. Barbados NAVCO Corp. .................................................... Missouri New Motor Club, Inc. ........................................... North Carolina Trinity General Agency, Inc. ................................... Texas Opel Bank GmbH.................................................... Germany Opel Leasing GmbH & Co. OHG* (partnership between Opel Bank GmbH and Opel Leasing Verwaltungs GmbH)............................. Germany
- --------------- *Joint Venture Partnership IV-13 5
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION - ----------------------------------------------------------------------- --------------------- Opel Leasing Verwaltungs GmbH (60% owned by Opel Bank GmbH, 20% owned by General Motors Acceptance Corporation, and 20% owned by Adam Opel Aktiengesellschaft)............................... Germany P.T. GMAC Lippo Finance* (80% owned by General Motors Acceptance Corporation)..................................................... Indonesia Wholesale Auto Receivables Corporation............................ Delaware General Motors de Argentina S.A. (80% owned by General Motors Corporation)...................................................... Argentina General Motors Asia, Inc. ........................................... Delaware General Motors (Thailand) Ltd. ................................... Thailand General Motors Asian and Pacific Operations.......................... Singapore General Motors do Brasil Ltda. ...................................... Brazil Brazauto Trading (Cayman) Limited................................. Cayman Island GM Factoring Sociedade de Fomento Comercial Ltda. ................ Brazil General Motors of Canada Limited..................................... Canada General Motors Chile S.A., Industria Automotriz...................... Chile General Motors China (Components), Inc. ............................. Delaware Beijing WY-GM Automotive Electronic Control Co., Limited (51% owned by subsidiary)............................................. People's Republic of China Zhejiang Delphi Asia-Pacific Brake Co. Ltd. (60% owned by subsidiary)...................................................... China General Motors China, Inc. .......................................... Delaware General Motors Colmotores, S.A. (82.6% owned by General Motors Corporation)....................................... Colombia General Motors Commercial Corporation................................ Delaware General Motors Development Corporation............................... Delaware General Motors del Ecuador S.A. (98% owned by General Motors Corporation)....................................... Ecuador General Motors (Europe) AG........................................... Switzerland General Motors Export Corporation.................................... Delaware General Motors Foreign Sales Corporation............................. U.S. Virgin Islands General Motors Holding Espana, S.A. (73.5% owned by General Motors Corporation and 26.5% owned by Adam Opel Aktiengesellschaft)...... Spain ACG Componentes, S.A. .......................................... Spain General Motors ACG, S.A. ....................................... Spain General Motors Holdings (U.K.)....................................... England General International (UK) Limited (50% owned by subsidiary and 50% owned by GMOC Administrative Services Corporation)........... England General Motors Acceptance Corporation (U.K.) Public Limited Company.......................................................... England General Motors Acceptance Corporation (U.K.) Finance plc........ England GMAC Leasing (U.K.) Limited..................................... England GMAC Leasing (U.K.) (No. 1) Limited............................. England GMAC Leasing (U.K.) (No. 2) Limited............................. England GMAC Leasing (U.K.) (No. 3) Limited............................. England Group Lotus, plc (84.6% owned by subsidiary and 15.4% owned by GMLG Ltd.)...................................................... United Kingdom MLS UK Ltd. ................................................. England IBC Vehicles Limited (75.1% owned by subsidiary).................. United Kingdom Millbrook Land and Co. Ltd. ...................................... England Millbrook Pension Management Ltd. (99% owned by subsidiary)....... England Millbrook Proving Ground Ltd. .................................... England
- --------------- *Joint Venture Partnership IV-14 6
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION - ----------------------------------------------------------------------- --------------------- VHC Sub-Holdings (UK) Ltd. ....................................... England Vauxhall Motors (Finance) Plc. ................................. England Vauxhall Motors Limited......................................... England General Motors Indonesia, Inc. ...................................... Delaware General Motors Interamerica Corporation.............................. Delaware General Motors International Operations, Inc. ....................... Delaware General Motors Investment Management Corporation..................... Delaware General Motors Japan Ltd. ........................................... Japan General Motors Korea, Inc. .......................................... Delaware General Motors Market Development of Canada Limited.................. Canada General Motors Nederland B.V. ....................................... Netherlands Allison Transmission Europe B.V. ................................. Netherlands General Motors Poland Spolka, zo.o. .............................. Poland General Motors Yugoslavia, d.o.o. ................................ Yugoslavia Opel C&S spol. s.r.o. ............................................ Czechoslovakia Opel Nederland B.V. .............................................. Netherlands General Motors Nordiska AB........................................... Sweden General Motors Overseas Corporation.................................. Delaware AC Delco Systems Overseas Corporation............................. Delaware Delco Chassis Overseas Corporation................................ Delaware Automotive Components Group Espana, S.A. ....................... Spain Delco Chassis Limited........................................... England/Wales Delco Limited................................................... England Saginaw Limited................................................. England Delphi Automotive Systems Australia Ltd. ......................... Australia G.M. Holding (Portugal) SGPS, Lda. (50% owned by subsidiary and 50% owned by General Motors Corporation)......................... Portugal CABLESA-Industria de Componentes Electricos Sociedade Anonima.................................................... Portugal INLAN -- Industria de Componentes Mecanicos, S.A. ........... Portugal Opel Portugal, Lda. ......................................... Portugal GMOC Administrative Services Corporation.......................... Delaware Fisher Body Limited (50% owned by subsidiary and 50% owned by GM (UK) Pension Trustees Limited)................................. Ireland GM (UK) Pension Trustees Limited (50% owned by subsidiary and 50% owned by Vauxhall Motors Limited).......................... United Kingdom GMOC Australia Pty. Ltd. ......................................... Australia General Motors-Holden's Automotive Limited (49% owned by subsidiary and 51% owned by United Australian Automotive Industries Limited).............................................. Australia General Motors Overseas Commercial Vehicle Corporation............ Delaware General Motors Venezolana, C.A. .................................. Venezuela Holden's Motor Overseas Corporation Limited....................... Delaware Lidlington Engineering Company, Ltd. ............................. Delaware Truck and Bus Engineering U.K., Limited........................... Delaware Venezolana de Industrias Automotrices, C.A. ...................... Venezuela General Motors de Venezuela, C.A. .............................. Venezuela General Motors Overseas Distribution Corporation..................... Delaware Delphi Automotive Systems Luxembourg S.A. ........................ Luxembourg GMODC Finance N.V. ............................................... Netherlands Antilles General Motors Import & Distribution GmbH......................... Germany General Motors Investment Services Company N.V. .................. Belgium Packard Elektrik Sistemleri Limited Sirketi (97.6% owned by subsidiary and 2.4% owned by General Motors Overseas Corporation)..................................................... Turkey
IV-15 7
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION - ----------------------------------------------------------------------- --------------------- General Motors Peru S.A. ............................................ Peru General Motors Receivables Corporation............................... Delaware General Motors Uruguay, S.A. ........................................ Uruguay Grand Pointe Holdings, Inc. ......................................... Michigan Holden New Zealand Limited........................................... New Zealand Hughes Electronics Corporation....................................... Delaware Delco Electronics Corporation..................................... Delaware Delco Electronics Asia/Pacific Pte. Ltd. ....................... Singapore Delco Electronics Europe GmbH................................... Germany Delco Electronics Overseas Corporation.......................... Delaware Delco Electronics Singapore Pte. Ltd. .......................... Singapore Delnosa, S.A. de C.V. .......................................... Mexico Deltronicos de Matamoros, S.A. de C.V. ......................... Mexico Mecel AB........................................................ Sweden DIRECTV Global, Inc. ............................................. Delaware DIRECTV International, Inc. .................................... Delaware H E Microwave Corporation......................................... Delaware Hughes Aircraft Company........................................... Delaware Advanced Electronics Systems International...................... California AMI Instruments, Inc. .......................................... Oklahoma DIRECTV Enterprises, Inc. ...................................... Delaware Hughes Aircraft of Canada Limited............................... Canada Hughes Aircraft Holdings Canada Ltd. ........................... Canada Hughes Aircraft Mississippi, Inc. .............................. California Hughes Aircraft -- South Carolina............................... California Hughes Aircraft Systems International........................... California Hughes Asia Pacific Hong Kong Limited........................... Hong Kong Hughes Australia International PTY Ltd. ........................ Australia Hughes-Avicom International, Inc. .............................. California Hughes Communications, Inc. .................................... California Hughes Danbury Optical Systems, Inc. ........................... Delaware Hughes Data Systems............................................. California Hughes Document Production Services, Inc. ...................... Delaware Hughes Electronic Technologies, Inc. ........................... Delaware Hughes Electronics Manufacturing Service Company................ Delaware Hughes Environmental Systems, Inc. ............................. California Hughes Espana S.A. ............................................. Spain Hughes ESSM, Co. ............................................... California Hughes Europe N.V. ............................................. Belgium Hughes Foreign Sales Corporation................................ U.S. Virgin Islands Hughes Georgia, Inc. ........................................... Delaware Hughes Information Systems Company.............................. Delaware Hughes International Corporation................................ Delaware Hughes International de Mexico, S.A. de C.V. ................... Mexico Hughes International Sales Corporation.......................... California Hughes International Sales Corporation No. 2.................... California Hughes Investment Management Company............................ California Hughes Lexington, Inc. ......................................... Delaware Hughes Microelectronics Limited................................. United Kingdom Hughes Missile Systems Company.................................. Delaware Hughes Nadge Corporation........................................ Delaware Hughes Network Systems, Inc. ................................... Delaware
IV-16 8
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION - ----------------------------------------------------------------------- --------------------- Hughes Newco, Inc. ............................................. Delaware Hughes Power Products, Inc. (60% owned by subsidiary and 40% owned by General Motors Corporation)........................... Delaware Hughes Power Supplies Corporation............................... Delaware Hughes Research Analytics, Inc. ................................ Delaware Hughes STX Corporation.......................................... Delaware Hughes Saudi Arabia Limited..................................... Delaware Hughes Space and Communications International, Inc. ............ Delaware Hughes Systems Management International......................... California Hughes Technical Services Company............................... California Hughes Training, Inc. .......................................... Delaware Hughes Transportation Control Systems, Inc. .................... Delaware Hughes (U.K.) Limited........................................... England International Electronics Systems, Inc. ........................ California L-T Ranches, Inc. .............................................. California MESC Holdings, Inc. ............................................ Delaware MDP, Ltd. ...................................................... California Santa Barbara Research Center................................... California Spectrolab, Inc. ............................................... California Systems Building Corp. ......................................... Arizona Hughes Electronics International, Inc. ........................... Delaware Hughes International GmbH....................................... Germany Hughes Research Laboratories, Inc. ............................... Delaware Hughes Telecommunications & Space Company......................... Delaware IBC Vehicles (Distribution) Limited (60% owned by General Motors Corporation)...................................................... United Kingdom Kabelwerke Reinshagen Werk Berlin GmbH (75.5% owned by subsidiary and 18.5% by General Motors Corporation)............ West Berlin Kabelwerke Reinshagen Werk Neumarkt GmbH (75.5% owned by subsidiary and 18.5% by General Motors Corporation)............ Germany Opel Austria GmbH.................................................... Austria AC Delco Systems Austria GmbH..................................... Austria Opel Hungary Automotive Distribution Ltd. ........................ Hungary Opel Hungary Automotive Manufacturing Ltd. ....................... Hungary Opel Belgium N.V. ................................................... Belgium Opel Ireland Limited................................................. Ireland Opel Italia S.p.A. (99.9% owned by General Motors Corporation and 0.1% owned by General Motors Overseas Distribution Corporation)... Italy Opel Norge AS........................................................ Norway Opel Oy.............................................................. Finland Opel Suisse S.A. .................................................... Switzerland GM-Saab Communication GmbH (55% owned by subsidiary).............. Switzerland Packard CTA Pty. Ltd. (60% owned by General Motors Corporation)...... Australia Packard Electric Europa Ges.m.b.H. .................................. Austria Packard Electric Burgenland GmbH.................................. Austria Packard Electric Vas kft (60% owned by subsidiary)................ Hungary Reinshagen Tournai S.A. (99% owned by subsidiary and 1% owned by Packard Electric Burgenland GmbH)................................ Belgium Packard Electric Ireland Limited..................................... Ireland Packard Electric Poland Sp. zo.o. ................................... Poland Packard Hughes Interconnect Company.................................. Delaware Packard Hughes Interconnect Connection Systems.................... California
IV-17 9
STATE OR SOVEREIGN POWER NAME OF SUBSIDIARY OF INCORPORATION - ----------------------------------------------------------------------- --------------------- Packard Hughes Interconnect Engineering Services.................. Delaware Packard Hughes Interconnect Wiring Systems........................ California PT General Motors Buana Indonesia (60% owned by General Motors Corporation)...................................................... Indonesia Rimir, S.A. de C.V. ................................................. Mexico Saab Opel Sverige AB................................................. Sweden Saturn Corporation................................................... Delaware Saturn Distribution Corporation................................... Delaware Saturn County Bond Corporation....................................... Delaware Sistemas Electronicos Integrados, S.A. .............................. Argentina Unicables, S.A. ..................................................... Spain Asientos IFG, S.A. ............................................... Spain Cableados Integrados S.A. ........................................ Spain Conexionados Electricos Tarazona S.A. ............................ Spain
298 directly or indirectly owned subsidiaries Companies not included in the Registrant's consolidated financial statements, for which no financial statements are submitted: 18 other directly or indirectly owned domestic and foreign subsidiaries 12 active subsidiaries 6 inactive subsidiaries 37 fifty-percent owned companies and 107 less than fifty-percent owned companies the investments in which are accounted for by the equity method. In addition, the Registrant owns 100% of the voting control of the following companies: 373 dealerships operating under dealership assistance plans and engaged in retail distribution of General Motors products 245 dealerships operating in the United States 128 dealerships operating in foreign countries Companies not shown by name, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. During 1995, there were changes in the number of subsidiaries and companies of the Registrant, as follows: 2 directly and 36 indirectly owned domestic subsidiaries, and 5 directly and 63 indirectly owned foreign subsidiaries were organized or acquired. 4 directly and 9 indirectly owned domestic subsidiaries, and 10 indirectly owned foreign subsidiaries were dissolved or sold. A fifty-percent interest and less than fifty-percent interests were acquired in 6 companies and 25 companies, while interests in 3 fifty-percent owned and 4 less than fifty-percent owned companies were terminated. 1 directly owned less than fifty-percent domestic subsidiary was reclassified to active nonconsolidated subsidiary. 1 indirectly owned foreign subsidiary was reclassified to inactive nonconsolidated subsidiary. 1 directly owned foreign associate changed ownership from fifty-percent owned to less than fifty-percent owned. 1 indirectly owned domestic subsidiary changed ownership from sixty-percent owned to twenty-percent owned. 6 indirectly owned foreign subsidiaries were reclassified to less than fifty-percent owned associates. The number of dealerships operating under dealership assistance plans decreased by a net of 24. ****** IV-18 EX-23 5 EX-23 1 EXHIBIT 23 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSENT OF INDEPENDENT AUDITORS General Motors Corporation: We consent to the incorporation by reference of our reports dated January 29, 1996 appearing in this Annual Report on Form 10-K of General Motors Corporation for the year ended December 31, 1995 in the following Registration Statements:
REGISTRATION FORM STATEMENT NO. DESCRIPTION - ----- ------------------ --------------------------------------------------------------------- S-3 33-41557 General Motors Corporation Debt Securities S-3 33-64229 General Motors Corporation Debt Securities S-3 33-47343 General Motors Corporation $1 2/3 Par Value Common Stock (Post-Effective Amendment No. 1) S-3 33-49035 General Motors Corporation $1 2/3 Par Value Common Stock (Amendment No. 1) S-3 33-56671 General Motors Corporation $1 2/3 Par Value Common Stock (Amendment No. 1) S-3 33-49309 General Motors Corporation Dividend Reinvestment Plan S-8 33-56753 The General Motors Personal Savings Plan for Hourly-Rate Employees in the United States S-8 33-54841 General Motors Amended 1987 Stock Incentive Plan S-8 33-64197 General Motors Savings-Stock Purchase Program for Salaried Employees in the United States S-8 2-94690 1984 Electronic Data Systems Corporation Stock Purchase Plan (Post-Effective Amendment No. 1) S-8 2-94691 1984 Electronic Data Systems Corporation Stock Incentive Plan (Post-Effective Amendment No. 1) S-8 33-64681 EDS Deferred Compensation Plan S-8 33-54833 EDS Puerto Rico Savings Plan S-8 33-32322 Hughes Aircraft Company Salaried Employees' Thrift and Savings Plan Hughes Aircraft Company Tucson Bargaining Employees' Thrift and Savings Plan Hughes Aircraft Company California Hourly Employees' Thrift and Savings Plan Hughes Thrift and Savings Plan S-8 33-54835 The GMAC Mortgage Corporation Savings Incentive Plan S-8 33-64199 Hughes Electronics Corporation Incentive Plan S-8 33-64691 Saturn Individual Savings Plan for Represented Members S-8 33-64693 Saturn Personal Choices Savings Plan for Non-Represented Members S-8 33-28714 Marketing & Systems Development Corporation 1985 Incentive Stock Option Plan
/s/ DELOITTE & TOUCHE LLP - ------------------------------------ DELOITTE & TOUCHE LLP Detroit, Michigan March 29, 1996 IV-19 EX-99.(A) 6 EX-99.(A) 1 EXHIBIT 99(A) ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements of EDS were prepared by management, which is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on judgments of management. Financial information elsewhere in this Exhibit 99(a) is consistent with that in the consolidated financial statements. Management is further responsible for maintaining a system of internal accounting controls designed to provide reasonable assurance that the books and records reflect the transactions of the Company and that its established policies and procedures are carefully followed. Perhaps the most important feature in the system of control is that it is continually reviewed for its effectiveness and is augmented by written policies and guidelines, the careful selection and training of qualified personnel, and a strong program of internal audit. The Company's independent auditors, KPMG Peat Marwick LLP, have audited the consolidated financial statements. Their audits were conducted in accordance with generally accepted auditing standards, which include the consideration of the Company's internal controls to the extent necessary to form an independent opinion on the consolidated financial statements prepared by management. The Board of Directors, through the EDS Audit Committee, is responsible for assuring that management fulfills its responsibilities in the preparation of the consolidated financial statements and for engaging the independent auditors. The Committee reviews the scope of the audits and the accounting principles being applied in financial reporting. The independent auditors, representatives of management, and the internal auditors meet regularly (separately and jointly) with the Committee to review the activities of each, to ensure that each is properly discharging its responsibilities and to discuss the effectiveness of the system of internal accounting controls. It is management's conclusion that the system of internal accounting controls as of and for the period ended December 31, 1995 provides reasonable assurance that the books and records reflect the transactions of the Company and that the Company complies with established policies and procedures. To ensure complete independence, KPMG Peat Marwick LLP have full and free access to meet with the Committee, without management representatives present, to discuss the results of their audits and the quality of the financial reporting. /s/ LESTER M. ALBERTHAL, JR. /s/ JOSEPH M. GRANT - ---------------------------------------- ------------------------- Lester M. Alberthal, Jr. Joseph M. Grant Chairman of the Board Senior Vice President President and Chief Executive Officer Chief Financial Officer
IV-20 2 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT AND CONSENT The Board of Directors Electronic Data Systems Corporation: We have audited the accompanying consolidated balance sheets of Electronic Data Systems Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Electronic Data Systems Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. We hereby consent to the incorporation by reference of our report stated above in the following Registration Statements:
REGISTRATION FORM STATEMENT NO. DESCRIPTION - ---- -------------------- ----------------------------------------------------------------- S-3 33-41557 General Motors Corporation Debt Securities S-3 33-64229 General Motors Corporation Debt Securities S-3 33-47343 General Motors Corporation $1 2/3 Par Value Common Stock (Post Effective Amendment No. 1) S-3 33-49035 General Motors Corporation $1 2/3 Par Value Common Stock Amendment No. 1 S-3 33-56671 General Motors Corporation $1 2/3 Par Value Common Stock (Amendment No. 1) S-3 33-49309 General Motors Corporation Dividend Reinvestment Plan S-8 33-56753 The General Motors Personal Savings Plan for Hourly-Rate Employees in the United States S-8 33-54841 General Motors Amended 1987 Stock Incentive Plan S-8 33-64197 General Motors Savings-Stock Purchase Program for Salaried Employees in the United States S-8 2-94690 1984 Electronic Data Systems Corporation Stock Purchase Plan (Post-Effective Amendment No. 1) S-8 2-94691 1984 Electronic Data Systems Corporation Stock Incentive Plan (Post-Effective Amendment No. 1) S-8 33-64681 EDS Deferred Compensation Plan S-8 33-54833 EDS Puerto Rico Savings Plan
IV-21 3
REGISTRATION FORM STATEMENT NO. DESCRIPTION - ---- -------------------- ----------------------------------------------------------------- S-8 33-32322 Hughes Aircraft Company Salaried Employees' Thrift and Savings Plan Hughes Aircraft Company Tucson Bargaining Employees' Thrift and Savings Plan Hughes Aircraft Company California Hourly Employees' Thrift and Savings Plan Hughes Thrift and Savings Plan S-8 33-54835 The GMAC Mortgage Corporation Savings Incentive Plan S-8 33-64199 Hughes Electronics Corporation Incentive Plan S-8 33-64691 Saturn Individual Savings Plan for Represented Members S-8 33-64693 Saturn Personal Choices Savings Plan for Non-Represented Members S-8 33-28714 Marketing & Systems Development Corporation 1985 Incentive Stock Option Plan
