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1 EXHIBIT 99(b)
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of GM 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. Financial information elsewhere in
this Exhibit 99(b), except for supplemental data in management's discussion
and analysis, is consistent with that in the 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. 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, an independent auditing firm, is engaged to audit the
consolidated financial statements of GM Hughes Electronics Corporation and its
subsidiaries and issue reports thereon. The audit is conducted in accordance
with generally accepted auditing standards which comprehend a review of
internal accounting controls and a test of transactions. The Independent
Auditors' Report appears on the next page.
The Board of Directors, through its Audit Committee, is responsible for
(1) assuring that management fulfills its responsibilities in the preparation
of the consolidated financial statements, and (2) 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, 1993 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 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
C. Michael Armstrong Charles H. Noski
Chairman of the Board and Senior Vice President and
Chief Executive Officer Chief Financial Officer
IV-52
2
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Board of Directors of
GM Hughes Electronics Corporation:
We have audited the Consolidated Balance Sheet of GM Hughes Electronics
Corporation and subsidiaries as of December 31, 1993 and 1992 and the related
Statements of Consolidated Operations and Available Separate Consolidated Net
Income (Loss) and Consolidated Cash Flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of GM 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 GM Hughes Electronics Corporation and
subsidiaries at December 31, 1993 and 1992 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993 in conformity with generally accepted accounting principles.
As discussed in Notes 5 and 1 to the financial statements, effective
January 1, 1992 GM Hughes Electronics Corporation changed its method of
accounting for postretirement benefits other than pensions and its revenue
recognition policy for certain commercial businesses. Also as discussed in
Note 1, effective January 1, 1991 GM Hughes Electronics Corporation changed
its methods of accounting for general purpose spare parts and income taxes.
s/DELOITTE & TOUCHE
DELOITTE & TOUCHE
Los Angeles, California
February 9, 1994
IV-53
3
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
Years Ended December 31,
------------------------------
(Dollars in Millions Except Per Share Amounts) 1993 1992 1991
-------- -------- --------
Revenues
Net sales
Outside customers $9,062.8 $8,267.6 $7,906.9
General Motors and affiliates (Note 2) 4,387.4 3,901.4 3,573.6
Other income - net 67.3 128.1 60.1
-------- -------- --------
Total Revenues 13,517.5 12,297.1 11,540.6
-------- -------- --------
Costs and Expenses
Cost of sales and other operating charges,
exclusive of items listed below (Note 2) 10,557.5 9,602.9 9,210.1
Selling, general, and administrative expenses 929.1 1,036.2 969.1
Depreciation and amortization 503.5 487.1 501.1
Amortization of GM purchase accounting
adjustments related to Hughes (Note 1) 123.8 123.8 123.9
Interest expense - net 33.2 60.6 65.1
Special provision for restructuring (Note 12) - 1,237.0 -
-------- -------- --------
Total Costs and Expenses 12,147.1 12,547.6 10,869.3
-------- -------- --------
Income (Loss) before Income Taxes 1,370.4 (250.5) 671.3
United States, foreign, and other
income taxes (credit) (Note 6) 572.6 (77.2) 290.2
-------- -------- --------
Income (Loss) before cumulative effect of
accounting changes 797.8 (173.3) 381.1
Cumulative effect of accounting
changes (Notes 1 and 5) - (872.1) 54.4
-------- -------- --------
Net Income (Loss) 797.8 (1,045.4) 435.5
Adjustments to exclude the effect of GM
purchase accounting adjustments related
to Hughes (Note 7) 123.8 123.8 123.9
-------- -------- --------
Earnings (Loss) Used for Computation of Available
Separate Consolidated Net Income (Loss) $921.6 ($921.6) $559.4
======== ======== ========
Available Separate Consolidated Net Income
(Loss) (Note 7)
Average number of shares of General Motors
Class H Common Stock outstanding
(in millions) (Numerator) 88.6 75.3 73.7
Class H dividend base (in millions)
(Denominator) 399.9 399.9 399.9
Available Separate Consolidated Net
Income (Loss) $204.5 ($142.3) $104.6
===== ===== =====
Earnings (Loss) Attributable to General
Motors Class H Common Stock on a Per
Share Basis (Note 7)
Before cumulative effect of
accounting changes $2.30 ($0.11) $1.26
Cumulative effect of accounting changes
(Notes 1 and 5) - (2.18) 0.13
---- ---- ----
Net earnings (loss) attributable to
General Motors Class H Common Stock $2.30 ($2.29) $1.39
==== ==== ====
Certain amounts for 1992 and 1991 have been reclassified to conform with 1993
classifications.
Reference should be made to the Notes to Consolidated Financial Statements.
IV-54
4
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Millions December 31,
-----------------------
Except Per Share Amount) ASSETS 1993 1992
--------- ---------
Current Assets
Cash and cash equivalents (Note 1) $1,008.7 $702.7
Accounts and notes receivable
Trade receivables (less allowances) 736.7 795.3
General Motors and affiliates (Note 2) 404.1 207.6
Contracts in process, less advances and progress
payments of $2,739.2 and $4,026.4 2,376.8 2,456.4
Inventories (less allowances) (Note 1) 1,060.4 1,199.6
Prepaid expenses, including deferred income taxes
of $36.7 and $87.2 127.6 185.2
-------- --------
Total Current Assets 5,714.3 5,546.8
Property-Net (Notes 8 and 9) 2,634.4 2,866.9
Telecommunications and Other Equipment, net of
accumulated depreciation of $150.2 and $111.9 767.6 582.7
Intangible Assets, net of amortization of $1,144.6
and $1,032.5 (Note 1) 3,374.4 3,620.8
Investments and Other Assets, including deferred
income taxes of $203.7 and $331.1- principally
at cost (less allowances) 1,626.4 1,592.0
-------- --------
Total Assets $14,117.1 $14,209.2
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable
Outside $717.1 $718.0
General Motors and affiliates (Note 2) 117.5 89.6
Advances on contracts 660.6 585.7
Notes and loans payable (Note 9) 77.8 267.2
United States, foreign, and other income
taxes payable, including deferred taxes of
$7.7 in 1992 (Note 6) 102.1 79.7
Accrued liabilities (Note 10) 1,874.0 2,114.2
-------- --------
Total Current Liabilities 3,549.1 3,854.4
-------- --------
Long-Term Debt and Capitalized Leases (Note 9) 416.8 711.0
-------- --------
Postretirement Benefits Other Than Pensions (Note 5) 1,446.3 1,352.3
-------- --------
Other Liabilities, Deferred Income Taxes,
and Deferred Credits 1,376.8 1,476.5
-------- --------
Stockholder's Equity (Note 11)
Capital stock (outstanding, 1,000 shares,
$0.10 par value) and additional paid-in
capital 6,323.1 6,314.7
Net income retained for use in the business 1,138.2 628.