/s/ KPMG PEAT MARWICK LLP - ---------------------------------------- KPMG PEAT MARWICK LLP Dallas, Texas January 24, 1996 (March 29, 1996 as to the consent in the last paragraph on the preceding page) IV-22 4 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ----------------------------------- 1995 1994 1993 --------- -------- -------- (IN MILLIONS EXCEPT PER SHARE AMOUNTS) Systems and other contracts revenues GM and affiliates......................................... $ 3,891.1 $3,547.2 $3,323.7 Outside customers......................................... 8,531.0 6,412.9 5,183.6 --------- -------- -------- Total.................................................. 12,422.1 9,960.1 8,507.3 --------- -------- -------- Costs and expenses Cost of revenues.......................................... 9,601.6 7,529.4 6,390.6 Selling, general, and administrative...................... 1,291.5 1,187.1 1,005.4 --------- -------- -------- Total costs and expenses............................... 10,893.1 8,716.5 7,396.0 --------- -------- -------- Operating income............................................ 1,529.0 1,243.6 1,111.3 Interest and other income, net (Note 20).................... (62.0) 40.6 20.0 --------- -------- -------- Income before income taxes.................................. 1,467.0 1,284.2 1,131.3 Provision for income taxes (Note 11)........................ 528.1 462.3 407.3 --------- -------- -------- Separate Consolidated Net Income............................ $ 938.9 $ 821.9 $ 724.0 ========= ======== ======== Available Separate Consolidated Net Income Average number of shares of GM Class E common stock outstanding (in millions) (Note 1) (Numerator)............ 404.6 260.3 243.0 Class E dividend base (in millions) (Denominator)........... 483.7 481.7 480.6 Available Separate Consolidated Net Income.................. $795.5 $444.4 $367.2 ====== ====== ====== Earnings Attributable to GM Class E Common Stock on a Per Share Basis (Note 1)...................................... $1.96 $1.71 $1.51 ===== ===== =====
See accompanying notes to consolidated financial statements. IV-23 5 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------ 1995 1994 --------- -------- (IN MILLIONS) ASSETS Current assets Cash and cash equivalents.................................................... $ 548.9 $ 608.2 Marketable securities (Note 3)............................................... 89.7 149.6 Accounts receivable, net..................................................... 2,872.0 2,082.1 Accounts receivable from GM and affiliates................................... 297.0 65.4 Inventories.................................................................. 181.2 137.8 Prepaids and other........................................................... 392.7 311.0 --------- -------- Total current assets..................................................... 4,381.5 3,354.1 --------- -------- Property and equipment, at cost less accumulated depreciation (Note 4)......... 3,242.4 2,756.6 --------- -------- Operating and other assets Land held for development, at cost (Note 5).................................. 105.1 97.4 Investment in leases and other (Note 6)...................................... 1,573.5 1,308.8 Software, goodwill, and other intangibles, net (Notes 7 and 19).............. 1,529.9 1,269.6 --------- -------- Total operating and other assets......................................... 3,208.5 2,675.8 --------- -------- Total Assets................................................................... $10,832.4 $8,786.5 ========= ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable............................................................. $ 603.9 $ 571.1 Accrued liabilities (Note 8)................................................. 1,704.5 1,451.0 Deferred revenue............................................................. 629.3 536.7 Income taxes (Note 11)....................................................... 75.9 111.0 Notes payable (Note 9)....................................................... 247.8 203.4 --------- -------- Total current liabilities................................................ 3,261.4 2,873.2 --------- -------- Deferred income taxes (Note 11)................................................ 739.7 659.8 --------- -------- Notes payable (Note 9)......................................................... 1,852.8 1,021.0 --------- -------- Commitments and contingent liabilities (Notes 17 and 18) Stockholder's equity (Notes 10 and 12) Common stock, without par value; authorized 1,000.0 shares. Issued and outstanding 483.7 and 481.7 shares at December 31, 1995 and 1994, respectively............................................................... 517.7 455.1 Retained earnings............................................................ 4,460.8 3,777.4 --------- -------- Total stockholder's equity............................................... 4,978.5 4,232.5 --------- -------- Total Liabilities and Stockholder's Equity..................................... $10,832.4 $8,786.5 ========= ========
See accompanying notes to consolidated financial statements. IV-24 6 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- 1995 1994 1993 --------- --------- --------- (IN MILLIONS) Cash Flows from Operating Activities Net income.......................................................... $ 938.9 $ 821.9 $ 724.0 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization..................................... 1,107.8 771.1 626.8 Deferred compensation............................................. 58.8 62.0 33.8 Other............................................................. 33.0 30.9 (17.7) Changes in assets and liabilities, net of effects of acquired companies: Increase in accounts receivable................................. (611.5) (605.4) (200.8) (Increase) decrease in accounts receivable from GM and affiliates................................................... (227.8) 51.1 (56.0) Increase in inventories......................................... (41.9) (1.9) (15.5) Increase in prepaids and other.................................. (59.7) (57.0) (26.8) Increase (decrease) in accounts payable and accrued liabilities.................................................. (76.0) 453.2 27.4 Increase in deferred revenue.................................... 81.0 79.1 137.1 Increase (decrease) in taxes payable............................ 56.4 (72.5) 188.7 --------- --------- --------- Total adjustments................................................. 320.1 710.6 697.0 --------- --------- --------- Net cash provided by operating activities............................. 1,259.0 1,532.5 1,421.0 --------- --------- --------- Cash Flows from Investing Activities Proceeds from sales of marketable securities........................ 163.6 370.0 234.2 Proceeds from investments in leases and other assets................ 87.8 134.6 217.3 Payments for purchases of property and equipment.................... (1,261.5) (1,186.0) (816.4) Payments for investments in leases and other assets................. (356.3) (395.7) (170.6) Payments related to acquisitions, net of cash acquired.............. (234.9) (186.6) (122.1) Payments for purchases of software and other intangibles............ (92.0) (77.0) (119.0) Payments for purchases of marketable securities..................... (100.9) (248.9) (292.5) Other............................................................... 12.7 49.9 1.4 --------- --------- --------- Net cash used in investing activities............................... (1,781.5) (1,539.7) (1,067.7) --------- --------- --------- Cash Flows from Financing Activities Proceeds from notes payable......................................... 7,466.7 10,821.0 2,527.7 Payments on notes payable........................................... (6,776.3) (10,300.7) (2,648.7) Net decrease in current notes payable with maturities less than 90 days.............................................................. -- (102.9) (99.0) Employee stock transactions and related tax benefit................. 26.0 20.2 33.9 Cash dividends paid to GM........................................... (251.3) (231.1) (192.1) --------- --------- --------- Net cash provided by (used in) financing activities................. 465.1 206.5 (378.2) --------- --------- --------- Effect of Exchange Rate Changes on Cash and Cash Equivalents.......... (1.9) 25.5 (13.6) --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents.................. (59.3) 224.8 (38.5) Cash and Cash Equivalents at Beginning of Year........................ 608.2 383.4 421.9 --------- --------- --------- Cash and Cash Equivalents at End of Year.............................. $ 548.9 $ 608.2 $ 383.4 ========= ========= =========
See accompanying notes to consolidated financial statements. IV-25 7 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Electronic Data Systems Corporation is a provider of information technology using advanced computer and communications technologies to meet the business needs of its clients. As used herein, the terms "EDS" and "the Company" refer to Electronic Data Systems Corporation and its consolidated subsidiaries. EDS offers its clients a continuum of services in over 40 countries worldwide. This continuum includes the management of computers, networks, information systems, information processing facilities, business operations, and related personnel, as well as management consulting services. (See Note 14 for geographic segment information.) General Motors Corporation (GM) acquired all of the capital stock of EDS in October 1984. Prior to that time, EDS had been an independent, publicly held corporation. Electronic Data Systems Holding Corporation was incorporated in Delaware in 1994 for the purpose of holding the capital stock of EDS, which was incorporated in Texas in 1962. Accordingly, EDS is an indirect wholly owned subsidiary of GM. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of EDS and all majority-owned subsidiaries. The Company's investments in companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for under the equity method, with the remaining investments carried at cost. Earnings Attributable to GM Class E Common Stock on a Per Share Basis have been determined based on the relative amounts available for the payment of dividends to holders of GM Class E common stock. Holders of GM Class E common stock have no direct rights in the equity or assets of EDS, but rather have rights in the equity and assets of GM (which includes 100% of the stock of EDS). Dividends on the GM Class E common stock are declared out of the Available Separate Consolidated Net Income of EDS earned since the acquisition of EDS by GM. The Available Separate Consolidated Net Income of EDS is determined quarterly and is equal to the separate consolidated net income of EDS, excluding the effects of purchase accounting adjustments arising from the acquisition of EDS, multiplied by a fraction, the numerator of which is a number equal to the weighted average number of shares of GM Class E common stock outstanding during the quarter, and the denominator of which was 483.7 million during the fourth quarter of 1995. Comparable denominators for the fourth quarters of 1994 and 1993 were 481.7 million and 480.6 million, respectively. GM Series C depositary shares represent ownership of one-tenth of a share of GM Series C convertible preference stock. GM Series C depositary shares and GM Series C preference stocks are convertible into GM Class E common stock and are common stock equivalents for purposes of computing Earnings Attributable to GM Class E Common Stock on a Per Share Basis. On November 2, 1992, GM Series E-II and E-III preference stocks, previously held by the GM pension plans, were converted to GM Class E common stock. In 1993 and 1992, GM Series E-1 preference stock was converted to GM Class E common stock, or redeemed by GM. The issuances and conversions of such preference stocks have no dilutive effect on the GM Class E common stock because, to the extent that shares of GM Class E common stock deemed to be outstanding would increase, such increased shares would increase the numerator of the fraction used to determine Available Separate Consolidated Net Income, but would have no effect on the denominator. Additionally, unvested units in the Company's stock incentive plan would have no material dilutive effect on the denominator. The denominator used in determining the Available Separate Consolidated Net Income of EDS is adjusted as deemed appropriate by the GM Board of Directors to reflect subdivisions or combinations of the GM Class E common stock and to reflect certain transfers of capital to or from EDS. The GM Board's IV-26 8 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED discretion to make such adjustments is limited by criteria set forth in GM's Certificate of Incorporation. In 1988, EDS initiated a program to repurchase 11.0 million shares of GM Class E common stock in order to meet certain future requirements of the Company's employee benefit plans. As of December 31, 1989, the Company had purchased 11.0 million shares of GM Class E common stock to be distributed to key employees under the provisions of the 1984 Plan. The GM Board has generally caused the denominator used in calculating the Available Separate Consolidated Net Income of EDS to decrease as shares are purchased and to increase as shares are used for the employee benefit plans. In March 1995, GM contributed 173 million newly issued shares of GM Class E common stock to the General Motors Hourly-Rate Employees Pension Plan. The current GM Board policy is that the cash dividends on the GM Class E common stock, when, as, and if declared by the GM Board in its sole discretion, will equal approximately 30% of the Available Separate Consolidated Net Income of EDS for the prior year. DEBT AND MARKETABLE EQUITY SECURITIES Marketable securities at December 31, 1995 and 1994 consist of securities issued by the U.S. Treasury, states, and political subdivisions, as well as mortgage-backed debt, corporate debt and corporate equity securities. The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, effective January 1, 1994. Pursuant to SFAS No. 115, the provisions of the Statement were not applied retroactively. The change had no material cumulative effect on the Company's financial position or results of operations. Under SFAS No. 115, the Company classifies all of its debt and marketable equity securities as available-for-sale. Management determines the appropriate classification of all securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Noncurrent available-for-sale securities are reported within the balance sheet classification "Investment in Leases and Other". The Company's available-for-sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of stockholder's equity until realized. A decline in the fair value of any available-for-sale security below cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security (see Note 3). INVENTORY VALUATION Inventories are stated principally at the lower of cost or market using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation of property and equipment is calculated using the straight-line method over the lesser of the asset's estimated useful life, the life of the related customer contract, or the term of the lease in the case of leasehold improvements. The ranges of estimated useful lives are as follows:
YEARS ------ Buildings............................................................. 20-40 Facilities............................................................ 5-20 Computer equipment.................................................... 3-7 Other equipment and furniture......................................... 3-15
IV-27 9 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED SOFTWARE, GOODWILL, AND OTHER INTANGIBLES Software purchased by the Company and utilized in designing, installing, and operating business information and communications systems is capitalized and amortized on a straight-line basis over a five- to eight-year period. Costs of developing and maintaining software systems are incurred primarily in connection with customer contracts and are considered contract costs. Software development costs that meet the capitalization and recoverability requirements of SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, are capitalized and generally amortized on a straight-line basis over three years. Such amounts were not significant. The cost of acquired companies is allocated first to identifiable assets based on estimated fair values. The excess of the purchase price over the fair value of identifiable assets acquired, net of liabilities assumed, is recorded as goodwill and amortized on a straight-line basis over the useful life which is determined based on the individual characteristics of the acquired entity, generally five to 40 years. Costs allocated to identifiable intangible assets are amortized on a straight-line basis over the remaining estimated useful lives of the assets as determined by underlying contract terms or independent appraisals. Such lives range from five to ten years. The company periodically evaluates the carrying amounts of goodwill and other intangibles, as well as the related amortization periods, to determine whether adjustments to these amounts or useful lives are required based on current events and circumstances. The evaluation is based on the Company's projection of the undiscounted future operating cash flows of the acquired operation over the remaining useful lives of the related intangible assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related intangibles, the underlying assets are written down by charges to expense so that the carrying amount is equal to future undiscounted cash flows. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. REVENUE RECOGNITION The Company provides services under level-of-effort and fixed-price contracts, with the length of the Company's contracts ranging up to ten years. For level-of-effort types of contracts, revenue is earned based on the agreed-upon billing amounts as services are provided to the customer. For certain fixed-price contracts, revenue is recognized on the percentage-of-completion method. Revenue earned is based on the percentage that incurred contract costs to date bear to total estimated contract costs after giving effect to the most recent estimates of total cost. Changes to total estimated contract costs, if any, are recognized in the period they are determined. Deferred revenue of $629.3 million and $536.7 million at December 31, 1995 and 1994, respectively, represents billings in excess of costs and related profits on certain contracts. Included in accounts receivable are unbilled receivables of $622.2 million and $448.5 million at December 31, 1995 and 1994, respectively. Such unbilled receivables for certain contracts in progress represent costs and related profits in excess of billings, and such amounts were not billable at the balance sheet date but are recoverable over the remaining life of the contract. These billings on fixed-price contracts will be made in the future in accordance with contractual agreements. Of the unbilled receivables at December 31, 1995, billings to such customers amounting to $108.3 million are expected to be collected in 1997 and thereafter. CURRENCY TRANSLATION Assets and liabilities of non-U.S. subsidiaries whose functional currency is not the U.S. dollar are translated at current exchange rates. Revenue and expense accounts are translated using an average rate for the period. Translation gains (losses) are not included in determining net income but are reflected as a separate component of stockholder's equity. Nonfunctional currency transaction gains (losses) are included in determining net income and were ($3.8) million, $4.5 million, and ($3.7) million, net of income taxes, for the years ended December 31, 1995, 1994, and 1993, respectively. IV-28 10 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED INCOME TAXES The Company provides for deferred taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered. The Company is included in the consolidated Federal tax returns filed by GM. Current Federal income taxes are calculated on a separate return basis and remitted to GM. The deferral method is used to account for investment tax credits. STATEMENT OF CASH FLOWS The Company uses the indirect method to present cash flows from operating activities and considers certificates of deposit, as well as the following items with original maturities of three months or less, to be cash equivalents: commercial paper, repurchase agreements, and money market funds. (See Note 20.) FINANCIAL INSTRUMENTS The following table presents the carrying amounts and fair values of the Company's financial instruments as defined under SFAS No. 107, Disclosures about Fair Value of Financial Instruments, at December 31, 1995 and 1994:
DECEMBER 31, -------------------------------------------- 1995 1994 -------------------- -------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- (IN MILLIONS) Available for-sale marketable securities (Notes 3 and 6).................................................. $ 93.5 $ 93.5 $ 153.6 $ 153.6 Investment in joint ventures and partnerships, under the cost method of accounting (Note 6).............. 215.1 271.4 149.6 172.0 Other long-term securities (Note 6)................... 263.2 307.4 201.2 192.6 Non-current notes receivable (Note 6)................. 89.6 86.0 158.1 154.4 Notes payable (Note 9)................................ 2,100.6 2,168.4 1,224.4 1,230.3 Foreign exchange forward contracts, net liability (Note 15)........................................... (5.4) (5.4) (0.9) (0.9)
The carrying value of other financial instruments such as cash equivalents, accounts receivable, and accounts payable approximate their fair value. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company's customer base and their dispersion across different industry and geographic areas. Accounts receivable are shown net of allowances of $99.5 million and $57.9 million as of December 31, 1995 and 1994, respectively. DERIVATIVES Derivative financial instruments are used by the Company in the management of its interest rate and foreign currency exposures. Net payments or receipts under the Company's interest rate swap agreements are recorded as adjustments to interest expense. Foreign exchange-forward contracts are recorded in the Company's Consolidated Balance Sheets at fair value at the reporting date. Realized and unrealized changes in fair value are recognized in income, as other income (expense), in the period in which the changes occur. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of IV-29 11 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. SIGNIFICANT CUSTOMERS The percentage of EDS' total revenues attributable to GM and its affiliates has decreased significantly since GM's acquisition of EDS in 1984 as a result of the revenue growth of EDS' non-GM business. During the year ended December 31, 1995, the portion of EDS' revenues attributable to GM was approximately 31%. On August 7, 1995, GM announced that it intends to pursue a split-off (the "Split-Off") of EDS to its GM Class E stockholders in a tax-free exchange. Immediately before the Split-Off, GM and EDS will enter into a new master services agreement and certain related agreements which would significantly change the pricing and terms of the services currently provided by EDS. In addition, it is also expected that at the time of the Split-Off, a Special Inter-Company Payment will be made to GM by EDS to ensure the fairness of the Split-Off to all classes of GM common stock. Therefore, EDS does not anticipate the loss of GM as an ongoing major customer in the near future. Other than General Motors, no single customer accounted for more than 10% of the Company's revenues in 1995, 1994, or 1993. RECLASSIFICATIONS Certain reclassifications have been made to the 1994 and 1993 consolidated financial statements to conform to the 1995 presentation. NOTE 2: NATIONAL HERITAGE INSURANCE COMPANY National Heritage Insurance Company (NHIC), a wholly owned subsidiary of EDS, acts as underwriter for claims benefit payments for the Medicaid welfare program contract for the state of Texas. The contract provides that payments from the state be deposited in trust accounts that are not included in the consolidated financial statements. In accordance with contractual provisions, these funds will be returned to the state if total benefit claims are less than the amounts received. Of such payments received for the years ended December 31, 1995, 1994, and 1993, $3,440.1 million, $4,188.7 million, and $4,453.4 million, respectively, were designated for the payment of benefit claims or to be returned to the state. At December 31, 1995 and 1994, $664.7 million and $983.5 million, respectively, of such designated funds at amortized cost remained in the trust accounts. Approximate market values of these invested funds at December 31, 1995 and 1994 were $663.3 million and $975.2 million, respectively. These investments primarily consist of corporate and government bonds. NHIC has the ability and intent to hold these investments until their full face value can be realized. Gains and losses from the sale of these investments held in trust accounts are combined with gains and losses from the Company's other investments. IV-30 12 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 3. DEBT AND MARKETABLE EQUITY SECURITIES Following is a summary of available-for-sale securities:
DECEMBER 31, 1995 ----------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- ------ (IN MILLIONS) Current U.S. government and agency obligations............... $ 33.2 $0.1 $0.1 $ 33.2 Other debt securities................................ 35.6 0.1 1.8 33.9 ------- ---- ---- ------ Total debt securities........................... 68.8 0.2 1.9 67.1 Equity securities.................................... 23.4 -- 0.8 22.6 ------- ---- ---- ------ Total current available-for-sale securities..... $ 92.2 $0.2 $2.7 $ 89.7 ======= ==== ==== ====== Noncurrent (Note 6) Other debt securities................................ $ 0.6 $ -- $ -- $ 0.6 Equity securities.................................... 5.7 -- 2.5 3.2 ------- ---- ---- ------ Total noncurrent available-for-sale securities................................... $ 6.3 $ -- $2.5 $ 3.8 ======= ==== ==== ======
DECEMBER 31, 1994 ----------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- ------ (IN MILLIONS) Current U.S. government and agency obligations............... $ 31.9 $ -- $0.6 $ 31.3 Other debt securities................................ 94.9 0.2 4.7 90.4 ------- ---- ---- ------ Total debt securities........................... 126.8 0.2 5.3 121.7 Equity securities.................................... 29.2 -- 1.3 27.9 ------- ---- ---- ------ Total current available-for-sale securities..... $ 156.0 $0.2 $6.6 $149.6 ======= ==== ==== ====== Noncurrent (Note 6) Other debt securities................................ $ 0.6 $ -- $ -- $ 0.6 Equity securities.................................... 5.8 -- 2.4 3.4 ------- ---- ---- ------ Total noncurrent available-for-sale securities................................... $ 6.4 $ -- $2.4 $ 4.0 ======= ==== ==== ======
The amortized cost and estimated fair value of debt securities at December 31, 1995, by contractual maturity, are shown on the next page. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to repay obligations without prepayment penalties. IV-31 13 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1995 ------------------ AMORTIZED FAIR COST VALUE --------- ----- (IN MILLIONS) Debt securities Due in one year or less.................................... $18.1 $18.1 Due after one year through five years...................... 30.7 30.7 Due after five years through 10 years...................... 2.0 2.0 Due after 10 years......................................... 0.7 0.7 Mortgage-backed securities................................. 17.9 16.2 ----- ----- Total debt securities................................... $69.4 $67.7 ===== =====
The following table summarizes sales of available-for-sale securities:
YEARS ENDED DECEMBER 31, ------------------- 1995 1994 --------- ------ (IN MILLIONS) Proceeds from sales......................................... $ 162.5 $374.4 Gross realized gains........................................ $ 0.7 $ 17.4 Gross realized losses....................................... $ (1.1) $ (4.1)
Specific identification was used to determine cost in computing realized gain or loss. NOTE 4. PROPERTY AND EQUIPMENT
ACCUMULATED COST DEPRECIATION NET -------- ------------ -------- (IN MILLIONS) DECEMBER 31, 1995 Land.......................................................... $ 136.9 $ -- $ 136.9 Buildings and facilities...................................... 925.1 383.5 541.6 Computer equipment............................................ 4,836.2 2,571.3 2,264.9 Other equipment and furniture................................. 663.6 364.6 299.0 -------- -------- -------- Total.................................................... $6,561.8 $3,319.4 $3,242.4 ======== ======== ======== DECEMBER 31, 1994 Land.......................................................... $ 125.3 $ -- $ 125.3 Buildings and facilities...................................... 878.7 319.5 559.2 Computer equipment............................................ 3,967.6 2,096.6 1,871.0 Other equipment and furniture................................. 465.9 264.8 201.1 -------- -------- -------- Total.................................................... $5,437.5 $2,680.9 $2,756.6 ======== ======== ========
NOTE 5. LAND HELD FOR DEVELOPMENT Land held for development at December 31, 1995 consists of approximately 2,260 acres located throughout the Dallas metropolitan area. Approximately 1,590 acres of land, site of a commercial real estate development, are located in Plano, Texas. The carrying value of land is periodically compared to current sales, market analysis and appraisals to determine whether an adjustment is required. IV-32 14 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 6. INVESTMENT IN LEASES AND OTHER
DECEMBER 31, -------------------- 1995 1994 -------- -------- (IN MILLIONS) Lease contracts receivable (net of principal and interest on nonrecourse debt).................................................................. $ 385.9 $ 384.5 Estimated residual values of leased assets (not guaranteed).............. 335.3 339.0 Unearned income, including deferred investment tax credits............... (246.8) (260.6) -------- -------- Investment in leveraged leases (excluding deferred taxes of $303.0 and $284.7 at December 31, 1995 and 1994, respectively)................. 474.4 462.9 Investment in securities, joint ventures, and partnerships............... 602.8 357.2 Investment in direct financing leases, net of unearned income............ 148.2 153.8 Noncurrent notes receivable.............................................. 89.6 158.1 GM Class E common stock held for benefit plans........................... 33.2 54.7 Investment in tax benefit transfers...................................... 36.2 38.6 Long-term prepaid software license fees.................................. 43.4 16.6 Other.................................................................... 145.7 66.9 -------- -------- Total............................................................... $1,573.5 $1,308.8 ======== ========
The fair values of certain long-term investments are estimated based on quoted market prices for these or similar investments. For other investments, a variety of methods are used to estimate fair value, including external valuations and discounted cash flows. At December 31, 1995, the fair values of investments in joint ventures and partnerships (accounted for using the cost method), long-term securities, and noncurrent notes receivable were estimated to be $271.4 million, $307.4 million, and $86.0 million, respectively, with carrying amounts of $215.1 million, $263.2 million, and $89.6 million, respectively. At December 31, 1994, the fair values of investments in joint ventures and partnerships (accounted for using the cost method), long-term securities, and noncurrent notes receivable were estimated to be $172.0 million, $192.6 million, and $154.4 million, respectively, with carrying amounts of $149.6 million, $201.2 million, and $158.1 million, respectively. The carrying amount of securities, joint ventures and partnerships also includes investments accounted for under the equity method, none of which are material to the Company's consolidated financial statements. A decline in the market value of any of these investments which is deemed to be other than temporary would be charged to earnings. At December 31, 1995 and 1994, Investment in Leases and Other was net of an allowance of $26.6 million and $17.5 million, respectively. Long-term securities include GM Class E common stock and other securities. The carrying value of the GM Class E common stock, which was less than the market value, was utilized as the investment's fair value shown above, because the stock will be used to satisfy future benefit plan obligations. Financing leases that are financed with nonrecourse borrowings at lease inception are accounted for as leveraged leases. Such borrowings are secured by substantially all of the lessor's rights under the lease plus the residual value of the asset. For Federal income tax purposes, the Company receives the investment tax credit (if available) at lease inception and has the benefit of tax deductions for depreciation on the leased asset and for interest on the nonrecourse debt. A portion of the Company's leveraged lease portfolio is concentrated within the airline industry. The Company historically has not experienced credit losses from these transactions, and the portfolio is diversified among unrelated lessees. IV-33 15 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 7. SOFTWARE, GOODWILL, AND OTHER INTANGIBLES
ACCUMULATED COST AMORTIZATION NET -------- ------------ -------- (IN MILLIONS) DECEMBER 31, 1995 Software...................................................... $ 966.6 $606.8 $ 359.8 Goodwill...................................................... 1,225.6 129.6 1,096.0 Other intangibles............................................. 245.8 171.7 74.1 -------- ------ -------- Total....................................................... $2,438.0 $908.1 $1,529.9 ======== ====== ======== DECEMBER 31, 1994 Software...................................................... $ 876.0 $462.1 $ 413.9 Goodwill...................................................... 833.9 80.4 753.5 Other intangibles............................................. 312.8 210.6 102.2 -------- ------ -------- Total....................................................... $2,022.7 $753.1 $1,269.6 ======== ====== ========
NOTE 8. ACCRUED LIABILITIES
DECEMBER 31, -------------------- 1995 1994 -------- -------- (IN MILLIONS) Contract related......................................................... $1,044.8 $ 880.9 Payroll related.......................................................... 291.4 196.4 Operating expenses....................................................... 157.7 196.1 Property, sales, and franchise taxes..................................... 135.1 100.1 Other.................................................................... 75.5 77.5 -------- -------- Total.................................................................. $1,704.5 $1,451.0 ======== ========
NOTE 9. NOTES PAYABLE
DECEMBER 31, -------------------- 1995 1994 -------- -------- (IN MILLIONS) Commercial paper, 5.6% to 5.9%........................................... $1,078.0 $ 933.0 Lines of credit, variable rate 5.9% to 9.6%, due 1996.................... 118.9 48.7 Notes, variable rate, 3.0% to 11.2%, due 1996 to 2006.................... 9.3 91.1 Notes to Banks, fixed rate, 4.9% to 11.7%, due 1996 to 2003.............. 121.6 107.2 Notes Payable, fixed rate, 6.85% to 7.125%, due 2000 to 2005, net of discount............................................................... 645.8 -- Notes Payable, fixed rate, 1.2% to 10.4%, due 1996 to 2004............... 127.0 44.4 -------- -------- Total.................................................................. 2,100.6 1,224.4 Less current maturities classified as notes payable.................... (247.8) (203.4) -------- -------- Noncurrent notes payable............................................... $1,852.8 $1,021.0 ======== ========
IV-34 16 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Commercial paper is classified as noncurrent debt as it is intended to be maintained on a long-term basis with ongoing credit availability provided by the Company's revolving, committed lines of credit. During 1995, the Company revised its agreement with a syndicate of banks, which increased to $2,500.0 million its committed lines of credit, of which $1,250.0 million expires in 1996 with the option to convert any outstanding amounts under these lines into term loans that mature in 1998. The remaining $1,250.0 million expires in 2000. Upon expiration of the commitment periods, the lenders and EDS have the option to extend the commitment. In addition, as of December 31, 1995, the Company had available and had used another $15.5 million in committed lines of credit. The Company also had available $831.6 million in uncommitted short-term lines of credit, of which $728.2 million remained unused at December 31, 1995. In May 1995, EDS issued $350.0 million of its 6.85%, five-year notes and $300.0 million of its 7.125% ten-year notes in a private placement to investment banks. Notes payable relate to land held for development, property and equipment, acquisitions, and other items. Notes payable are generally unsecured with certain notes secured by assets of a majority-owned subsidiary. Maturities of notes payable for years subsequent to December 31, 1995 are as follows (in millions): 1996................................... $ 247.8 1997................................... 60.6 1998................................... 35.5 1999................................... 6.9 2000................................... 1,433.1 Thereafter............................. 316.7 -------- $2,100.6 ========
The Company's credit facilities and the indenture governing its medium term notes contain certain financial and other covenants, including the maintenance of a minimum net worth and restrictions on mergers, consolidations and sales of substantially all of the assets of the Company. As of December 31, 1995, the Company was in compliance with all of these covenants. For the years ended December 31, 1994 and 1993, interest costs of $1.2 million and $5.4 million, respectively, were capitalized, which, if charged to expense, would have resulted in reductions in net income of $0.7 million and $3.5 million, respectively. During 1995, the Company capitalized no interest costs. The fair value of notes payable is estimated based on the current rates offered to the Company for the same remaining maturities. At December 31, 1995 and 1994, the estimated fair value was $2,168.4 million and $1,230.3 million, respectively. IV-35 17 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 10. CONSOLIDATED STOCKHOLDER'S EQUITY
COMMON STOCK CURRENCY MARKET CONSOL. --------------- TRANS. VALUE RETAINED STOCKHOLDER'S SHARES AMOUNT ADJUST. ADJUST. EARNINGS EQUITY ------ ------ -------- ------- -------- ------------- (IN MILLIONS EXCEPT PER SHARE AMOUNTS) Balance at December 31, 1992............... 479.3 $365.9 $(52.7) $ -- $2,750.2 $ 3,063.4 Separate consolidated net income......... -- -- -- -- 724.0 724.0 Cash dividends declared -- $0.40 per share................................. -- -- -- -- (192.1) (192.1) Stock option and award transactions...... 1.6 55.3 -- -- -- 55.3 Currency translation adjustment.......... -- -- (33.2) -- -- (33.2) ----- ------ ------ ----- -------- -------- Balance at December 31, 1993............... 480.9 421.2 (85.9) -- 3,282.1 3,617.4 Separate consolidated net income......... -- -- -- -- 821.9 821.9 Cash dividends declared -- $0.48 per share................................. -- -- -- -- (231.1) (231.1) Stock option and award transactions...... 0.8 33.9 -- -- -- 33.9 Currency translation adjustment.......... -- -- (3.0) -- -- (3.0) Unrealized loss on securities, net (Note 3).................................... -- -- -- (6.6) -- (6.6) ----- ------ ------ ----- -------- -------- Balance at December 31, 1994............... 481.7 455.1 (88.9) (6.6) 3,872.9 4,232.5 Separate consolidated net income......... -- -- -- -- 938.9 938.9 Cash dividends declared -- $0.52 per share................................. -- -- -- -- (251.3) (251.3) Stock option and award transactions...... 2.0 62.6 -- -- -- 62.6 Currency translation adjustment.......... -- -- (6.6) -- -- (6.6) Unrealized gain on securities, net (Note 3).................................... -- -- -- 2.4 -- 2.4 ----- ------ ------ ----- -------- -------- Balance at December 31, 1995............... 483.7 $517.7 $(95.5) $(4.2) $4,560.5 $ 4,978.5 ===== ====== ====== ===== ======== ========
NOTE 11. INCOME TAXES The current and deferred income tax liabilities (assets) are summarized as follows:
DECEMBER 31, ---------------- 1995 1994 ------ ------ (IN MILLIONS) Current payable............................................................. $ 4.3 $ 49.3 Current deferred............................................................ 71.6 61.7 ------ ------ Total income taxes -- current............................................. 75.9 111.0 Noncurrent deferred......................................................... 739.7 659.8 ------ ------ Total current and noncurrent income taxes................................. $815.6 $770.8 ====== ======
IV-36 18 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The provision for income tax expense is summarized as follows:
U.S. U.S. YEAR-ENDED FEDERAL NON-U.S. STATE TOTAL - ------------------------------------------------------------ ------- -------- ----- ------ (IN MILLIONS) DECEMBER 31, 1995 Current..................................................... $ 310.3 $117.3 $35.4 $463.0 Deferred.................................................... 44.5 20.6 -- 65.1 ------ ------ ----- ------ Total..................................................... $ 354.8 $137.9 $35.4 $528.1 ====== ====== ===== ====== DECEMBER 31, 1994 Current..................................................... $ 279.0 $167.9 $32.6 $479.5 Deferred.................................................... 15.8 (33.0) -- (17.2) ------ ------ ----- ------ Total..................................................... $ 294.8 $134.9 $32.6 $462.3 ====== ====== ===== ====== DECEMBER 31, 1993 Current..................................................... $ 130.1 $ 77.8 $17.0 $224.9 Deferred.................................................... 161.0 21.4 -- 182.4 ------ ------ ----- ------ Total..................................................... $ 291.1 $ 99.2 $17.0 $407.3 ====== ====== ===== ======
Income before income taxes included the following components:
YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- (IN MILLIONS) U.S. income...................................... $1,131.6 $ 963.5 $ 886.1 Non-U.S. income.................................. 335.4 320.7 245.2 -------- -------- -------- Total.......................................... $1,467.0 $1,284.2 $1,131.3 ======== ======== ========
A reconciliation of income tax expense using the statutory Federal income tax rate of 35.0% for 1995, 1994, and 1993 to the actual income tax expense follows:
YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- (IN MILLIONS) Income before income taxes..................................... $1,467.0 $1,284.2 $1,131.3 ======== ======== ======== Statutory Federal income tax................................... $ 513.4 $ 449.5 $ 395.9 Non-U.S. taxes, net of credit.................................. 4.1 18.9 13.4 U.S. State income tax, net..................................... 23.0 21.2 11.1 Investment tax credit -- leveraged leases...................... (3.0) (3.1) (4.4) Research and experimentation credits........................... (7.5) (11.3) (8.8) Other.......................................................... (1.9) (12.9) 0.1 -------- -------- -------- Total........................................................ $ 528.1 $ 462.3 $ 407.3 ======== ======== ======== Effective income tax rate...................................... 36.0% 36.0% 36.0% ==== ==== ====
IV-37 19 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The tax effects of temporary differences and carryforwards, which result in a significant portion of the deferred tax assets and liabilities, are as follows:
DECEMBER 31, ----------------------------------------------- 1995 1994 ---------------------- --------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------- ----------- ------ ----------- (IN MILLIONS) Basis differences attributable to leasing activities.... $ 1.6 $ 488.4 $ 2.5 $ 504.8 Adjustments necessary to convert accruals to a tax basis................................................. 129.9 246.8 111.9 215.1 Employee benefit plans.................................. 27.1 57.8 32.0 25.9 Accumulated tax depreciation/amortization versus accumulated financial statement depreciation/amortization............................. 12.0 259.5 18.7 211.2 Effect on deferred taxes of carryforwards............... 122.3 -- 102.9 -- Other................................................... 305.2 230.6 232.1 153.5 ------- ------- ------- -------- Subtotal........................................... 598.1 1,283.1 500.1 1,110.5 Less valuation allowance........................... (126.3) -- (111.1) -- ------- ------- ------- -------- Total deferred taxes............................... $ 471.8 $ 1,283.1 $389.0 $ 1,110.5 ======= ======= ======= ========
The net changes in the total valuation allowance for the years ended December 31, 1995 and 1994 were increases of $15.2 million and $18.8 million, respectively. Certain of the Company's foreign subsidiaries have net operating loss carryforwards which expire over an indefinite period. A majority of such carryforwards are included in the valuation allowance. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. NOTE 12. STOCK PURCHASE AND INCENTIVE PLANS The 1984 Electronic Data Systems Corporation Employee Stock Purchase Plan (Purchase Plan) enables EDS employees to purchase up to 80.0 million shares of GM Class E common stock at 85% of the quoted market price through payroll deductions of up to 10% of their compensation. Shares of GM Class E common stock purchased under the Purchase Plan may not be sold or transferred within two years of the date of purchase unless they are first offered to GM or EDS at the lesser of the original purchase price or the fair market value on the date of sale. The number of shares available for future sale under the Purchase Plan was 58.1 million shares at December 31, 1995. The 1984 Electronic Data Systems Corporation Stock Incentive Plan (1984 Plan) covers up to 160.0 million shares of GM Class E common stock and expires on October 17, 2004. The 1984 Plan permits shares and rights or options to acquire shares, which may be subject to restrictions, to be granted or sold. The maximum number of shares for which additional shares, rights, or options may be granted or sold under the provisions of the 1984 Plan was 93.3 million shares at December 31, 1995. The EDS Incentive and Compensation Committee (the Committee) granted the right to purchase a total of 27.6 million shares of GM Class E common stock, at prices of $0.0125 and $0.025 per share, to key employees under the provisions of the 1984 Plan. As of December 31, 1995, substantially all of these shares have vested. The difference between the quoted market price as of the date of grant and the purchase price of shares granted has been charged to operations over the vesting period. Expense for these awards amounted to $1.6 million, $13.3 million, and $16.3 million for the years ended December 31, 1995, 1994, and 1993, respectively. IV-38 20 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED In 1995, 1994, 1991, and 1988, the Committee approved restricted stock unit grants. The 1995 grant, related to the acquisition of A.T. Kearney (see Note 19), totals 6.6 million shares of GM Class E common stock. The 1995 grant and the 1994 grant, which totaled 9.5 million shares, will be distributed to key employees under the provisions of the 1984 Plan. The right to receive shares is a restricted stock unit. All units granted are generally scheduled to vest over a period of 10 years. The 1995 units are scheduled to vest beginning September 1996. The 1994, 1991, and 1988 grants began vesting in March 1995, March 1992, and March 1989, respectively. The quoted market price as of the date of grant is charged to operations over the vesting period. The total unvested number of units as of December 31, 1995 was 19.8 million. The Company has a bonus plan under which awards are granted to key executives and employees. Bonus expense amounted to $96.9 million, $86.6 million, and $49.8 million for the years ended December 31, 1995, 1994, and 1993, respectively. Included in bonus expense is $57.2 million, $48.7 million, and $17.5 million relating to the restricted stock unit grants for the years ended December 31, 1995, 1994, and 1993, respectively. NOTE 13. DEFERRED COMPENSATION PLAN The EDS Deferred Compensation Plan (Plan) provides a long-term savings program for participants. The Plan allows eligible employees to contribute a percentage of their compensation to a savings program and to defer income taxes until the time of distribution. NOTE 14. SEGMENT INFORMATION INDUSTRY SEGMENTS The Company's business involves operations in principally one industry segment: designing, installing, and operating business information and communications systems. Revenues from GM contributed approximately 31%, 36%, and 39% of total revenues for the years ended December 31, 1995, 1994, and 1993, respectively. GEOGRAPHIC SEGMENTS The following presents information about the Company's operations in different geographic areas:
U.S. EUROPE OTHER TOTAL -------- -------- -------- --------- (IN MILLIONS) AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 Systems and other contracts revenues Outside customers.................................. $5,794.9 $2,001.5 $ 734.6 $ 8,531.0 GM and affiliates.................................. 2,926.1 659.2 305.8 3,891.1 -------- -------- -------- --------- Total systems and other contracts revenues........... $8,721.0 $2,660.7 $1,040.4 $12,422.1 ======== ======== ======== ========= Operating income..................................... $1,164.0 $ 271.5 $ 93.5 $ 1,529.0 ======== ======== ======== ========= Identifiable assets.................................. $7,566.8 $2,490.1 $ 775.5 $10,832.4 ======== ======== ======== =========
IV-39 21 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
U.S. EUROPE OTHER TOTAL -------- -------- -------- --------- (IN MILLIONS) AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994 Systems and other contracts revenues Outside customers.................................. $4,611.2 $1,308.1 $ 493.6 $ 6,412.9 GM and affiliates.................................. 2,764.4 523.4 259.4 3,547.2 -------- -------- -------- --------- Total systems and other contracts revenues........... $7,375.6 $1,831.5 $ 753.0 $ 9,960.1 ======== ======== ======== ========= Operating income..................................... $1,008.6 $ 168.3 $ 66.7 $ 1,243.6 ======== ======== ======== ========= Identifiable assets.................................. $6,618.0 $1,573.8 $ 594.7 $ 8,786.5 ======== ======== ======== ========= AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1993 Systems and other contracts revenues Outside customers.................................. $4,004.5 $ 911.6 $ 267.5 $ 5,183.6 GM and affiliates.................................. 2,574.5 511.2 238.0 3,323.7 -------- -------- -------- --------- Total systems and other contracts revenues........... $6,579.0 $1,422.8 $ 505.5 $ 8,507.3 ======== ======== ======== ========= Operating income..................................... $ 906.5 $ 148.7 $ 56.1 $ 1,111.3 ======== ======== ======== ========= Identifiable assets.................................. $5,350.6 $1,185.9 $ 405.6 $ 6,942.1 ======== ======== ======== =========
NOTE 15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Company operates on a global basis receiving revenues and incurring expenses in many different countries. As a result of these activities, the Company has exposure to market risks arising from changes in interest rates and foreign exchange rates. Derivative financial instruments are used by the Company for the purpose of hedging against these risks, to which the Company is exposed in the normal course of business, by creating offsetting market exposures. The Company's use of such instruments in relation to such risks is explained below. The Company does not hold or issue financial instruments for trading purposes. The notional amounts of derivatives contracts are summarized below as part of the description of the instruments utilized. The notional amounts do not represent the amounts exchanged by the parties, and thus are not a measure of the exposure of the Company through its use of derivatives. The amounts exchanged by the parties are normally based upon the notional amounts and the other terms of the derivatives. The Company is not a party to leveraged derivatives. INTEREST RISK MANAGEMENT The Company has historically entered into interest rate swap agreements in order to reduce the impact of changes in interest rates upon its floating-rate debt. As of December 31, 1995 and 1994, the Company had no outstanding interest rate swap agreements. IV-40 22 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED FOREIGN EXCHANGE RISK MANAGEMENT The Company uses derivative financial instruments, particularly foreign exchange-forward contracts, to hedge transactions denominated in different currencies on a continuing basis. The purpose of the Company's hedging activities is to reduce the levels of risk to which it is exposed resulting from exchange-rate movements. At December 31, 1995 and 1994, the Company had forward exchange contracts maturing in the following year to purchase various foreign currencies in the amount of $651.9 million and $289.0 million, respectively, and to sell $1,380.1 million and $766.5 million, respectively. The estimated fair value of forward exchange contracts is based on quoted market prices. At December 31, 1995, the estimated fair value of outstanding contracts in a gain position was $5.5 million and the estimated fair value of outstanding contracts in a loss position was ($10.9) million. At December 31, 1994, the estimated fair value of outstanding contracts in a gain position was $3.3 million and the estimated fair value of outstanding contracts in a loss position was ($4.2) million. The Company recognizes realized and unrealized gains and losses on foreign exchange contracts by marking to market all outstanding forward exchange contracts. Fair value represents the cash required to settle foreign exchange-forward contracts. The Company is exposed to credit risk in the event of nonperformance by counterparties to foreign exchange contracts, but because the Company deals only with major commercial banks with high quality credit, the Company does not anticipate nonperformance by any of these counterparties. NOTE 16. RETIREMENT PLANS The Company has pension plans (the Plans) covering substantially all of its employees, the majority of which are noncontributory. In general, employees become fully vested upon attaining five years of service, and benefits are based on years of service and earnings. The actuarial cost method currently used is the projected unit credit cost method. The Company's U.S. funding policy is to contribute amounts that fall within the range of deductible contributions for Federal income tax purposes. The weighted average assumptions used for the Plans using a measurement date of October 1 are as follows:
YEARS ENDED DECEMBER 31, ----------------------- 1995 1994 1993 ---- ----- ---- Discount rate........................................................ 8.0% 8.9% 7.7% Rate of increase in compensation levels.............................. 5.4% 5.7% 5.9% Long-term rate of return on assets................................... 9.9% 10.0% 9.8%
Net pension cost consisted of the following components:
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 ------- ------ ------- (IN MILLIONS) Service cost of the current period................................ $ 87.6 $ 96.1 $ 72.6 Interest cost on projected benefit obligation..................... 97.5 82.3 69.8 Actual return on assets........................................... (158.6) (22.3) (121.3) Net amortization and deferral..................................... 59.9 (37.9) 75.2 ------- ------ ------- Net pension cost.................................................. $ 86.4 $118.2 $ 96.3 ======= ====== =======
IV-41 23 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED At December 31, 1995 and 1994, the Plans' assets consisted primarily of equity and fixed income securities, commingled pension trust funds, and U.S. Government obligations. Accrued and/or prepaid pension cost is included in Accrued Liabilities or Investment in Leases and Other in the Company's Consolidated Balance Sheets. The following is a reconciliation of the funded status of the Plans:
DECEMBER 31, 1995 DECEMBER 31, 1994 -------------------- -------------------- ASSETS ACCUM. ASSETS ACCUM. EXCEED BENEFITS EXCEED BENEFITS ACCUM. EXCEED ACCUM. EXCEED BENEFITS ASSETS BENEFITS ASSETS -------- -------- -------- -------- (IN MILLIONS) Plans' assets at fair value.............................. $1,242.0 $ 8.2 $ 918.3 $ -- -------- ------- ------ ------- Actuarial present value of benefit obligation Vested benefits........................................ 750.7 81.2 485.9 56.1 Nonvested benefits..................................... 78.4 13.3 57.6 11.2 -------- ------- ------ ------- Accumulated benefit obligation........................... 829.1 94.5 543.5 67.3 Effect of projected future salary increases.............. 462.9 57.9 326.4 25.5 -------- ------- ------ ------- Projected benefit obligation (PBO)....................... 1,292.0 152.4 869.9 92.8 -------- ------- ------ ------- Excess (deficiency) of Plans' assets over PBO............ (50.0) (144.2) 48.4 (92.8) Unrecognized net (gain) loss............................. 126.7 (19.7) (28.3) (35.3) Unrecognized net (asset) obligation at date of adoption............................................... (3.1) 26.0 (9.6) 23.4 Unrecognized prior service cost.......................... 11.4 (0.8) 12.8 (1.0) Additional minimum liability............................. -- (0.1) -- -- -------- ------- ------ ------- Net prepaid (accrued) pension cost....................... $ 85.0 $ (138.8) $ 23.3 $ (105.7) ======== ======= ====== =======
NOTE 17. COMMITMENTS AND RENTAL EXPENSE Commitments for rental payments under noncancellable operating leases for each of the next five years ending December 31 and thereafter for computer equipment, software, and facilities are as follows (in millions): 1996..................................... $371.5 1997..................................... 273.7 1998..................................... 193.1 1999..................................... 168.7 2000..................................... 142.9 Thereafter............................... 646.5
Total rentals under cancelable and noncancelable leases, principally computer equipment, leased facilities, and other leased assets, included in costs and charged to expenses were $676.1 million, $524.3 million, and $564.9 million for the years ended December 31, 1995, 1994, and 1993, respectively. Total rentals under cancelable and noncancelable leases for software included in costs and charged to expenses were $306.8 million, $220.2 million, and $129.3 million for the years ended December 31, 1995, 1994, and 1993, respectively. At December 31, 1995 and 1994, the Company had $43.9 million and $51.5 million, respectively, outstanding under standby letters of credit related to payment and performance guarantees. IV-42 24 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 18. CONTINGENT LIABILITIES There are various claims and pending actions against the Company arising in the ordinary course of the conduct of its business. Certain of these actions seek damages in significant amounts. The amount of liability on these claims and actions at December 31, 1995 was not determinable, but in the opinion of management, the ultimate liability, if any, will not have a material adverse effect on the Company's consolidated results of operations or financial position. NOTE 19. ACQUISITIONS On August 31, 1995, the Company acquired A.T. Kearney, a Chicago-based international management consulting firm. At the acquisition date, the Company paid approximately $112.7 million in cash and issued $162.3 million in short and long-term notes to A.T. Kearney shareholders and principals. The terms of the acquisition agreement also include a restricted stock grant of approximately 6.6 million shares of GM Class E common stock, which will vest over a ten-year period for certain A.T. Kearney personnel remaining with the Company (see Note 12). Prior to December 31, 1995, $80.9 million of short-term notes related to the acquisition were retired. The acquisition was accounted for using the purchase method of accounting. Accordingly, the excess purchase price over net assets acquired, based upon the fair value of such assets and liabilities at the date of acquisition, was $252.1 million and is being amortized to expense over a ten-year period. The Consolidated Statements of Income include the operations of A.T. Kearney since the date of acquisition. Pro forma disclosure relating to A.T. Kearney's results of operations is not presented, as the impact is immaterial to EDS. In conjunction with acquisitions made during the years ended December 31, 1995 and 1994, assets were acquired and liabilities were assumed as follows:
YEARS ENDED DECEMBER 31, -------------------- 1995 1994 ------- ------- (IN MILLIONS) Fair value of assets acquired............................ $ 674.7 $ 427.8 Less: Cash paid for stock and assets, net of cash acquired........................................... (234.9) (186.6) Debt issued for stock and assets................... (184.9) (94.9) ------- ------- Liabilities assumed................................. $ 254.9 $ 146.3 ======= =======
IV-43 25 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 20. SUPPLEMENTARY FINANCIAL INFORMATION The following summarizes certain costs charged to expense for the years indicated:
YEARS ENDED DECEMBER 31, ------------------------------ 1995 1994 1993 ------ ------ ------ (IN MILLIONS) Depreciation of property and equipment......................... $808.1 $577.5 $465.6 ====== ====== ====== Amortization................................................... $299.7 $193.6 $161.2 ====== ====== ======
The components of Interest and other income, net, are presented below:
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ------- ------ ------ (IN MILLIONS) Interest and other income..................................... $ 58.8 $ 92.3 $ 54.5 Interest expense.............................................. (120.8) (51.7) (34.5) ------- ------ ------ Total.................................................... $ (62.0) $ 40.6 $ 20.0 ======= ====== ======
Supplemental cash flow information is presented below:
YEARS ENDED DECEMBER 31, ------------------------------ 1995 1994 1993 ------ ------ ------ (IN MILLIONS) Cash paid for Income taxes, net of refunds................................. $407.8 $465.6 $183.8 ====== ====== ====== Interest, net of amount capitalized.......................... $108.3 $ 49.7 $ 40.2 ====== ====== ======
IV-44 26 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED NOTE 21. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN MILLIONS EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, 1995 Systems and other contracts revenues.................. $2,776.3 $2,950.1 $3,073.7 $3,622.0 Gross profit from operations.......................... 600.2 654.9 687.6 877.8 Income before income taxes............................ 307.5 354.5 384.0 421.0 Separate Consolidated Net Income...................... 196.8 226.9 245.7 269.5 Available Separate Consolidated Net Income............ $ 122.4 $ 205.8 $ 222.9 $ 244.4 Earnings Attributable to GM Class E Common Stock on a Per Share Basis..................................... $0.42 $0.47 $0.51 $0.56 Stock price range of GM Class E Common Stock High............................................. $41.38 $45.25 $47.50 $52.63 Low.............................................. $36.88 $38.38 $41.50 $43.88 YEAR ENDED DECEMBER 31, 1994 Systems and other contracts revenues.................. $2,217.2 $2,309.5 $2,522.8 $2,910.6 Gross profit from operations.......................... 506.6 584.1 602.1 737.9 Income before income taxes............................ 268.3 308.2 338.1 369.6 Separate Consolidated Net Income...................... 171.7 197.3 216.4 236.5 Available Separate Consolidated Net Income............ $ 92.1 $ 106.5 $ 117.3 $ 128.5 Earnings Attributable to GM Class E Common Stock on a Per Share Basis..................................... $0.36 $0.41 $0.45 $0.49 Stock price range of GM Class E Common Stock High............................................. $36.88 $38.00 $38.50 $39.50 Low.............................................. $27.50 $32.88 $33.00 $34.75
IV-45 27 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------- 1995 1994 1993 1992 1991 --------- -------- -------- -------- -------- (IN MILLIONS EXCEPT PER SHARE AMOUNTS) Revenues.................................... $12,422.1 $9,960.1 $8,507.3 $8,155.2 $7,028.5 Separate Consolidated Net Income Before Cumulative Effect of Accounting Change.... 938.9 821.9 724.0 635.5 563.0 Separate Consolidated Net Income After Cumulative Effect of Accounting Change.... $ 938.9 $ 821.9 $ 724.0 $ 635.5 $ 547.5 Average number of shares of GM Class E common stock outstanding (in millions).... 404.6 260.3 243.0 209.1 195.3 Class E dividend base (in millions)......... 483.7 481.7 480.6 479.3 478.1 Available Separate Consolidated Net Income.................................... $ 795.5 $ 444.4 $ 367.2 $ 278.4 $ 223.6 Earnings Attributable to GM Class E Common Stock on a Per Share Basis Before Cumulative Effect of Accounting Change.... $1.96 $1.71 $1.51 $1.33 $1.17 Earnings Attributable to GM Class E Common Stock on a Per Share Basis After Cumulative Effect of Accounting Change.... $1.96 $1.71 $1.51 $1.33 $1.14 Expenditures for property and equipment..... $ 1,261.4 $1,186.0 $ 816.0 $ 639.0 $ 673.2 Cash and marketable securities.............. $ 638.6 $ 757.8 $ 607.5 $ 587.9 $ 415.8 Current assets.............................. $ 4,381.5 $3,354.1 $2,506.8 $2,157.0 $1,945.6 Current liabilities......................... $ 3,261.3 $2,873.2 $2,160.4 $1,903.1 $2,396.7 Total assets................................ $10,832.4 $8,786.5 $6,942.1 $6,123.5 $5,703.2 Long-term debt.............................. $ 1,852.8 $1,021.0 $ 522.8 $ 561.1 $ 281.9
IV-46 28 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS GENERAL EDS is a provider of information technology ("IT") services using computer and communication technologies to meet the business needs of its clients. EDS offers its clients a continuum of services, including the management and operation of computers, networks, information systems, information processing facilities, business operations, and related personnel, as well as management consulting services. Proposed Split-Off of EDS The GM Board of Directors has approved a split-off (the "Split-Off") of EDS to the holders of General Motors' Class E Common Stock in a transaction that is tax-free for U.S. federal income tax purposes. GM's Board believes that the Split-Off is in the best interest of and is fair to GM and the holders of each of the three outstanding classes of GM common stock. The Split-Off will be submitted for approval by the common stockholders of General Motors and, if approved, is expected to be consummated in the second quarter of 1996. The Split-Off is intended to accomplish three principal objectives from the perspective of EDS and the holders of Class E Common Stock: (i) to remove limitations on EDS' ability to participate in major strategic alliances (including mergers and acquisitions which can be effected using EDS Common Stock); (ii) to remove limitations on EDS' ability to obtain additional business from and establish new customer relationships with companies that compete with General Motors or its subsidiaries; and (iii) to enhance EDS' access to the capital necessary for investment in its future growth. In connection with the Split-Off, the GM Board of Directors approved a Master Services Agreement (the "Master Services Agreement") to be entered into between EDS and General Motors with respect to information technology services to be provided after the Split-Off, as well as a special payment to be made by EDS to GM (the "Special Inter-Company Payment"). If the Split-Off is not completed, EDS will continue as an indirect wholly owned subsidiary of GM and no Special Inter-Company Payment will be made. Under such circumstances, the existing agreements and arrangements between GM and EDS with respect to IT services (the "Existing IT Services Agreements") will continue with such changes as GM and EDS may from time to time agree upon or as the GM Board of Directors upon recommendation of its Capital Stock Committee may from time to time determine to be fair to all classes of GM common stockholders. No agreement has been reached between GM and EDS regarding any changes to the Existing IT Services Agreements which would take effect if the Split-Off is not approved by GM stockholders or is not consummated for any other reason. GM management has advised EDS management that in such an eventuality it would seek substantial changes in the Existing IT Services Agreements, including implementation of substantially all of the changes provided for by the Master Services Agreement. Neither the GM Board nor its Capital Stock Committee has determined whether to require such changes to the Existing IT Services Agreements if the Split-Off is not consummated, but they anticipate considering such changes if such circumstances arise. The Master Services Agreement and certain related agreements between General Motors and EDS with respect to IT services to be provided after the Split-Off (collectively, the "IT Services Agreements") contemplate that EDS would continue to serve as General Motors' principal supplier of IT services for a term of ten years, which may be extended by agreement of the parties, and that the IT services to be provided by EDS after the Split-Off will generally be similar to those provided to General Motors under the Existing IT Services Agreements. Certain of the existing service arrangements applicable to particular units, sectors or other organizations within General Motors will be extended for additional terms of between approximately one and three years beyond their current expiration dates. In addition, under the IT Services Agreements, EDS will provide certain plant floor automation services in North America that it has not previously provided. The IT Services Agreements also provide that certain significant changes will be made to the pricing and terms under which EDS will provide IT services to General Motors after the Split-Off. Among other things, the IT Services Agreements provide that the rates charged by EDS to General Motors for certain information IV-47 29 processing activities and communications services will be reduced and that the parties will work together to achieve increased targets for structural cost reductions. General Motors will also be given the right to competitively bid and, subject to certain restrictions, outsource a limited portion of its IT service requirements to third party providers. In addition, beginning in 1997, the payment terms relating to IT services provided by EDS will be revised over a two-year period to extend the due dates for payments from General Motors. The GM Board of Directors believes that the changes reflected in the IT Services Agreements are necessary (i) in light of the fact that, after the Split-Off, EDS will no longer be a subsidiary of General Motors and the Capital Stock committee of the GM Board of Directors will no longer be able to monitor the IT service arrangements between the parties; (ii) to reflect the evolutionary nature of the General Motors-EDS customer relationship and the IT services industry; and (iii) to provide additional assurance to General Motors, as EDS' largest customer, that the IT services performed by EDS will remain competitive. Based on currently available information and assuming that the IT Services Agreements had been effective as of January 1, 1996, EDS believes that revenues generated from services performed for General Motors in 1996 would be slightly lower than those generated from such services in 1995. In addition, EDS expects that the contemplated changes in its arrangements with GM could reduce its 1996 earnings per share by as much as $0.07 to $0.14 (including $0.03 in the first quarter of 1996). The long-term impact of the terms of the IT Services Agreements cannot be precisely quantified at present, although such terms may have an adverse effect on operating margins unless EDS is able to effect reductions in the costs of providing services to General Motors. Although EDS plans to implement certain cost reduction measures, there can be no assurance as to the extent if any, to which such measures will mitigate the possible adverse impact on its operating margins. In general, there can be no assurance that the terms of the IT Services Agreements would not have a material adverse effect in the long-term on the results of operations of EDS. The Special Inter-Company Payment will be paid by EDS to GM at such time, if any, as the Split-Off occurs. The amount of the Special Inter-Company Payment will be $500.0 million. Interest costs related to the Special Inter-Company Payment are expected to be approximately $.03 per share in 1996. In addition to the Special Inter-Company Payment, EDS expects to incur approximately $35.0 million, or approximately $.05 per share in 1996, of one-time costs in connection with the formulation and implementation of the Split-Off. Certain of these costs will be incurred only if the Split-Off is consummated. In arriving at the amount of the $500 million Special Inter-Company Payment, the parties took into account the fact that in the Separation Agreement GM would provide EDS an allowance of $50 million relating to the resolution of various uncertain, contingent or other matters arising out of the separation of GM and EDS. Statements about the effect of the proposed Split-Off and the impact of the agreement relating to IT Services after the proposed Split-Off are forward-looking statements which by their nature are subject to numerous uncertainties that could cause actual results to vary. Further information about the terms of the proposed Split-Off will be set forth in a joint consent solicitation statement and prospectus of GM and EDS to be filed with the Securities and Exchange Commission and distributed to GM common stockholders in connection with the submission of the Split-Off for approval by such stockholders. No offering of securities of EDS in connection with the proposed Split-Off will be made other than by means of such prospectus. RESTRUCTURING ACTIVITIES On April 1, 1996, EDS announced that it is taking certain actions and considering others to maintain and improve operating efficiencies and accelerate EDS' move towards "user-centered" computing. In connection therewith, EDS also announced the implementation of a voluntary early retirement offer and involuntary severance arrangements affecting between 4,000 and 5,000 employees and designed to both reduce labor costs and change the skill mix of EDS' workforce. Communication of terms of these arrangements to employees began on April 1 and will continue during the second quarter of 1996. It is expected that substantially all of these workforce reductions would be completed by December 1996. As part of its overall goal to improve operating efficiencies, EDS is also in the process of evaluating certain aspects of its business to identify any redundant facilities and related assets which may no longer fit its IV-48 30 long-term strategic objectives. Accordingly, the actions under consideration could include the elimination by EDS of certain business functions and consolidation of certain related facilities. EDS will incur a pre-tax non-recurring charge in the second quarter of 1996 in connection with the restructuring actions discussed above. The amount of the aggregate charge (including the employee related actions, asset writedowns, and other actions being considered) will depend on the number of employees who elect to accept early retirement offers and the determination of which EDS business functions and related facilities would be eliminated or consolidated. EDS estimates that all such actions could result in an aggregate pre-tax non-recurring charge in the second quarter of 1996 in the range of $500.0 million to $750.0 million (between $.66 and $.99 per share, after tax). A portion of the contemplated charge will be of a non-cash nature, the amount of which has not yet been determined. EDS expects that any restructuring actions implemented by it will result in savings commencing in the second half of 1996. The restructuring activities discussed above are not contingent upon approval or consummation of the Split-Off. Statements about the effect of EDS' actions and the possible amount of a non-recurring charge are forward-looking statements which by their nature are subject to numerous uncertainties that could cause actual results to vary. RESULTS OF OPERATIONS THREE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Revenues. The following table summarizes EDS' systems and other contracts revenues in each geographic operating segment for each of the years ended December 31, 1995, 1994 and 1993: SYSTEMS AND OTHER CONTRACTS REVENUES
1995 1994 1993 --------- -------- -------- (IN MILLIONS) OUTSIDE CUSTOMERS: United States............................................... $ 5,794.9 $4,611.2 $4,004.5 Europe...................................................... 2,001.5 1,308.1 911.6 Other....................................................... 734.6 493.6 267.5 --------- -------- -------- TOTAL OUTSIDE CUSTOMERS.................................. 8,531.0 6,412.9 5,183.6 --------- -------- -------- GM AND AFFILIATES: United States............................................... 2,926.1 2,764.4 2,574.5 Europe...................................................... 659.2 523.4 511.2 Other....................................................... 305.8 259.4 238.0 --------- -------- -------- TOTAL GM AND AFFILIATES.................................. 3,891.1 3,547.2 3,323.7 --------- -------- -------- TOTAL SYSTEMS AND OTHER CONTRACTS REVENUES.................... $12,422.1 $9,960.1 $8,507.3 ========= ======== ======== PERCENTAGE OF TOTAL REVENUES: Outside Customers............................................. 69% 64% 61% GM and Affiliates............................................. 31% 36% 39% --- --- --- Total....................................................... 100% 100% 100% === === ===
Total revenues increased 25% in 1995 to $12,422.1 million from $9,960.1 million in 1994, which represented a 17% increase over 1993 total revenues of $8,507.3 million. Revenues from customers other than General Motors and its affiliates (outside customers) grew 33% in 1995 to $8,531.0 million, compared to a 24% increase in 1994 from $5,183.6 million in 1993. Total revenues related to GM and its affiliates were $3,891.1 million, $3,547.2 million, and $3,323.7 million in 1995, 1994 and 1993, respectively. The percentage of EDS' total revenues generated from GM and its affiliates declined to 31% in 1995 from 36% in 1994 and 39% in 1993. EDS expects this trend to continue as revenues from outside customers continue to grow. IV-49 31 Total domestic revenues from outside customers increased 26% from $4,611.2 million in 1994 to $5,794.9 million for 1995. This compares with growth rates of 15% in 1994 and 8% in 1993. The increase in 1995 was attributable to full-year revenues on contracts which began in late 1994 and to revenues related to acquisitions, primarily the A.T. Kearney acquisition in August 1995. Domestic revenues from outside customers in 1994 increased over 1993 results due to revenues associated with new contracts signed in 1993 and 1994. During 1995, non-U.S. revenues from outside customers increased $934.4 million compared with an increase of $622.6 million in 1994 from $1,179.1 million in 1993. Growth in revenues from outside customers in Europe increased $693.4 million in 1995 from revenues associated with new contracts signed during 1994 and 1995, as well as certain acquisitions which occurred in late 1994 or 1995. In 1994, non-U.S. revenues from outside customers in Europe increased $396.5 million, or 43%, to $1,308.1 million. Other non-U.S. revenues from outside customers grew $241.0 million over 1994, to $734.6 million due to new contracts signed in Asia/Pacific and Canada, as well as full-year revenues from acquisitions in New Zealand which occurred in 1994. Other non-U.S. revenues from outside customers in 1994 was up $226.1 million over 1993 due in part to business in Japan and New Zealand. Costs and Expenses. Cost of revenues as a percentage of systems and other contracts revenues was 77% in 1995, compared with 76% in 1994 and 75% in 1993, and the higher costs are primarily due to the increasingly competitive environment in which EDS operates. Selling, general and administrative expenses increased 9% in 1995 to $1,291.5 million from $1,187.1 million in 1994, which increased 18% from 1993. Selling, general and administrative expenses were 10% of systems and other contracts revenues in 1995, down from 12% in 1994 and 1993 due to the fixed nature of certain of these costs. Operating Income. Operating income increased $285.4 million to $1,529.0 in 1995. Operating income was $1,243.6 million and $1,111.3 million for 1994 and 1993, respectively. Operating margins declined from 12.5% in 1994 to 12.3% in 1995 due to the aforementioned changes in costs and expenses, as well as increased reserves for certain customer receivables. The 1993 operating margin was 13.1%. Interest and Other Income, net. Interest and other income, net, decreased $102.6 million in 1995 to $(62.0) million, compared with $40.6 million in 1994 and $20.0 million in 1993. The primary reason for the decrease in 1995 was due to increased interest expense. Interest expense increased to $120.8 million in 1995, compared with $51.7 million in 1994 and $34.5 million in 1993. The increase in 1995 resulted from interest associated with the issuance of $350.0 million of 6.85% notes due May 15, 2000 (the "Five-year Notes") and $300.0 million of 7.125% notes due May 15, 2005 (the "Ten-year Notes"), as well as from other borrowings. These borrowings were used for general corporate purposes, including the repayment of outstanding commercial paper borrowings, property and equipment expenditures, acquisitions, and other contract-related investments to support business growth. Income Taxes. The effective income tax rate was 36% in 1995, 1994 and 1993. Net Income. EDS' separate consolidated net income increased 14% to $938.9 million in 1995, compared with $821.9 million for 1994 and $724.0 million in 1993. Earnings per share attributable to GM's Class E common stock increased 15% to $1.96 per share in 1995 and 13% to $1.71 per share in 1994, based on EDS' Available Separate Consolidated Net Income as described in Note 1 to EDS' Consolidated Financial Statements. EDS and its customers may, from time-to-time, modify their contractual arrangements. For customer contracts accounted for under the percentage-of-completion method, such changes would be reflected in results of operations as a cumulative change in accounting estimate in the period the revisions are determined. FINANCIAL POSITION Assets. In 1995, EDS' total assets increased to $10,832.4 million, a 23% increase over total assets of $8,786.5 million at December 31, 1994. This change represents increases in accounts receivable and property and equipment for contract-related investments and an increase in intangible assets related to acquisitions, primarily the acquisition of A.T. Kearney. Accounts receivable from outside customers increased $789.9 million due to more competitive contract terms, receivables acquired in the A.T. Kearney acquisition ($149.3 million), and an increase in unbilled receivables on newer contracts. IV-50 32 At December 31, 1995, EDS held cash and cash equivalents of $548.9 million, had working capital of $1,120.1 million, and a current ratio of 1.3-to-1. This compares to $480.9 million in working capital and a 1.2-to-1 current ratio at December 31, 1994. On August 31, 1995, EDS acquired A.T. Kearney, a Chicago-based international management consulting firm. At the acquisition date, EDS paid approximately $113 million in cash and $162 million in short and long-term notes to A.T. Kearney shareholders in connection with this acquisition. Additionally, the terms include restricted stock grants of approximately 6.6 million shares of GM Class E common stock, which will vest over a ten-year period for certain A.T. Kearney personnel remaining with EDS. Prior to December 31, 1995, EDS retired $80.9 million of short-term notes related to the acquisition. After the acquisition, EDS' Management Consulting Services unit was combined with A.T. Kearney to create a new wholly owned subsidiary operating under the A.T. Kearney brand. Return on assets was 9.6% in 1995, compared with 10.5% for 1994 and 11.1% for 1993. Return on assets has declined due to the increasing capital intensity of EDS' business and increased contract-related investments in computers and telecommunications equipment, software, and other property and equipment. Additionally, EDS' results for the year ended December 31, 1995, include the results of A.T. Kearney's operations only since the acquisition date. Liabilities and Stockholder's Equity. Total liabilities increased in 1995 to support business growth and as a result of the issuance of EDS' Five-year and Ten-year Notes. Additionally, EDS revised its agreement with a syndicate of banks, which increased EDS' committed lines of credit to $2,500.0 million. Total debt was $2,100.6 million and $1,224.4 million at December 31, 1995 and 1994, respectively, which consisted of long-and short-term notes payable. The total debt-to-capital ratio (which includes current notes payable as a component of capital) was 29.7% at December 31, 1995, and 22.4% at December 31, 1994. The ratio of noncurrent debt-to-capital was 27% at December 31, 1995, and 19% at December 31, 1994. At December 31, 1995, EDS had unused uncommitted short-term lines of credit totaling $728.2 million and unused committed lines of credit of $2,500.0 million. The unused committed lines of credit of $2,500.0 million serve as a backup facility for EDS' commercial paper borrowings. At December 31, 1995. EDS had total committed lines of credit of $2,515.5 million. Stockholder's equity was $4,978.5 million at December 31, 1995, and $4,232.5 million at December 31, 1994. Return on stockholder's equity was 20.4% in 1995, compared with 20.9% in 1994 and 21.7% in 1993. New Accounting Standards. The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which will become effective for fiscal years beginning in 1996. The Statement requires that long-lived assets and certain identifiable intangibles to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and for the measurement of loss to be based on the fair value of the asset. In addition, long-lived assets and certain identifiable intangibles to be disposed of are generally to be reported at the lower of the carrying amount or fair value less selling costs. As discussed above, EDS is in the process of evaluating certain aspects of its business to identify any redundant facilities and related assets which may no longer fit its long-term strategic objectives. Since this evaluation is not expected to be completed until the second quarter of 1996, EDS believes the effects of initially adopting SFAS No. 121 as of January 1, 1996, will be immaterial to its consolidated financial statements. The FASB has issued SFAS No. 123, Accounting for Stock-Based Compensation, which will become effective for fiscal years beginning in 1996. The Company intends to remain on Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, for the preparation of its basic consolidated financial statements and provide pro forma disclosures as if the SFAS No. 123 fair value method had been applied. Accordingly, the Company expects no impact on the basic consolidated financial statements upon adoption of this Statement. LIQUIDITY AND CAPITAL RESOURCES For the year ended December 31, 1995, net cash provided by operating activities was $1,259.0 million, down $273.5 million from the same period in 1994 due to increases in accounts receivable, including an IV-51 33 increase in receivables from GM and its affiliates. For the year ended December 31, 1994, net cash provided by operating activities was $1,532.5 million, up $111.5 million from 1993, due in part to increases in accounts payable and accrued liabilities. Net cash provided by operating activities for 1993 consisted of depreciation and amortization as well as increases in working capital items. For the year ended December 31, 1995, net cash used in investing activities increased $241.8 million, to $1,781.5 million when compared to the same period for 1994. Net cash used in investing activities increased $472.0 million, to $1,539.7 million in 1994 from $1,067.7 million in 1993. Consistent with the increasing capital intensity of EDS' business, cash used in investing activities consisted largely of payments for purchases of property and equipment of $1,261.5 million, $1,186.0 million, and $816.4 million in 1995, 1994 and 1993, respectively. Additionally, EDS used cash for investments in leases and other assets and for payments related to acquisitions. Net cash provided by financing activities was $465.1 million for the year ended December 31, 1995, up $258.6 million from the corresponding period in 1994 due in part to the issuance of long-term debt and notes payable, particularly the issuance of the Five-year Notes and Ten-year Notes. For the year ended December 31, 1994, net cash provided by financing activities was $206.5 million, compared with cash used in financing activities of $378.2 million in 1993. EDS paid cash dividends to GM totaling $251.3 million, $231.1 million, and $192.1 million in 1995, 1994 and 1993, respectively. EDS expects that its principal uses of funds for the foreseeable future will be for capital expenditures, debt repayment, working capital and costs associated with the Split-Off, as well as the payment of the Special Inter-Company Payment to General Motors. Capital expenditures may consist of purchases of computer and telecommunications equipment, buildings and facilities, land, and software, as well as acquisitions. EDS' projected capital expenditures for 1996 are approximately $1,400.0 to $1,700.0 million. However, actual capital expenditures will depend to a significant extent on the level of acquisition and joint venture activities by EDS, as well as capital requirements for new business. EDS anticipates that cash flows from operations and unused borrowing capacity under its existing lines of credit will provide sufficient funds to meet its needs for at least the next year. As noted above, under the IT Services Agreements, the payment terms relating to IT services provided by EDS will be revised, beginning in 1997, over a two-year period to extend the due dates for payments from General Motors. These revised payment terms are expected to result in an increase in EDS' working capital requirements. EDS will obtain the funds for this working capital impact and for the Special Inter-Company Payment through borrowings under its existing commercial paper or bank credit facilities. EDS currently anticipates that it may seek to refinance such commercial paper or bank borrowings as part of its general plan to extend maturities of its indebtedness. The competitive environment and changing market forces are increasing the capital intensity of EDS' business. Increasing amounts of capital will be required by EDS in order to make investments in acquisitions, joint ventures and strategic alliances in other parts of the information industry and in new product development. In addition, information technology customer contracts frequently require investments in computers and telecommunications equipment, software, and other property, plant and equipment. For these reasons, EDS' ability to continue to access the capital markets on an efficient basis will become increasingly important to its ability to compete effectively. The Split-Off is intended, among other things, to afford EDS more flexible access to capital markets to meet its growing needs without regard to competing considerations of GM and its affiliates. Following the Split-Off, EDS may over time incur substantially more debt than it has while a subsidiary of GM. As a result, EDS' financial leverage may increase in the future. To the extent that EDS would become more highly leveraged following the Split-Off, EDS may be required to pay higher interest rates on its outstanding borrowings. In order to provide the funds necessary for EDS' future acquisition and expansion goals, EDS expects that it might incur, from time to time, additional bank financing and/or issue equity or debt securities, depending on market and other conditions. * * * * IV-52 EX-99.(B) 7 EX-99.(B) 1 EXHIBIT 99(B) HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS The following consolidated financial statements of Hughes Electronics Corporation and subsidiaries were prepared by management which is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on judgments of management. Management is further responsible for maintaining a system of internal accounting controls, designed to provide reasonable assurance that the books and records reflect the transactions of the companies and that its established policies and procedures are carefully followed. Perhaps the most important feature in the system of control is that it is continually reviewed for its effectiveness and is augmented by written policies and guidelines, the careful selection and training of qualified personnel, and a strong program of internal audit. Deloitte & Touche LLP, an independent auditing firm, is engaged to audit the consolidated financial statements of Hughes Electronics Corporation and subsidiaries and issue reports thereon. The audit is conducted in accordance with generally accepted auditing standards which comprehend the consideration of internal accounting controls and tests of transactions to the extent necessary to form an independent opinion on the financial statements prepared by management. The Independent Auditors' Report appears on the next page. The Board of Directors, through its Audit Committee, is responsible for assuring that management fulfills its responsibilities in the preparation of the consolidated financial statements and engaging the independent auditors. The Committee reviews the scope of the audits and the accounting principles being applied in financial reporting. The independent auditors, representatives of management, and the internal auditors meet regularly (separately and jointly) with the Committee to review the activities of each, to ensure that each is properly discharging its responsibilities, and to assess the effectiveness of the system of internal accounting controls. It is management's conclusion that the system of internal accounting controls at December 31, 1995 provides reasonable assurance that the books and records reflect the transactions of the companies and that its established policies and procedures are complied with. To ensure complete independence, Deloitte & Touche LLP has full and free access to meet with the Committee, without management representatives present, to discuss the results of the audit, the adequacy of internal accounting controls, and the quality of the financial reporting. /s/ C. MICHAEL ARMSTRONG /s/ CHARLES H. NOSKI /s/ ROXANNE S. AUSTIN - ---------------------------- --------------------------- ---------------------------- C. Michael Armstrong Charles H. Noski Roxanne S. Austin Chairman of the Board and Senior Vice President and Vice President and Chief Executive Officer Chief Financial Officer Controller
IV-53 2 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT To the Stockholder and Board of Directors of Hughes Electronics Corporation: We have audited the Consolidated Balance Sheet of Hughes Electronics Corporation and subsidiaries as of December 31, 1995 and 1994 and the related Consolidated Statement of Income and Available Separate Consolidated Net Income and Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of Hughes Electronics Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Hughes Electronics Corporation and subsidiaries at December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, effective January 1, 1994 Hughes Electronics Corporation changed its method of accounting for postemployment benefits. /s/ DELOITTE & TOUCHE LLP - -------------------------------------- DELOITTE & TOUCHE LLP Los Angeles, California January 29, 1996 IV-54 3 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME
YEARS ENDED DECEMBER 31, ----------------------------------- 1995 1994 1993 --------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Revenues Net sales Outside customers......................................... $ 9,528.8 $ 9,108.7 $ 9,062.8 General Motors and affiliates (Note 2).................... 5,185.5 4,953.6 4,387.4 Other income -- net......................................... 57.5 37.1 67.3 --------- --------- --------- Total Revenues.............................................. 14,771.8 14,099.4 13,517.5 --------- --------- --------- Costs and Expenses Cost of sales and other operating charges, exclusive of items listed below (Note 2)............................... 11,325.1 10,943.4 10,557.5 Selling, general, and administrative expenses............... 1,234.2 1,018.3 929.1 Depreciation and amortization............................... 487.7 470.2 503.5 Amortization of GM purchase accounting adjustments related to Hughes Aircraft Company (Note 1)....................... 123.4 123.8 123.8 Interest expense -- net..................................... 7.5 15.1 33.2 --------- --------- --------- Total Costs and Expenses.................................... 13,177.9 12,570.8 12,147.1 --------- --------- --------- Income before Income Taxes.................................. 1,593.9 1,528.6 1,370.4 Income taxes (Note 6)....................................... 645.6 572.8 572.6 --------- --------- --------- Income before cumulative effect of accounting change........ 948.3 955.8 797.8 Cumulative effect of accounting change (Note 1)............. -- (30.4) -- --------- --------- --------- Net Income.................................................. 948.3 925.4 797.8 Adjustments to exclude the effect of GM purchase accounting adjustments related to Hughes Aircraft Company (Notes 1 and 7).................................................... 159.5 123.8 123.8 --------- --------- --------- Earnings Used for Computation of Available Separate Consolidated Net Income................................... $ 1,107.8 $ 1,049.2 $ 921.6 ========= ========= ========= Available Separate Consolidated Net Income (Note 7) Average number of shares of General Motors Class H Common Stock outstanding (in millions) (Numerator)... 95.5 92.1 88.6 Class H dividend base (in millions) (Denominator)...... 399.9 399.9 399.9 Available Separate Consolidated Net Income............. $264.6 $241.6 $204.5 ========= ========= ========= Earnings Attributable to General Motors Class H Common Stock on a Per Share Basis (Note 7) Before cumulative effect of accounting change.......... $2.77 $2.70 $2.30 Cumulative effect of accounting change (Note 1)........ -- (0.08) -- ----- ----- ----- Net earnings attributable to General Motors Class H $2.77 $2.62 $2.30 Common Stock......................................... ===== ===== =====
Reference should be made to the Notes to Consolidated Financial Statements. IV-55 4 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
DECEMBER 31, ---------------------- 1995 1994 --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNT) ASSETS Current Assets Cash and cash equivalents (Note 1)..................................... $ 1,139.5 $ 1,501.8 Accounts and notes receivable Trade receivables (less allowances).................................. 1,235.6 1,039.5 General Motors and affiliates (Note 2)............................... 146.7 153.9 Contracts in process, less advances and progress payments of $1,327.2 and $2,311.2......................................................... 2,469.2 2,265.4 Inventories (less allowances) (Note 1)................................. 1,225.5 1,087.9 Prepaid expenses, including deferred income taxes of $484.4 and $89.0................................................................ 594.3 195.1 --------- --------- Total Current Assets............................................ 6,810.8 6,243.6 --------- --------- Property-Net (Notes 8 and 9)........................................... 2,739.2 2,611.8 --------- --------- Telecommunications and Other Equipment, net of accumulated depreciation of $274.5 and $198.0................................................. 1,175.1 1,071.7 --------- --------- Intangible Assets, net of amortization of $1,415.1 and $1,276.7 (Note 1)................................................................... 3,573.7 3,271.3 --------- --------- Investments and Other Assets, including deferred income taxes of $47.3 and $214.0 -- principally at cost (less allowances).................. 1,675.6 1,652.1 --------- --------- Total Assets.................................................... $15,974.4 $14,850.5 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts payable Outside.............................................................. $ 748.7 $ 779.9 General Motors and affiliates (Note 2)............................... 52.2 80.5 Advances on contracts.................................................. 893.7 645.1 Notes and loans payable (Note 9)....................................... 432.5 125.7 Income taxes payable (Note 6).......................................... 190.8 31.4 Accrued liabilities (Note 10).......................................... 1,990.9 1,885.5 --------- --------- Total Current Liabilities....................................... 4,308.8 3,548.1 --------- --------- Long-Term Debt and Capitalized Leases (Note 9)......................... 258.8 353.5 --------- --------- Postretirement Benefits Other Than Pensions (Note 5)................... 1,610.6 1,541.4 --------- --------- Other Liabilities and Deferred Credits................................. 1,270.5 1,431.7 --------- --------- Stockholder's Equity (Note 11) Capital stock (outstanding, 1,000 shares, $0.10 par value) and additional paid-in capital........................................ 6,338.1 6,326.5 Net income retained for use in the business.......................... 2,323.9 1,743.6 --------- --------- Subtotal........................................................ 8,662.0 8,070.1 Minimum pension liability adjustment................................. (108.6) (76.1) Accumulated foreign currency translation adjustments................. (27.7) (18.2) --------- --------- Total Stockholder's Equity...................................... 8,525.7 7,975.8 --------- --------- Total Liabilities and Stockholder's Equity...................... $15,974.4 $14,850.5 ========= =========
Reference should be made to the Notes to Consolidated Financial Statements. IV-56 5 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) Cash Flows from Operating Activities Income before cumulative effect of accounting change......... $ 948.3 $ 955.8 $ 797.8 Adjustments to reconcile income before cumulative effect of accounting change to net cash provided by operating activities Depreciation and amortization............................. 487.7 470.2 503.5 Amortization and adjustment of GM purchase accounting adjustments related to Hughes Aircraft Company.......... 159.5 123.8 123.8 Pension expense (credit), net of cash contributions....... (51.9) 20.3 (25.6) Provision for postretirement benefits other than pensions, net of cash payments.................................... 43.5 78.4 91.0 Net loss on sale of property.............................. 6.1 14.3 36.1 Net gain on sale of investments and businesses............ (12.9) (3.6) (50.3) Change in deferred income taxes and other*................ (150.1) (60.1) 207.1 Change in other operating assets and liabilities Accounts receivable..................................... (147.3) (238.1) (153.7) Contracts in process.................................... (186.2) 111.4 70.9 Inventories............................................. (160.1) (27.5) 104.6 Prepaid expenses........................................ (3.0) (15.2) 3.4 Accounts payable........................................ (92.0) 25.8 81.5 Income taxes............................................ 160.4 (70.7) 30.1 Accrued and other liabilities........................... 257.0 (28.2) (143.5) Other*.................................................. (272.8) 20.2 (183.2) -------- -------- -------- Net Cash Provided by Operating Activities...................... 986.2 1,376.8 1,493.5 -------- -------- -------- Cash Flows from Investing Activities Investment in companies, net of cash acquired................ (309.5) (7.0) (149.3) Expenditures for property and special tools.................. (545.7) (490.5) (448.9) Increase in telecommunications and other equipment........... (198.9) (351.9) (230.3) Proceeds from disposal of property........................... 50.6 90.6 115.0 Proceeds from sale of investments and businesses............. 127.2 3.6 281.6 (Increase) decrease in notes receivable...................... (13.6) 206.9 7.6 -------- -------- -------- Net Cash Used in Investing Activities.......................... (889.9) (548.3) (424.3) -------- -------- -------- Cash Flows from Financing Activities Net decrease in notes and loans payable...................... (80.9) (2.1) (189.4) Increase in long-term debt................................... 28.0 7.5 84.0 Decrease in long-term debt................................... (37.7) (20.8) (369.8) Cash dividends paid to General Motors........................ (368.0) (320.0) (288.0) -------- -------- -------- Net Cash Used in Financing Activities.......................... (458.6) (335.4) (763.2) -------- -------- -------- Net (decrease) increase in cash and cash equivalents........... (362.3) 493.1 306.0 Cash and cash equivalents at beginning of the year............. 1,501.8 1,008.7 702.7 -------- -------- -------- Cash and cash equivalents at end of the year................... $1,139.5 $1,501.8 $1,008.7 ======== ======== ========
- ------------------------- * 1994 amounts exclude the effect of accounting change. Reference should be made to the Notes to Consolidated Financial Statements. IV-57 6 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND CONSOLIDATION The consolidated financial statements include the accounts of Hughes Electronics Corporation (formerly GM Hughes Electronics Corporation) (Hughes) and its domestic and foreign subsidiaries that are more than 50% owned, principally Hughes Aircraft Company and Delco Electronics Corporation (Delco Electronics). Investments in associated companies in which at least 20% of the voting securities is owned are accounted for under the equity method of accounting. Effective December 31, 1985, General Motors Corporation (General Motors or GM) acquired Hughes Aircraft Company and its subsidiaries for $2.7 billion in cash and cash equivalents and 100 million shares of GM Class H common stock having an estimated value of $2,561.9 million, which carried certain guarantees. On February 28, 1989, GM and the Howard Hughes Medical Institute (Institute) reached an agreement to terminate GM's then-existing guarantee obligations with respect to the Institute's holding of GM Class H common stock. Under terms of the agreement as amended, the Institute received put options exercisable under most circumstances at $30 per share on March 1, 1991, 1992, 1993, and 1995 for 20 million, 10 million, 10.5 million, and 15 million shares, respectively. The Institute exercised these put options at $30 per share on March 1, 1991, March 2, 1992, and March 1, 1993. On February 15, 1995, GM and the Institute entered into an agreement under which GM assisted the Institute in selling 15 million shares of GM Class H common stock at $38.50 per share. The March 1, 1995 put option expired unexercised. The acquisition of Hughes Aircraft Company was accounted for as a purchase. The purchase price exceeded the net book value of Hughes Aircraft Company by $4,244.7 million, which was assigned as follows: $500.0 million to patents and related technology, $125.0 million to the future economic benefits to GM of the Hughes Aircraft Company Long-Term Incentive Plan (LTIP), and $3,619.7 million to other intangible assets, including goodwill. The amounts assigned to patents and related technology are being amortized on a straight-line basis over 15 years and other intangible assets, including goodwill, over 40 years. The amount assigned to the future economic benefits of the LTIP was fully amortized in 1990. For the purpose of determining earnings per share and amounts available for dividends on the common stocks of General Motors, the amortization and disposal, if any, of these intangible assets is charged against earnings attributable to GM $1 2/3 par value common stock and amounted to $159.5 million, $123.8 million, and $123.8 million in 1995, 1994, and 1993, respectively. The 1995 amount included a $36.1 million charge, included in other income, for the write-off of such purchase accounting adjustments related to the disposition of certain non-strategic business units. The earnings of Hughes and its subsidiaries since the acquisition of Hughes Aircraft Company form the base from which any dividends on the GM Class H common stock are declared. These earnings include income earned from sales to GM and its affiliates, but exclude purchase accounting adjustments (see Notes 2 and 7). USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates. IV-58 7 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED REVENUE RECOGNITION Sales to General Motors and affiliates and to outside customers not pursuant to long-term contracts are generally recognized as products are shipped or services are rendered. Sales under long-term contracts are primarily recognized using the percentage-of-completion (cost-to-cost) method of accounting. Under this method, sales are recorded equivalent to costs incurred plus a portion of the profit expected to be realized, determined based on the ratio of costs incurred to estimated total costs at completion. Sales under certain commercial long-term contracts are recognized using the units-of-delivery method. Profits expected to be realized on long-term contracts are based on estimates of total sales value and costs at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are recorded in the accounting period in which the revisions are made. Estimated losses on contracts are recorded in the period in which they are identified. Certain contracts contain cost or performance incentives which provide for increases in profits for surpassing stated objectives and decreases in profits for failure to achieve such objectives. Amounts associated with incentives are included in estimates of total sales values when there is sufficient information to relate actual performance to the objectives. CASH FLOWS Cash equivalents consist of highly liquid investments purchased with original maturities of 90 days or less. Net cash provided by operating activities reflects cash payments for interest and income taxes as follows:
1995 1994 1993 ------ ------ ------ (DOLLARS IN MILLIONS) Interest......................................... $ 37.5 $ 40.7 $ 72.5 ====== ====== ====== Income taxes..................................... $634.2 $686.2 $245.0 ====== ====== ======
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS Trade receivables are principally related to long-term contracts and programs. Amounts billed under retainage provisions of contracts are not significant, and substantially all amounts are collectible within one year. Contracts in process are stated at costs incurred plus estimated profit, less amounts billed to customers and advances and progress payments applied. Engineering, tooling, manufacturing, and applicable overhead costs, including administrative, research and development, and selling expenses, are charged to costs and expenses when incurred. Contracts in process include amounts relating to contracts with long production cycles, and $400.9 million of the 1995 amount is expected to be billed after one year. Contracts in process in 1995 also include approximately $61.9 million relating to claims, requests for equitable adjustments, and amounts withheld pending negotiation or settlement with customers. Under certain contracts with the U.S. Government, progress payments are received based on costs incurred on the respective contracts. Title to the inventories related to such contracts (included in contracts in process) vests with the U.S. Government. INVENTORIES Inventories are stated at the lower of cost or market principally using the first-in, first-out (FIFO) or average cost methods. IV-59 8 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1995 1994 -------- -------- (DOLLARS IN MILLIONS) MAJOR CLASSES OF INVENTORIES Productive material, work in process, and supplies...... $1,060.4 $ 968.0 Finished product........................................ 165.1 119.9 -------- -------- Total.............................................. $1,225.5 $1,087.9 ======== ========
PROPERTY AND DEPRECIATION Property is carried at cost. Depreciation of property is provided for based on estimated useful lives (3 to 45 years) generally using accelerated methods. TELECOMMUNICATIONS AND OTHER EQUIPMENT Telecommunications and other equipment includes satellite transponders and other equipment subject to operating leases or service agreements. Such equipment is carried at Hughes' direct and indirect manufacturing cost and is amortized over the estimated useful lives (7 to 23 years) using the straight-line method. The net book value of equipment subject to operating leases was $299.8 million and $452.9 million at December 31, 1995 and 1994, respectively. INTANGIBLE ASSETS Intangible assets, principally the excess of cost over the fair value of identifiable net assets of purchased businesses, are amortized using the straight-line method over periods not exceeding 40 years. Hughes periodically evaluates the recoverability of goodwill and other intangible assets by assessing whether the unamortized intangible asset can be recovered over its remaining life through undiscounted cash flows generated by underlying tangible assets. INCOME TAXES The provision for income taxes is based on reported income before income taxes. Deferred income tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, as measured by applying currently enacted tax laws. Provision has been made for U.S. Federal income taxes to be paid on that portion of the undistributed earnings of foreign subsidiaries that has not been deemed permanently reinvested. Hughes and its domestic subsidiaries join with General Motors in filing a consolidated U.S. Federal income tax return. The portion of the consolidated income tax liability recorded by Hughes is generally equivalent to the liability it would have incurred on a separate return basis. RESEARCH AND DEVELOPMENT Expenditures for research and development are charged to costs and expenses as incurred and amounted to $761.7 million in 1995, $699.3 million in 1994, and $612.1 million in 1993. FINANCIAL INSTRUMENTS Hughes enters into foreign exchange-forward contracts to reduce its exposure to fluctuations in foreign exchange rates. Foreign exchange-forward contracts are accounted for as hedges to the extent they are designated as, and are effective as, hedges of firm foreign currency commitments. IV-60 9 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED FOREIGN CURRENCY TRANSACTIONS Foreign currency transaction net gains (losses) included in consolidated operating results amounted to $(0.5) million in 1995, $(4.2) million in 1994, and $2.4 million in 1993. MARKET CONCENTRATIONS Sales under United States Government contracts were 35.5%, 37.6%, and 44.2% of net sales in 1995, 1994, and 1993, respectively. Hughes has reduced its vulnerability to reductions in U.S. defense spending by diversifying its customer base and product lines with an emphasis on international markets and non-defense government agencies. Sales to General Motors and affiliates, consisting of various automotive electronic component parts, comprised approximately 35.2% of net sales in 1995 and 1994, and 32.6% in 1993. NEW ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, effective for transactions entered into in fiscal years beginning after December 15, 1995. As permitted by SFAS No. 123, Hughes expects to continue to apply its current accounting policy under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and include the necessary disclosures in its 1996 financial statements. In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which is required to be adopted for fiscal years beginning after December 15, 1995. This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The cumulative effect of this accounting change as of January 1, 1996 is not expected to be material. ACCOUNTING CHANGES Effective January 1, 1994, Hughes adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits. The Statement requires accrual of the costs of benefits provided to former or inactive employees after employment, but before retirement. The unfavorable cumulative effect of adopting this Standard was $30.4 million, net of income taxes of $19.2 million, or $0.08 per share of GM Class H common stock. The charge primarily related to extended disability benefits which are accrued on a service-driven basis. NOTE 2. RELATED-PARTY TRANSACTIONS SALES, PURCHASES, AND ADMINISTRATIVE EXPENSES The amounts due from and to GM and affiliates result from sales of products to and purchases of materials and services from units controlled by GM. Purchases from GM and affiliates, including computer systems services provided by Electronic Data Systems Corporation, a wholly-owned subsidiary of GM, and common administrative expenses allocated by GM, amounted to approximately $233.7 million, $257.1 million, and $285.9 million in 1995, 1994, and 1993, respectively. INCENTIVE PLANS Certain eligible employees of Hughes participate in various incentive plans of GM and its subsidiaries. IV-61 10 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 3. INCENTIVE PLAN Under the Hughes Electronics Corporation Incentive Plan (the Plan), as approved by the GM Board of Directors in 1987, 1992, and 1995, shares, rights, or options to acquire up to 20 million shares of GM Class H common stock may be granted through May 31, 1997. The GM Executive Compensation Committee may grant options and other rights to acquire shares of GM Class H common stock under the provisions of the Plan. The option price is equal to 100% of the fair market value of GM Class H common stock on the date the options are granted. These nonqualified options generally expire 10 years from the dates of grant and are subject to earlier termination under certain conditions. Changes in the status of outstanding options were as follows:
OPTION SHARES UNDER GM CLASS H COMMON STOCK PRICES OPTION - ------------------------------------------------------------------ ------------- ------------ Outstanding at January 1, 1993.................................... $17.07-$30.25 6,516,755 Granted........................................................... 28.00- 28.56 2,027,260 Exercised......................................................... 17.07- 30.25 (1,960,162) Terminated........................................................ 17.07- 30.25 (217,845) ------------- ---------- Outstanding at December 31, 1993.................................. 17.07- 30.25 6,366,008 Granted........................................................... 36.75 1,612,640 Exercised......................................................... 17.07- 30.25 (712,107) Terminated........................................................ 17.07- 36.75 (202,220) ------------- ---------- Outstanding at December 31, 1994.................................. 17.07- 36.75 7,064,321 Granted........................................................... 39.94 1,537,350 Exercised......................................................... 17.07- 36.75 (1,929,393) Terminated........................................................ 28.00- 36.75 (14,425) ------------- ---------- Outstanding at December 31, 1995.................................. $17.07-$39.94 6,657,853 ============= ==========
Options for 4,422,618 shares of GM Class H common stock were exercisable at December 31, 1995, and the maximum number of shares for which additional options and other rights may be granted under the Plan was 3,905,786 shares. NOTE 4. PENSION PROGRAMS Hughes' total pension expense (credit) amounted to $39.0 million in 1995, $54.9 million in 1994, and $(8.1) million in 1993. Substantially all the employees of Delco Electronics participate in the defined benefit pension plans of General Motors. Plans covering represented employees generally provide benefits of negotiated stated amounts for each year of service as well as significant supplemental benefits for employees who retire with 30 years of service before normal retirement age. The benefits provided by the plans covering salaried employees are generally based on years of service and the employee's salary history. Certain nonqualified pension plans covering executives are based on targeted wage replacement percentages and are unfunded. The accumulated plan benefit obligation and plan net assets for the employees of Delco Electronics are not determined separately; however, GM charged Delco Electronics $50.9 million, $93.3 million, and $69.8 million for benefits earned by these employees in 1995, 1994, and 1993, respectively. IV-62 11 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Substantially all of Hughes' non-automotive employees are covered by Hughes' contributory and non-contributory defined benefit retirement plans. Benefits are based on years of service and compensation earned during a specified period of time before retirement. Additionally, an unfunded, nonqualified pension plan covers certain executives. The net pension credit, related to these plans covering non-automotive employees, included the components shown below:
1995 1994 1993 --------- ------- ------- (DOLLARS IN MILLIONS) Benefits earned during the year................................ $ 110.5 $ 146.7 $ 121.1 Interest accrued on benefits earned in prior years............. 403.6 377.0 369.1 Actual return on assets........................................ (1,198.3) (104.7) (953.7) Net amortization and deferral.................................. 672.3 (457.4) 385.6 --------- ------- ------- Net pension credit........................................ $ (11.9) $ (38.4) $ (77.9) ========= ======= =======
Costs are actuarially determined using the projected unit credit method and are funded in accordance with U.S. Government cost accounting standards to the extent such costs are tax-deductible. SFAS No. 87, Employers' Accounting for Pensions, requires the recognition of an additional liability to increase the amounts recorded up to the unfunded accumulated benefit obligation. The adjustment required to recognize the minimum pension liability required by SFAS No. 87 is recorded as an intangible asset to the extent of unrecognized prior service cost and the remainder, net of applicable deferred income taxes, is recorded as a reduction of Stockholder's Equity. At December 31, 1995 and 1994, the additional minimum pension liability recorded was $204.9 million and $152.4 million, respectively, of which $108.6 million and $76.1 million, respectively, was recorded as a reduction of Stockholder's Equity. Plan assets are invested primarily in listed common stock, cash and short-term investment funds, U.S. Government securities, and other investments. The weighted average discount rates used in determining the actuarial present values of the projected benefit obligation shown in the table on the next page were 7.25% and 8.75% at December 31, 1995 and 1994, respectively. The rate of increase in future compensation levels was 5.0% in 1995 and 1994. The expected long-term rate of return on assets used in determining pension cost was 9.5% for 1995 and 9.75% for 1994. IV-63 12 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table sets forth the funded status of the Hughes non-automotive employee plans and the amounts included in the Consolidated Balance Sheet.
DECEMBER 31, -------------------------------------------- 1995 1994 -------------------- -------------------- ASSETS ACCUM. ASSETS ACCUM. EXCEED BENEFITS EXCEED BENEFITS ACCUM. EXCEED ACCUM. EXCEED BENEFITS ASSETS BENEFITS ASSETS -------- -------- -------- -------- (DOLLARS IN MILLIONS) Actuarial present value of benefits based on service to date and present pay levels Vested............................................... $4,685.3 $ 327.5 $3,572.5 $ 195.9 Nonvested............................................ 225.6 4.7 337.9 0.9 -------- ------- -------- ------- Accumulated benefit obligation......................... 4,910.9 332.2 3,910.4 196.8 Additional amounts related to projected pay increases............................................ 456.7 11.0 438.1 22.4 -------- ------- -------- ------- Total projected benefit obligation based on service to date................................................. 5,367.6 343.2 4,348.5 219.2 Plan assets at fair value.............................. 6,397.7 65.9 5,717.4 -- -------- ------- -------- ------- Plan assets in excess of (less than) projected benefit obligation................................... 1,030.1 (277.3) 1,368.9 (219.2) Unamortized net amount resulting from changes in plan experience and actuarial assumptions................. 173.3 193.3 (152.4) 150.2 Unamortized net asset at date of adoption.............. (161.9) -- (217.3) -- Unamortized net amount resulting from changes in plan provisions........................................... (13.8) 22.6 (14.2) 24.6 Adjustment for unfunded pension liabilities............ -- (204.9) -- (152.4) -------- ------- -------- ------- Net prepaid pension cost (accrued liability)........... $1,027.7 $ (266.3) $ 985.0 $ (196.8) ======== ======= ======== =======
NOTE 5. OTHER POSTRETIREMENT BENEFITS Substantially all of the employees of Delco Electronics participate in various postretirement medical, dental, vision, and life insurance plans of General Motors. Hughes maintains a program for eligible non-automotive retirees to participate in health care and life insurance benefits generally until they reach age 65. Qualified employees who elected to participate in the Hughes contributory defined benefit pension plans may become eligible for these benefits if they retire from Hughes between the ages of 55 and 65. The total non-pension postretirement benefit cost of Hughes and its subsidiaries included the components set forth as follows:
1995 1994 1993 ------ ------ ------ (DOLLARS IN MILLIONS) Benefits earned during the year..................................... $ 33.9 $ 50.1 $ 49.2 Interest accrued on benefits earned in prior years.................. 123.3 130.3 127.2 Net amortization.................................................... (16.5) 7.6 -- ------ ------ ------ Total non-pension postretirement benefit cost.................. $140.7 $188.0 $176.4 ====== ====== ======
IV-64 13 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table displays the components of Hughes' obligation recognized for postretirement benefit plans included in the Consolidated Balance Sheet:
DECEMBER 31, ---------------------- 1995 1994 -------- -------- (DOLLARS IN MILLIONS) Accumulated postretirement benefit obligation attributable to Current retirees.................................................... $ 857.1 $ 816.6 Fully eligible active plan participants............................. 221.1 191.9 Other active plan participants...................................... 547.5 576.6 -------- -------- Accumulated postretirement benefit obligation......................... 1,625.7 1,585.1 Unrecognized net amount resulting from changes in plan experience and actuarial assumptions............................................... 62.4 44.7 -------- -------- Net postretirement benefit obligation................................. 1,688.1 1,629.8 Less current portion.................................................. 77.5 88.4 -------- -------- Net long-term postretirement benefit obligation....................... $1,610.6 $1,541.4 ======== ========
The assumed weighted average discount rates used in determining the actuarial present value of the accumulated postretirement benefit obligation were 7.25% and 8.57% at December 31, 1995 and 1994, respectively. The assumed weighted average rate of increase in future compensation levels related to pay- related life insurance benefits was 4.4% at December 31, 1995 and 4.6% at December 31, 1994. The assumed weighted average health care cost trend rate was 7.78% in 1995, increasing to 7.91% in 1996 and decreasing linearly each successive year until it reaches 5.18% in 2006, after which it remains constant. A one percentage point increase in each year of this annual trend rate would increase the accumulated postretirement benefit obligation at December 31, 1995 by approximately $171 million, and increase the service and interest cost components of the 1995 postretirement benefit expense by approximately $18 million. Hughes 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, 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. IV-65 14 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 6. INCOME TAXES The income tax provision consisted of the following:
1995 1994 1993 ------ ------ ------ (DOLLARS IN MILLIONS) Taxes currently payable U.S. Federal...................................................... $664.6 $532.2 $222.0 Foreign........................................................... 13.4 10.3 10.7 U.S. state and local.............................................. 138.4 100.5 94.3 ------ ------ ------ Total.......................................................... 816.4 643.0 327.0 ------ ------ ------ Deferred tax (assets) liabilities -- net U.S. Federal...................................................... (130.0) (62.2) 229.7 Foreign........................................................... 2.0 1.3 -- U.S. state and local.............................................. (42.8) (9.3) 15.9 ------ ------ ------ Total.......................................................... (170.8) (70.2) 245.6 ------ ------ ------ Total income tax provision................................ $645.6 $572.8* $572.6 ====== ====== ======
- ------------------------- * Excluding effect of accounting change. The deferred income tax benefit in 1994 included a $63.0 million credit that resulted from an adjustment to the beginning of the year valuation allowance because of a change in circumstances with respect to Hughes' ability to realize the benefit from a capital loss carryforward. Income before income taxes included the following components:
1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) U.S. income.................................................... $1,494.7 $1,448.1 $1,286.7 Foreign income................................................. 99.2 80.5 83.7 -------- -------- -------- Total........................................................ $1,593.9 $1,528.6 $1,370.4 ======== ======== ========
The consolidated income tax provision was different than the amount computed using the U.S. statutory income tax rate for the reasons set forth in the following table:
1995 1994 1993 ------ ------ ------ (DOLLARS IN MILLIONS) Expected tax at U.S. statutory income tax rate...................... $557.9 $535.0 $479.5 U.S. state and local income taxes................................... 62.2 59.3 70.1 Purchase accounting adjustments..................................... 55.8 43.3 43.3 Foreign sales corporation tax benefit............................... (22.2) (19.2) (11.2) Change in valuation allowance....................................... -- (63.0) -- Deferred tax impact of U.S. Federal income tax rate change.......... -- -- (10.0) Other............................................................... (8.1) 17.4 0.9 ------ ------ ------ Consolidated income tax provision................................. $645.6 $572.8* $572.6 ====== ====== ======
- ------------------------- Certain amounts for 1994 and 1993 have been reclassified to conform with the 1995 presentation. * Excluding effect of accounting change. IV-66 15 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities were as follows:
DECEMBER 31, -------------------------------------------------- 1995 1994 ----------------------- ----------------------- DEFERRED DEFERRED DEFERRED DEFERRED TAX TAX TAX TAX ASSETS LIABILITIES ASSETS LIABILITIES -------- ----------- -------- ----------- (DOLLARS IN MILLIONS) Postretirement benefits other than pensions........... $ 704.9 $ -- $ 695.3 $ -- Profits on long-term contracts........................ 384.5 203.5 259.3 417.3 Leveraged leases...................................... 74.9 -- 86.7 -- Employee benefit programs............................. 185.2 393.3 173.1 372.9 Depreciation.......................................... -- 479.5 -- 399.4 Special provision for restructuring................... 56.4 -- 151.8 -- Other................................................. 445.2 220.3 356.3 215.6 -------- -------- -------- -------- Subtotal............................................ 1,851.1 1,296.6 1,722.5 1,405.2 Valuation allowance................................... (22.8) -- (16.1) -- -------- -------- -------- -------- Total deferred taxes.................................. $1,828.3 $ 1,296.6 $1,706.4 $ 1,405.2 ======== ======== ======== ========
- ------------------------- Certain amounts for 1994 have been reclassified to conform with the 1995 presentation. Provision has been made for U.S. Federal income taxes to be paid on that portion of the undistributed earnings of foreign subsidiaries that has not been deemed permanently reinvested. At December 31, 1995 and 1994, undistributed earnings of foreign subsidiaries amounted to approximately $397.4 million and $311.4 million, respectively. Repatriation of all accumulated foreign earnings would have resulted in tax liabilities of $110.3 million and $90.3 million, respectively, for which Hughes has provided deferred tax liabilities of $82.8 million and $66.2 million, respectively. At December 31, 1995, Hughes had $34.9 million of foreign operating loss carryforwards which expire in varying amounts between 1996 and 2000. The valuation allowance includes a provision for all of the foreign operating loss carryforwards. In addition, Hughes had $89.5 million of capital loss carryforwards, of which $51.3 million will expire in 1998 and $38.2 million will expire in 2000. No valuation allowance has been provided for the capital loss carryforwards. NOTE 7. EARNINGS ATTRIBUTABLE TO GENERAL MOTORS CLASS H COMMON STOCK ON A PER SHARE BASIS AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME 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 fourth quarters of 1995, 1994, and 1993. IV-67 16 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The denominator used in determining 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 Certificate of Incorporation. In this regard, the GM Board has generally caused the denominator to decrease as shares are purchased by Hughes, and to increase as such shares are used, at Hughes expense, for Hughes employee benefit plans or acquisitions. Dividends may be paid on GM Class H common stock only when, as, and if declared by the GM Board of Directors in its sole discretion. The current policy of the GM Board with respect to GM Class H common stock is to pay cash dividends approximately equal to 35% of the Available Separate Consolidated Net Income of Hughes for the prior year. Notwithstanding the current dividend policy, the dividends paid on the GM Class H Common Stock during 1995, 1994, and 1993 were based on an annual rate higher than 35% of the Available Separate Consolidated Net Income of Hughes for the preceding year. NOTE 8. PROPERTY -- NET
1995 1994 -------- -------- (DOLLARS IN MILLIONS) Land and improvements................................... $ 189.7 $ 196.5 Buildings and unamortized leasehold improvements........ 1,293.3 1,291.2 Machinery and equipment................................. 2,874.2 2,623.8 Furniture, fixtures, and office machines................ 118.3 81.9 Construction in progress................................ 439.9 448.9 -------- -------- Total.............................................. 4,915.4 4,642.3 Less accumulated depreciation........................... 2,244.2 2,047.5 -------- -------- Net real estate, plants, and equipment.................. 2,671.2 2,594.8 Special tools -- less amortization...................... 68.0 17.0 -------- -------- Property -- net.................................... $2,739.2 $2,611.8 ======== ========
NOTE 9. NOTES AND LOANS PAYABLE AND LONG-TERM DEBT AND CAPITALIZED LEASES
1995 1994 ------ ------ (DOLLARS IN MILLIONS) Loans payable to banks..................................... $ 15.1 $ 17.6 Current portion of long-term debt.......................... 7.2 55.4 Current portion of GM term loan............................ 85.0 -- Other...................................................... 325.2 52.7 ------ ------ Total notes and loans payable......................... $432.5 $125.7 ====== ====== Foreign bank debt.......................................... $ 53.8 $ 59.8 Term loans GM....................................................... 143.8 143.8 Other.................................................... 150.0 200.0 Other debt................................................. 2.9 3.9 ------ ------ Total................................................. 350.5 407.5 Less current portion....................................... 92.2 55.4 ------ ------ Long-term debt............................................. 258.3 352.1 Capitalized leases......................................... 0.5 1.4 ------ ------ Total long-term debt and capitalized leases........... $258.8 $353.5 ====== ======
IV-68 17 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED At December 31, 1995, Hughes had $450.0 million and $650.0 million of unused credit available under short-term lines of credit and an unsecured revolving credit loan agreement, respectively. The unsecured revolving credit loan agreement provides for a commitment of $650.0 million through January 2000, subject to a facility fee of 0.10% per annum. Borrowings under the agreement bear interest at a rate which approximates the London Interbank Offered Rate plus 0.175%. No amounts were outstanding under the agreement or the short-term lines of credit at December 31, 1995. At December 31, 1995, foreign bank debt included $53.8 million denominated in British pounds sterling, bearing interest at rates ranging from 6.1% to 10.3%, with maturity dates from 1996 to 2005. The GM term loans bear interest at rates ranging from 5.7% to 6.1%, with maturity dates in 1996 and 1997. The other term loans consisted of notes payable to an insurance company and other investors bearing interest at rates ranging from 7.7% to 8.0%, with maturity dates in 1997. Other notes and loans payable included $302.7 million related to the acquisition of Magnavox Electronic Systems Company (see Note 13). The note, which bore interest at a rate of 5.3%, was repaid in full on January 5, 1996. Annual maturities of long-term debt and capitalized leases are $92.2 million in 1996, $213.5 million in 1997, $3.9 million in 1998, $4.2 million in 1999, $4.6 million in 2000, and $32.6 million thereafter. Property with a net book value of $34.6 million at December 31, 1995 was pledged as collateral under such debt. NOTE 10. ACCRUED LIABILITIES
1995 1994 -------- -------- (DOLLARS IN MILLIONS) Payrolls and other compensation......................... $ 553.2 $ 540.2 Provision for losses on contracts....................... 408.4 277.0 Accrual for restructuring............................... 115.9 143.3 Other................................................... 913.4 925.0 -------- -------- Total.............................................. $1,990.9 $1,885.5 ======== ========
IV-69 18 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11. STOCKHOLDER'S EQUITY The authorized capital stock of Hughes consists of 1,000 shares of $0.10 par value common stock. At December 31, 1995, 1994, and 1993, 1,000 shares having an aggregate par value of $100 were issued and outstanding. All of the outstanding capital stock of Hughes is held by General Motors.
1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) Capital stock and additional paid-in capital Balance at beginning of the year............................. $6,326.5 $6,323.1 $6,314.7 Tax benefit from exercise of GM Class H common stock options................................................... 11.6 3.4 8.4 -------- -------- -------- Balance at end of the year................................ $6,338.1 $6,326.5 $6,323.1 ======== ======== ======== Net income retained for use in the business Balance at beginning of the year............................. $1,743.6 $1,138.2 $ 628.4 Net income................................................... 948.3 925.4 797.8 Cash dividends paid to General Motors........................ (368.0) (320.0) (288.0) -------- -------- -------- Balance at end of the year................................ $2,323.9 $1,743.6 $1,138.2 ======== ======== ======== Minimum pension liability adjustment Balance at beginning of the year............................. $ (76.1) $ (120.4) $ (104.3) Change during the year....................................... (32.5) 44.3 (16.1) -------- -------- -------- Balance at end of the year................................ $ (108.6) $ (76.1) $ (120.4) ======== ======== ======== Accumulated foreign currency translation adjustments Balance at beginning of the year............................. $ (18.2) $ (12.8) $ (23.8) Change during the year....................................... (9.5) (5.4) 11.0 -------- -------- -------- Balance at end of the year................................ $ (27.7) $ (18.2) $ (12.8) ======== ======== ========
As sole stockholder of Hughes, GM is able to cause Hughes to pay cash dividends and make advances to or otherwise enter into transactions with GM as GM deems desirable and appropriate. GM reserves the right to cause Hughes to pay cash dividends to GM in such amounts as GM determines are desirable under the then prevailing facts and circumstances. Such amounts may be the same as, greater than, or less than the cash dividends paid by GM on its Class H common stock. There is no fixed relationship, on a per share or aggregate basis, between the cash dividends that may be paid by GM to holders of its Class H common stock and the cash dividends or other amounts that may be paid by Hughes to GM. NOTE 12. SPECIAL PROVISION FOR RESTRUCTURING In 1992, Hughes recorded a special restructuring charge of $1,237.0 million primarily attributable to redundant facilities and related employment costs. The special charge comprehended a reduction of Hughes' worldwide employment, a major facilities consolidation, and a reevaluation of certain business lines that no longer met Hughes' strategic objectives. Restructuring costs of $208.8 million, $228.3 million, and $527.6 million were charged against the reserve during 1995, 1994, and 1993, respectively. In addition, in 1994 and 1993 the restructuring reserve was increased by $35.0 million and $78.0 million, respectively, primarily due to changes in the estimated loss on disposition of two subsidiaries. The remaining liability of $134.4 million relates primarily to reserves for excess facilities and other site consolidation costs. Approximately $119.3 million of this total will require future cash outflows. It is expected that these costs will be expended predominantly over the next two years. IV-70 19 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 13. ACQUISITIONS AND DIVESTITURES In February 1995, Hughes acquired substantially all of the assets of CAE-Link Corporation for $176.0 million in cash. CAE-Link is an established supplier of simulation, training, and technical services, primarily to the U.S. military and NASA. In December 1995, Hughes acquired all of the stock of Magnavox Electronic Systems Company (Magnavox) for $382.4 million, consisting of cash of $70.5 million, a note payable of $302.7 million, and estimated additional amounts to be paid of $9.2 million. Magnavox is a leading supplier of military tactical communications, electronic warfare, and command and control systems. In addition, Hughes acquired several other enterprises with operations that complement existing technological capabilities at aggregate purchase prices, paid in cash, of $63.0 million and $10.4 million in 1995 and 1993, respectively. All acquisitions were accounted for using the purchase method of accounting. The operating results of the entities acquired were consolidated with those of Hughes from their respective acquisition dates. These acquisitions did not have a material impact on the operating results of Hughes. The purchase price of each acquisition was allocated to the net assets acquired, including intangible assets, based upon their estimated fair values at the date of acquisition. During 1995, Hughes divested several non-strategic enterprises generating aggregate proceeds of approximately $127.2 million and a net loss of approximately $8.2 million, which included the write-off of $30.1 million of purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. Also in 1995, Hughes recorded a $46.0 million charge for the estimated loss on disposition of a business unit (including $6.0 million related to the write-off of GM purchase accounting adjustments) and completed the divestiture of Hughes LAN Systems, for which a pre-tax charge of $35.0 million was taken in 1994. NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Hughes is a party to financial instruments with off-balance sheet risk in the normal course of business to reduce its exposure to fluctuations in foreign exchange rates. The primary class of derivatives used by Hughes is foreign exchange-forward contracts. These instruments involve, to varying degrees, elements of credit risk in the event a counterparty should default and market risk as the instruments are subject to rate and price fluctuations. Credit risk is managed through the periodic monitoring and approval of financially sound counterparties. Market risk is mitigated because the derivatives are used to hedge underlying transactions. Cash receipts or payments on these contracts normally occur at maturity. Hughes holds derivatives only for purposes other than trading. Foreign exchange-forward contracts are legal agreements between two parties to purchase and sell a foreign currency, for a price specified at the contract date, with delivery and settlement in the future. Hughes uses these agreements to hedge risk of changes in foreign currency exchange rates associated with certain firm commitments denominated in foreign currency. The total notional amount of foreign exchange-forward contracts Hughes held at December 31, 1995 and 1994 was approximately $289 million and $144 million, respectively. Hughes' open contracts extend for periods averaging nine months. IV-71 20 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with the requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, and SFAS No. 119, Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments, the following fair value estimates and information about valuation methodologies are presented. For all financial instruments not described below, fair value approximates book value. For notes and loans payable and long-term debt, the estimated fair value (which approximates book value) was $694.9 million and $479.9 million at December 31, 1995 and 1994, respectively. Such fair value is based on the quoted market prices for similar issues or on the current rates offered to Hughes for debt of similar remaining maturities. The carrying value of debt with an original term of less than 90 days is assumed to approximate fair value. The fair values of derivative financial instruments reflect the estimated amounts Hughes would receive or pay to terminate the contracts at the reporting date, which takes into account the current unrealized gains or losses on open contracts. The fair value of foreign exchange-forward contracts is estimated based on foreign exchange rate quotes at the reporting date. At December 31, 1995 and 1994, the estimated fair value of open contracts, which were in a net gain position, was $10.7 million and $3.9 million, respectively. No amounts were recorded in the Consolidated Balance Sheet for these contracts in 1995 and 1994. NOTE 16. SEGMENT REPORTING Prior to 1995, Hughes reported its operations in four business segments: Automotive Electronics, Defense Electronics, Telecommunications and Space, and Commercial Technologies. In connection with organizational changes, effective January 1, 1995, Hughes now reports its operations in three segments: Automotive Electronics, Telecommunications and Space, and Aerospace and Defense Systems. This new segment presentation better reflects Hughes' strategic direction and the manner in which its businesses are managed. All 1994 and 1993 financial data have been restated to reflect the new segment reporting format. Hughes operates within the field of modern high-technology electronics for use in Automotive Electronics, Telecommunications and Space, and Aerospace and Defense Systems business segments. Radios, controls for engines and transmissions, navigation and communication systems, monitors and sensors for air bags, controllers for anti-lock brakes, climate control, dashboard instrumentation, vehicle security electronics, and other automotive electronic products are included in the Automotive Electronics segment. The Telecommunications and Space segment includes satellite construction, ownership and operation, communications services, ground equipment, and direct-to-home satellite television entertainment services. The Aerospace and Defense Systems segment includes missile systems, command and control systems, torpedoes and sonar systems, electro-optical systems, airborne radar systems, military training and simulation systems, air traffic control systems, information systems, and guidance and control systems. Intercompany transfers between segments are not material. Information concerning operations by segment is shown on the next page: IV-72 21 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
AEROSPACE AUTOMOTIVE TELECOM. AND DEFENSE CORPORATE ELECTRONICS AND SPACE SYSTEMS AND OTHER TOTAL ----------- --------- ----------- --------- --------- (DOLLARS IN MILLIONS) Revenues 1995.................................... $ 5,561.3 $3,092.7 $ 5,945.4 $ 172.4 $14,771.8 1994.................................... 5,221.7 2,596.2 6,023.6 257.9 14,099.4 1993.................................... 4,453.4 2,238.3 6,472.2 353.6 13,517.5 Operating Profit (Loss)(1) 1995.................................... $ 869.0 $ 168.2 $ 587.1 $ (80.4) $ 1,543.9 1994.................................... 794.8 250.0 562.7 (100.9) 1,506.6 1993.................................... 624.3 188.6 563.3 (39.9) 1,336.3 Identifiable Assets at Year End(2) 1995.................................... $ 3,934.0 $4,121.8 $ 7,247.3 $ 671.3 $15,974.4 1994.................................... 3,429.8 3,727.8 6,712.0 980.9 14,850.5 1993.................................... 2,748.7 3,070.3 7,322.1 976.0 14,117.1 Depreciation and Amortization(1) 1995.................................... $ 151.4 $ 199.3 $ 232.9 $ 27.5 $ 611.1 1994.................................... 142.2 161.8 259.4 30.6 594.0 1993.................................... 146.8 135.0 302.1 43.4 627.3 Capital Expenditures(3) 1995.................................... $ 264.7 $ 436.5 $ 109.8 $ 9.3 $ 820.3 1994.................................... 166.4 399.3 159.5 21.1 746.3 1993.................................... 148.2 271.8 131.4 28.6 580.0
- ------------------------- (1) Includes purchase accounting adjustments associated with GM's purchase of Hughes Aircraft Company of $123.4 million in 1995 ($21.0 million, $100.9 million, and $1.5 million related to Telecommunications and Space, Aerospace and Defense Systems, and Corporate and Other, respectively) and $123.8 million in 1994 and 1993 ($21.0 million, $100.9 million, and $1.9 million related to Telecommunications and Space, Aerospace and Defense Systems, and Corporate and Other, respectively). (2) Identifiable assets include the unamortized purchase accounting adjustments associated with the purchase of Hughes Aircraft Company as detailed below:
AEROSPACE TELECOM. AND DEFENSE CORP. AND AND SPACE SYSTEMS OTHER TOTAL --------- ----------- --------- -------- 1995.................................. $ 489.0 $ 2,348.7 $ 8.1 $2,845.8 1994.................................. 510.0 2,449.6 45.7 3,005.3 1993.................................. 531.0 2,550.5 47.6 3,129.1
(3) Telecommunications and Space includes expenditures related to telecommunications and other equipment amounting to $274.6 million, $255.8 million, and $131.1 million in 1995, 1994, and 1993, respectively. IV-73 22 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED A reconciliation of operating profit shown on the previous page to Income before Income Taxes shown in the Consolidated Statement of Income and Available Separate Consolidated Net Income follows:
1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) Operating Profit............................................... $1,543.9 $1,506.6 $1,336.3 Other Income -- net............................................ 57.5 37.1 67.3 Interest Expense............................................... (7.5) (15.1) (33.2) -------- -------- -------- Income before Income Taxes................................ $1,593.9 $1,528.6 $1,370.4 ======== ======== ========
Export sales from the U.S. were as follows:
1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) Africa......................................................... $ 25.4 $ 25.8 $ 28.2 Asia........................................................... 948.9 758.2 593.4 Canada......................................................... 861.8 876.3 820.7 Europe......................................................... 929.4 678.6 503.1 Mexico......................................................... 143.4 96.9 122.9 Other Latin America............................................ 76.0 90.3 68.3 Middle East.................................................... 327.0 370.1 404.4 -------- -------- -------- Total..................................................... $3,311.9 $2,896.2 $2,541.0 ======== ======== ========
NOTE 17. COMMITMENTS AND CONTINGENT LIABILITIES Hughes signed agreements in 1995 to procure commercial satellite launches, a significant number of which are expected to be used in connection with satellites ordered by outside customers. The agreements provide for launches beginning in 1998 and also contain options for additional launch vehicles. The total amount of the commitment, which is dependent upon the number of options exercised, market conditions, and other factors, is in excess of $1 billion. In December 1994, Hughes entered into an agreement with Computer Sciences Corporation (CSC) whereby CSC provides a significant amount of the non-automotive data processing services required by Hughes. Baseline service payments to CSC are expected to aggregate approximately $1.5 billion over the term of the eight-year agreement. The contract is cancelable by Hughes with substantial early termination penalties. Minimum future commitments under operating leases having noncancelable lease terms in excess of one year, primarily for real property and satellite transponders, aggregating $2,010.3 million, are payable as follows: $232.3 million in 1996, $198.5 million in 1997, $174.3 million in 1998, $172.7 million in 1999, $165.6 million in 2000, and $1,066.9 million thereafter. Certain of these leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases were $257.9 million in 1995, $306.2 million in 1994, and $296.3 million in 1993. Hughes and its subsidiaries are subject to potential liability under government regulations and various claims and legal actions which are pending or may be asserted against them. The aggregate ultimate liability of Hughes and its subsidiaries under these government regulations, and under these claims and actions, was not determinable at December 31, 1995. In the opinion of management of Hughes, such liability is not expected to have a material adverse effect on Hughes' consolidated operations or financial position. IV-74 23 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED In 1973, Hughes Aircraft Company filed a lawsuit against the U.S. Government in the U.S. Court of Claims for infringement of a patent utilized in the design of satellites (the "Williams Patent"). In late 1983, the U.S. Court of Appeals ruled that the patent was valid and that the Government had infringed the patent. In June 1994, the U.S. Court of Claims issued a decision awarding Hughes damages of $114 million. Both parties to the lawsuit have appealed the judgment, with Hughes asserting that the award did not adequately compensate it for damages suffered. In the opinion of the 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 Hughes' financial statements pending the outcome of the case, resolution could result in a gain that would be material to the financial statements. NOTE 18. SUBSEQUENT EVENT In January 1996, Hughes and DIRECTV, a wholly-owned subsidiary of Hughes, reached a tentative agreement with AT&T wherein AT&T is to market and distribute DIRECTV entertainment service and DSS(R) equipment. In addition, AT&T agreed to acquire a 2.5% equity interest in DIRECTV for $137.5 million, with options to increase its ownership interest, under certain conditions. These transactions are subject to completion of definitive agreements and regulatory approvals. * * * * IV-75 24 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION SELECTED QUARTERLY DATA (UNAUDITED)
1ST 2ND 3RD 4TH -------- -------- -------- -------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1995 QUARTERS Revenues.............................................. $3,578.8 $3,723.6 $3,441.3 $4,028.1 ======== ======== ======== ======== Income before income taxes............................ $ 403.3 $ 436.3 $ 310.6 $ 443.7 Income taxes.......................................... 165.4 178.8 121.6 179.8 -------- -------- -------- -------- Net income............................................ $ 237.9 $ 257.5 $ 189.0 $ 263.9 ======== ======== ======== ======== Earnings used for computation of available separate consolidated net income............................. $268.9 $288.4 $256.1 $294.4 Average number of shares of General Motors Class H common stock outstanding (in millions).............. 94.2 95.4 95.9 96.5 Class H dividend base (in millions)................... 399.9 399.9 399.9 399.9 Available separate consolidated net income............ $ 63.3 $ 68.8 $ 61.4 $ 71.1 ======== ======== ======== ======== Net earnings attributable to General Motors Class H common stock on a per share basis................... $0.67 $0.72 $0.64 $0.74 ======== ======== ======== ======== Stock price range of General Motors Class H common stock High............................................. $41.75 $41.63 $42.75 $50.00 Low.............................................. $33.25 $37.75 $39.13 $39.50 1994 QUARTERS Revenues.............................................. $3,587.3 $3,535.9 $3,354.5 $3,621.7 ======== ======== ======== ======== Income before income taxes............................ $ 477.3 $ 400.6 $ 361.4 $ 289.3 Income taxes.......................................... 195.8 164.2 148.2 64.6 -------- -------- -------- -------- Income before cumulative effect of accounting change.............................................. 281.5 236.4 213.2 224.7 Cumulative effect of accounting change................ (30.4)* -- -- -- -------- -------- -------- -------- Net income............................................ $ 251.1 $ 236.4 $ 213.2 $ 224.7 ======== ======== ======== ======== Earnings used for computation of available separate consolidated net income............................. $282.1 $267.3 $244.2 $255.6 Average number of shares of General Motors Class H common stock outstanding (in millions).............. 90.6 91.7 92.7 93.3 Class H dividend base (in millions)................... 399.9 399.9 399.9 399.9 Available separate consolidated net income............ $ 64.0 $ 61.3 $ 56.6 $ 59.7 ======== ======== ======== ======== Earnings attributable to General Motors Class H common stock on a per share basis Before cumulative effect of accounting change.... $0.78 $0.67 $0.61 $0.64 Cumulative effect of accounting change........... (0.08)* -- -- -- --------- -------- -------- -------- Net earnings attributable to General Motors Class H common stock on a per share basis............ $0.70 $0.67 $0.61 $0.64 ===== ===== ===== ===== Stock price range of General Motors Class H common stock High............................................. $40.38 $38.75 $38.00 $37.75 Low.............................................. $32.63 $31.75 $34.63 $31.00
- ------------------------- * Effective January 1, 1994, Hughes adopted SFAS No. 112. The unfavorable cumulative effect of adopting SFAS No. 112 was $30.4 million, or $6.8 million attributable to GM Class H common stock. IV-76 25 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION -- CONCLUDED SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991 --------- --------- --------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Revenues........................... $14,771.8 $14,099.4 $13,517.5 $12,297.1 $11,540.6 Earnings (Loss) used for computation of available separate consolidated net income (loss)... $ 1,107.8 $ 1,049.2 $ 921.6 $ (921.6) $ 559.4 Average number of shares of General Motors Class H common stock outstanding (in millions)........ 95.5 92.1 88.6 75.3 73.7 Class H dividend base (in millions)........................ 399.9 399.9 399.9 399.9 399.9 Available separate consolidated net income (loss).................... $ 264.6 $ 241.6 $ 204.5 $ (142.3) $ 104.6 GM Class H cash dividends.......... $ 87.9 $ 73.8 $ 64.1 $ 53.3 $ 54.3 Dividend payout ratio(1)........... 36.4% 36.0% N/A 51.0% 33.9% Earnings (Loss) attributable to General Motors Class H common stock on a per share basis before cumulative effect of accounting changes.......................... $2.77 $2.70 $2.30 $(0.11) $1.26 Earnings (Loss) attributable to General Motors Class H common stock on a per share basis after cumulative effect of accounting changes.......................... $2.77 $2.62 $2.30 $(2.29) $1.39 Capital expenditures(2)............ $ 820.3 $ 746.3 $ 580.0 $ 558.5 $ 681.3 Cash and cash equivalents.......... $ 1,139.5 $ 1,501.8 $ 1,008.7 $ 702.7 $ 348.3 Working capital.................... $ 2,502.0 $ 2,695.5 $ 2,165.2 $ 1,692.4 $ 1,548.8 Total assets....................... $15,974.4 $14,850.5 $14,117.1 $14,209.2 $12,930.8 Long-term debt and capitalized leases........................... $ 258.8 $ 353.5 $ 416.8 $ 711.0 $ 147.1 Return on equity*(3)............... 11.5% 12.1% 11.3% (13.9)% 5.3% Income (Loss) before interest and taxes as a percent of capitalization(4)................ 18.7% 19.0% 18.0% (2.3)% 8.1% Pre-tax return on total assets(5)........................ 10.3% 10.6% 9.7% (1.8)% 5.2%
- ------------------------- * Includes favorable (unfavorable) cumulative effect of accounting changes of $(30.4) million in 1994, $(872.1) million in 1992, and $54.4 million in 1991. (1) GM Class H cash dividends divided by available separate consolidated net income for the prior year. (2) Includes expenditures related to telecommunications and other equipment amounting to $274.6 million, $255.8 million, $131.1 million, $101.6 million, and $88.3 million in 1995, 1994, 1993, 1992, and 1991, respectively. (3) Net Income (Loss) divided by average stockholder's equity (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). (4) Income (Loss) before interest and taxes divided by average stockholder's equity plus average debt. (5) Income (Loss) before Income Taxes divided by average Total Assets. IV-77 26 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATING AND FINANCIAL REVIEW The following discussion excludes purchase accounting adjustments related to General Motors' acquisition of Hughes Aircraft Company (see Supplemental Data beginning on page IV-82). RESULTS OF OPERATIONS REVENUES. Hughes reported record revenues of $14,807.9 million in 1995, a 5.0% increase over 1994. Revenues in 1994 were $14,099.4 million, an increase of 4.3% compared with 1993 revenues of $13,517.5 million. The increases in revenues were largely the result of continued growth in the Automotive Electronics and Telecommunications and Space segments, partially offset by Aerospace and Defense Systems segment revenue declines caused by lower production rates and planned terminations on several defense programs. (Pro forma segment information is presented on page IV-85). Automotive Electronics. Revenues in the Automotive Electronics segment continued to increase in 1995 to $5,561.3 million from $5,221.7 million in 1994 and $4,453.4 million in 1993. The growth was primarily attributable to an increase in Hughes-supplied electronic content in GM vehicles produced in North America to $888 in 1995 from $857 in 1994 and $782 in 1993, and an increase in sales to international and non-GM-NAO customers to $841 million in 1995 from $672 million and $603 million in 1994 and 1993, respectively. Revenue growth was also impacted by an increase in GM North American vehicle production of 8% between 1993 and 1994, while vehicle production remained relatively unchanged between 1994 and 1995. Telecommunications and Space. Revenues in the Telecommunications and Space segment were $3,092.7 million in 1995, a 19.1% increase over 1994, and $2,596.2 million in 1994, a 16.0% increase over 1993 revenues of $2,238.3 million. The increases were primarily due to the commencement of operations and subscriber growth at DIRECTV(R) and increased sales of satellites, Galaxy(R) satellite transponders, cellular communications equipment and private business networks. Aerospace and Defense Systems. Aerospace and Defense Systems segment revenues were $5,945.4 million in 1995, a 1.3% decrease from 1994 revenues of $6,023.6 million. The decline was principally due to lower production rates on several missile programs, partially offset by the additional revenues related to the 1995 acquisition of CAE-Link Corporation. Revenues decreased $448.6 million, or 7.4%, between 1993 and 1994, due largely to the full-year impact of lower production rates and planned terminations on several defense programs. Other Income. Included in revenues is other income of $93.6 million, $37.1 million, and $67.3 million for 1995, 1994, and 1993, respectively. 1995 and 1994 included pre-tax charges of $40.0 million and $35.0 million, respectively, for the estimated losses on disposition of certain non-strategic business units. Also included in 1995 was $35.9 million of revenue earned for providing services to GM. The 1993 amount included a gain of $89.7 million on the sale of Hughes' 30% interest in Japan Communications Satellite Company, Inc. and a $55.0 million charge related to the sale of Hughes Rediffusion Simulation Limited (Rediffusion) and related entities. OPERATING PROFIT. Operating profit was $1,667.3 million in 1995, $1,630.4 million in 1994, and $1,460.1 million in 1993. Operating profit margins, as a percentage of net sales, were 11.3%, 11.6%, and 10.9% in 1995, 1994, and 1993, respectively. The improvement in profitability over this time period was primarily the result of the continued emphasis on cost reduction efforts, most notably in the Automotive Electronics and Aerospace and Defense Systems segments, and the overall growth in revenues, partially offset by a planned increase in operating expenses associated with DIRECTV. Automotive Electronics. Operating profit has increased significantly over the last three years. In 1995, operating profit was $869.0 million compared with $794.8 million in 1994 and $624.3 million in 1993. The improvement in profitability was attributable not only to increased revenues, but also to an aggressive cost reduction program, which has yielded cost savings before inflation of 13.5% in 1995, 11% in 1994, and 10% in IV-78 27 1993. The operating profit margin was 15.9%, 15.4%, and 14.0% in 1995, 1994, and 1993, respectively. Operating profit margins beyond 1995 are not expected to be maintained at the current level due to the potential for reduced auto production volumes, increased pricing pressures, and GM's global sourcing initiatives. Telecommunications and Space. Operating profit for 1995 was $189.2 million, a 30.2% decrease from the $271.0 million reported in 1994. The reduction was primarily a result of increased operating expenses associated with the continued expansion of DIRECTV and increased development costs on a geostationary satellite mobile telephony product line. Also contributing to the decline in operating profit were the reduced 1994 construction costs associated with the replacement of a Galaxy satellite, that was destroyed by a launch vehicle failure in August 1992, and 1994 earnings recognized by DIRECTV related to a contract with the National Rural Telecommunications Cooperative. Operating profit in 1994 increased 29.3% from 1993 operating profit of $209.6 million. The improvement in 1994, compared with 1993, was a result of the 1994 events discussed above as well as the sale of additional Galaxy satellite transponders, increased sales at Hughes Network Systems (HNS) relating to cellular communications equipment and services, and increased satellite construction sales, partially offset by higher DIRECTV operating expenses relating to the commencement of service in 1994. Operating profit margins were 6.2% in 1995, 10.3% in 1994, and 9.8% in 1993. After 1995, the Telecommunications and Space segment's operating margins are expected to increase as DIRECTV's subscriber base grows. Aerospace and Defense Systems. Operating profit was $688.0 million in 1995 compared with $663.6 million in 1994 and $664.2 million in 1993. The increase between 1995 and 1994 was largely a result of a provision taken in 1994 for certain air traffic control contracts, partly offset by reduced revenues in 1995. Future operating profits could be adversely impacted by further reductions in the U.S. defense budget. COSTS AND EXPENSES. Selling, general, and administrative expenses were $1,234.2 million in 1995, $1,018.3 million in 1994, and $929.1 million in 1993. The increases were primarily due to the commencement of operations and continued expansion of DIRECTV and increased international sales activities at Delco Electronics. Interest expense decreased 50.3% in 1995 and 54.5% in 1994 primarily due to a decrease in average debt balances and an increase in the amount of capitalized interest associated with the construction of telecommunications and other equipment. The effective income tax rate was 36.8%, 34.7%, and 38.3% in 1995, 1994, and 1993, respectively. The lower effective income tax rate in 1994 resulted from the recognition of capital loss carryforward benefits. EARNINGS. Hughes' 1995 earnings were $1,107.8 million, or $2.77 per share of GM Class H common stock, compared with 1994 earnings of $1,049.2 million, or $2.62 per share, and 1993 earnings of $921.6 million, or $2.30 per share. Earnings in 1994 included the unfavorable effect of an accounting change for postemployment benefits. Excluding the accounting change, Hughes' earnings in 1994 would have been $1,079.6 million, or $2.70 per share. BACKLOG. The 1995 year-end backlog of $14,929 million increased from $13,210 million at the end of 1994, primarily due to increased satellite orders in the Telecommunications and Space segment. The 1994 year-end backlog remained relatively unchanged from the 1993 value of $13,399 million. A portion of the backlog is subject to appropriation decisions by the U.S. Government subsequent to award. In addition, Hughes' contracts with the U.S. Government are subject to termination by the Government either for its convenience or for default by Hughes. Sales to the U.S. Government may be affected by changes in acquisition policies, budget considerations, changing concepts in national defense, spending priorities, and other factors that are outside of Hughes' control. SPECIAL PROVISION FOR RESTRUCTURING. In 1992, Hughes recorded a special charge of $749.4 million (after-tax), for the restructuring of Hughes' operations. The special charge comprehended a reduction of Hughes' worldwide employment, a major facilities consolidation, and a reevaluation of certain business lines that no longer met Hughes' strategic objectives. Restructuring costs of $208.8 million, $228.3 million, and $527.6 million were charged against the reserve during 1995, 1994, and 1993, respectively. In addition, in 1994 IV-79 28 and 1993, the restructuring reserve was increased by $35.0 million and $78.0 million, respectively, primarily due to changes in the estimated loss on disposition of two subsidiaries. The remaining liability at December 31, 1995 of $134.4 million relates primarily to reserves for excess facilities and other site consolidation costs. Approximately $119.3 million of this amount will require future cash outflows. It is expected that these costs will be expended predominantly over the next two years. ACCOUNTING CHANGES. Effective January 1, 1994, Hughes adopted Statement of Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for Postemployment Benefits. The Statement requires accrual of the costs of benefits provided to former or inactive employees after employment, but before retirement. The unfavorable cumulative effect of this accounting change was $30.4 million after-tax, or $0.08 per share of GM Class H common stock. The charge primarily related to extended disability benefits which are accrued on a service-driven basis. NEW ACCOUNTING STANDARDS. In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, Accounting for Stock-Based Compensation, effective for transactions entered into in fiscal years beginning after December 15, 1995. As permitted by SFAS No. 123, Hughes expects to continue to apply its current accounting policy under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and include the necessary disclosures in its 1996 financial statements. In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which is required to be adopted for fiscal years beginning after December 15, 1995. This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The cumulative effect of this accounting change as of January 1, 1996 is not expected to be material. LIQUIDITY AND CAPITAL RESOURCES CASH AND CASH EQUIVALENTS. Cash and cash equivalents were $1,139.5 million at December 31, 1995, a decrease of $362.3 million from December 31, 1994. Operating activities generated cash of $986.2 million as Hughes achieved record earnings. However, cash used to fund capital expenditures, pay dividends to General Motors, and acquire new businesses more than offset the cash generated by operating activities. In 1994, cash and cash equivalents increased $493.1 million to $1,501.8 million at December 31, 1994, from $1,008.7 million at December 31, 1993. Operating activities provided net cash of $1,376.8 million in 1994 as Hughes increased earnings while aggressively managing working capital. Additional cash of $200.0 million was generated by the collection of a note receivable from General Motors. Cash was used to fund capital expenditures for property and special tools and telecommunications and other equipment (primarily related to DIRECTV), as well as to pay dividends to General Motors. LIQUIDITY MEASUREMENT. As a measure of liquidity, the current ratio (ratio of current assets to current liabilities) was 1.58 at December 31, 1995, 1.76 at December 31, 1994, and 1.61 at December 31, 1993. The decrease from 1994 to 1995 was principally due to the decrease in cash described above and increases in the notes and loans payable balance, primarily caused by a loan related to an acquisition. (See Note 13 to the Consolidated Financial Statements.) The increase in 1994 from 1993 was primarily the result of the increase in cash described above. PROPERTY AND EQUIPMENT. Property, net of accumulated depreciation, increased $127.4 million in 1995 while telecommunications and other equipment, net of accumulated depreciation, increased $103.4 million, primarily due to expenditures related to the Galaxy satellite fleet. Expenditures for property and equipment were $545.7 million in 1995 compared with $490.5 million and $448.9 million in 1994 and 1993, respectively. Management anticipates that capital expenditures in 1996 will increase approximately $100 million over 1995 and will be financed primarily from cash provided by operating activities. IV-80 29 Telecommunications and other equipment expenditures were $274.6 million in 1995 compared with $255.8 million and $131.1 million in 1994 and 1993, respectively. Management anticipates that telecommunications and other equipment expenditures in 1996 will decrease approximately $50 million from 1995 and will be financed primarily from cash provided by operating activities. Automotive Electronics. Capital expenditures increased to $264.7 million in 1995, compared with $166.4 million in 1994, and $148.2 million in 1993. The increased capital spending in 1995 reflects expenditures for additional program requirements related to new product changes associated with the 1996 model year combined with a decrease in tool bill recoveries. The 1994 increase reflected expenditures for technology upgrades of certain facilities. Telecommunications and Space. Capital expenditures, including expenditures related to telecommunications and other equipment, increased to $436.5 million in 1995 from $399.3 million in 1994 and $271.8 million in 1993. The increase in 1995 was due primarily to additions to the Galaxy satellite fleet while the 1994 increase primarily reflected continuing investment in satellite and ground equipment associated with DIRECTV. Aerospace and Defense Systems. Capital expenditures in the Aerospace and Defense Systems segment for 1995, 1994, and 1993 were $109.8 million, $159.5 million, and $131.4 million, respectively. The 1995 decrease and the increase in 1994 were due to the high level of expenditures in 1994 related to the consolidation of facilities in an effort to increase the operational efficiencies of manufacturing and engineering activities. LONG-TERM DEBT AND CAPITALIZED LEASES. Long-term debt and capitalized leases was $258.8 million at December 31, 1995, a decrease from $353.5 million at December 31, 1994, and $416.8 million at December 31, 1993, reflecting scheduled principal repayments. The ratio of long-term debt and capitalized leases to the total of such debt and pro forma stockholder's equity decreased to 4.4% in 1995 from 6.6% in 1994 and 9.0% in 1993. OTHER BALANCE SHEET ITEMS. In evaluating both its pension and retiree medical liabilities, Hughes recognized the impact of the recent decrease in long-term interest rates by decreasing the discount rate used in determining the actuarial present values of the projected benefit obligations. In 1995, the weighted average discount rate for Hughes' non-automotive pension obligations decreased from 8.75% to 7.25% and the weighted average discount rate for Hughes' other postretirement benefits decreased from 8.57% to 7.25%. ACQUISITIONS AND DIVESTITURES. In February 1995, Hughes completed the acquisition of CAE-Link Corporation, an established supplier of simulation, training, and technical services, primarily to the U.S. military and NASA, for $176.0 million. In December 1995, Hughes acquired Magnavox Electronic Systems Company, a leading supplier of military tactical communications, electronic warfare, and command and control systems, for $382.4 million. These acquisitions are strategic to Hughes' goal to strengthen market leadership around core competencies in Aerospace and Defense Systems. During 1995, Hughes divested several non-strategic enterprises resulting in aggregate proceeds of approximately $127.2 million and a net gain of approximately $21.9 million. Also in 1995, Hughes recorded a $40.0 million charge for the estimated loss on disposition of a business unit and completed the divestiture of Hughes LAN Systems, for which a pre-tax charge of $35.0 million was taken in 1994. On December 31, 1993, Hughes completed the sale of Rediffusion and related entities comprising the majority of its commercial aircraft simulation and training equipment business to Thomson-CSF. The sale resulted in a $55.0 million pre-tax charge against earnings, and included Rediffusion's core flight simulation businesses and its U.S. airline marketing support organization. STRATEGIC OBJECTIVES AND ALTERNATIVES. In light of the many opportunities for strategic growth in the highly dynamic global telecommunications and automotive electronics industries, and the continuing consolidation of businesses in the defense industry, General Motors and Hughes from time-to-time reevaluate their strategic objectives and consider and hold discussions with third parties concerning a wide variety of possible transactions including acquisitions, divestitures, joint ventures, business combinations or IV-81 30 restructurings that could serve to strengthen the businesses of General Motors and Hughes and better enable them to achieve their strategic objectives. In this regard, General Motors and Hughes also from time-to-time review their strategic alternatives, including those relating to the businesses and capital structure of General Motors and Hughes, and their relationship to one another. General Motors and Hughes do not currently contemplate that they would enter into any agreement committing them to effect any specific transaction of the type described in the preceding paragraph, nor would they take any strategic action relating to their business or capital structure of the type described in the preceding paragraph, if, in the judgment of General Motors, any of its principal ratings agencies would as a result thereof lower General Motors' credit ratings from the levels which they are at today. Hughes and General Motors do not intend to comment further on any specific discussions that may occur or actions that may be considered until such time, if any, as they determine it is appropriate to do so. Statements made herein concerning the ongoing consideration and discussion of transactions and strategic alternatives and the possibility of future action in relation thereto constitute forward-looking information. In the event that any transaction or action of the type described in such statements were to be pursued, it would necessarily be subject to numerous conditions and uncertainties. Accordingly, there can be no assurance that any such action would be pursued or consummated, or if consummated, accomplish the strategic objectives of Hughes or General Motors. DIVIDEND POLICY. As discussed in Note 7 to the Consolidated Financial Statements, it is GM's current policy to pay aggregate annual cash dividends on the GM Class H common stock approximately equal to 35% of the Available Separate Consolidated Net Income of Hughes for the prior year. In February 1996, the Board of Directors of GM increased the quarterly dividend on GM Class H common stock from $0.23 per share to $0.24 per share. SECURITY RATINGS. Hughes' security ratings are tied to the security ratings of General Motors. In October 1995, Standard & Poor's Corporation (S&P) raised Hughes' long-term debt rating from BBB+ to A-. The S&P A- credit rating is the seventh highest within the 10 investment grade ratings available from S&P for long-term debt, based on a strong capability to pay interest and repay principal, although somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. S&P's rating for Hughes' commercial paper remained unchanged at A-2. In May 1995, Moody's Investors Service, Inc. (Moody's) raised the long-term debt rating of Hughes to A3 from Baa1. Moody's defines A3 long-term debt as having "upper-medium grade" quality, whereas the Baa1 rating signifies "medium grade" quality. Moody's rating for Hughes' commercial paper remained unchanged at Prime-2. The rating indicates a strong ability for repayment relative to other issuers. Debt ratings by the various rating agencies reflect each agency's opinion of the ability of issuers to repay debt obligations punctually. Lower ratings generally result in higher borrowing costs. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning organization. Each rating should be evaluated independently of any other rating. SUPPLEMENTAL DATA The Consolidated Financial Statements reflect the application of purchase accounting adjustments as described in Note 1 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 and disposal of these intangible assets associated with GM's purchase of Hughes Aircraft Company amounted to $159.5 million in 1995 and $123.8 million in 1994 and 1993. The 1995 amount included a $36.1 million charge, included in other income, for the write-off of such purchase accounting adjustments related to the disposition of certain non-strategic 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 IV-82 31 stock. Unamortized purchase accounting adjustments associated with GM's purchase of Hughes Aircraft Company were $2,845.8 million, $3,005.3 million, and $3,129.1 million at December 31, 1995, 1994, and 1993, respectively. 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. IV-83 32 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES SUMMARY PRO FORMA FINANCIAL DATA* PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, ----------------------------------- 1995 1994 1993 --------- --------- --------- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Total Revenues.............................................. $14,807.9 $14,099.4 $13,517.5 Total Costs and Expenses.................................... 13,054.5 12,447.0 12,023.3 --------- --------- --------- Income before Income Taxes.................................. 1,753.4 1,652.4 1,494.2 Income taxes................................................ 645.6 572.8 572.6 --------- --------- --------- Income before cumulative effect of accounting change........ 1,107.8 1,079.6 921.6 Cumulative effect of accounting change...................... -- (30.4) -- --------- --------- --------- Earnings Used for Computation of Available Separate Consolidated Net Income................................... $ 1,107.8 $ 1,049.2 $ 921.6 ========= ========= ========= Earnings Attributable to General Motors Class H Common Stock on a Per Share Basis Before cumulative effect of accounting change............. $2.77 $ 2.70 $2.30 Cumulative effect of accounting change.................... -- (0.08) -- ----- ------ ----- Net earnings attributable to General Motors Class H Common $2.77 $ 2.62 $2.30 Stock.................................................. ===== ====== =====
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, ---------------------- 1995 1994 --------- --------- (DOLLARS IN MILLIONS) ASSETS Total Current Assets................................................... $ 6,810.8 $ 6,243.6 Property -- Net........................................................ 2,739.2 2,611.8 Telecommunications and Other Equipment -- Net.......................... 1,175.1 1,071.7 Intangible Assets, Investments, and Other Assets -- Net................ 2,403.5 1,918.1 --------- --------- Total Assets........................................................... $13,128.6 $11,845.2 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Total Current Liabilities.............................................. $ 4,308.8 $ 3,548.1 Long-Term Debt and Capitalized Leases.................................. 258.8 353.5 Postretirement Benefits Other Than Pensions, Other Liabilities, and Deferred Credits..................................................... 2,881.1 2,973.1 Total Stockholder's Equity**........................................... 5,679.9 4,970.5 --------- --------- Total Liabilities and Stockholder's Equity**........................... $13,128.6 $11,845.2 ========= =========
- ------------------------- * The summary is unaudited and 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). IV-84 33 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES SUMMARY PRO FORMA FINANCIAL DATA* -- CONTINUED PRO FORMA SELECTED SEGMENT DATA
YEARS ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 -------- -------- -------- (DOLLARS IN MILLIONS) AUTOMOTIVE ELECTRONICS Revenues................................................... $5,561.3 $5,221.7 $4,453.4 Revenues as a percentage of Hughes Revenues................ 37.6% 37.0% 32.9% Net Sales.................................................. $5,479.7 $5,170.6 $4,451.0 Operating Profit(1)........................................ 869.0 794.8 624.3 Operating Profit Margin(2)................................. 15.9% 15.4% 14.0% Identifiable Assets at Year-End............................ $3,934.0 $3,429.8 $2,748.7 Depreciation and Amortization.............................. 151.4 142.2 146.8 Capital Expenditures....................................... 264.7 166.4 148.2 TELECOMMUNICATIONS AND SPACE Revenues................................................... $3,092.7 $2,596.2 $2,238.3 Revenues as a percentage of Hughes Revenues................ 20.9% 18.4% 16.6% Net Sales.................................................. $3,075.8 $2,633.8 $2,135.8 Operating Profit(1)........................................ 189.2 271.0 209.6 Operating Profit Margin(2)................................. 6.2% 10.3% 9.8% Identifiable Assets at Year-End............................ $3,632.8 $3,217.8 $2,539.3 Depreciation and Amortization.............................. 178.3 140.8 114.0 Capital Expenditures(3).................................... 436.5 399.3 271.8 AEROSPACE AND DEFENSE SYSTEMS Revenues................................................... $5,945.4 $6,023.6 $6,472.2 Revenues as a percentage of Hughes Revenues................ 40.2% 42.7% 47.9% Net Sales.................................................. $5,899.7 $6,007.3 $6,442.9 Operating Profit(1)........................................ 688.0 663.6 664.2 Operating Profit Margin(2)................................. 11.7% 11.0% 10.3% Identifiable Assets at Year-End............................ $4,898.6 $4,262.4 $4,771.6 Depreciation and Amortization.............................. 132.0 158.5 201.2 Capital Expenditures....................................... 109.8 159.5 131.4 CORPORATE AND OTHER Operating Loss(1).......................................... $ (78.9) $ (99.0) $ (38.0) Identifiable Assets at Year-End............................ 663.2 935.2 928.4
- ------------------------- Certain amounts for 1994 and 1993 have been reclassified to conform with 1995 classifications. * The summary is unaudited and 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) Includes expenditures related to telecommunications and other equipment amounting to $274.6 million, $255.8 million, and $131.1 million, respectively. IV-85 34 HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES SUMMARY PRO FORMA FINANCIAL DATA* -- CONCLUDED PRO FORMA SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, -------------------------------------------------- 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) Operating profit (loss)......................... $1,667 $1,630 $1,460 $ (194) $ 800 Income (Loss) before income taxes and cumulative effect of accounting changes.................. $1,753 $1,652 $1,494 $ (127) $ 795 Earnings (Loss) used for computation of available separate consolidated net income (loss)**...................................... $1,108 $1,049 $ 922 $ (922) $ 559 Average number of GM Class H dividend base shares(1)..................................... 399.9 399.9 399.9 399.9 399.9 Stockholder's equity**.......................... $5,680 $4,971 $4,199 $3,562 $4,841 Dividends per share of GM Class H common stock......................................... $0.92 $0.80 $0.72 $0.72 $0.72 Working capital................................. $2,502 $2,696 $2,165 $1,692 $1,549 Operating profit (loss) as a percent of net sales......................................... 11.3% 11.6% 10.9% (1.6)% 7.0% Pre-tax income (loss) as a percent of net sales......................................... 11.9% 11.8% 11.1% (1.0)% 6.9% Net income (loss) as a percent of net sales**... 7.5% 7.5% 6.9% (7.6)% 4.9% Return on equity**(2)........................... 20.8% 22.9% 23.7% (21.9)% 11.9% Income (Loss) before interest and taxes as a percent of capitalization(3).................. 29.8% 32.9% 33.1% (1.3)% 15.3% Pre-tax return on total assets(4)............... 14.0% 14.5% 13.6% (1.2)% 8.5%
- ------------------------- * The summary is unaudited and excludes purchase accounting adjustments related to GM's acquisition of Hughes Aircraft Company. ** Includes favorable (unfavorable) cumulative effect of accounting changes of $(30.4) million in 1994, $(872.1) million in 1992, and $54.4 million in 1991. (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 95.5 million in 1995. (2) Earnings (Loss) used for Computation of Available Separate Consolidated Net Income (Loss) divided by average stockholder's equity (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). (3) Income (Loss) before interest and income taxes divided by average stockholder's equity plus average total debt. (4) Income (Loss) before Income Taxes divided by average Total Assets. * * * * IV-86 EX-27 8 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GENERAL MOTORS CORPORATION DECEMBER 31, 1995 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO 1995 FORM 10-K. 0000040730 GENERAL MOTORS CORPORATION 1,000,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 11,044 5,599 68,720 0 11,530 0 81,823 44,083 217,123 0 83,324 0 1 1,309 22,035 217,123 143,666 168,829 126,535 138,302 255 449 5,302 9,776 2,844 6,933 0 0 (52) 6,881 7.21 0
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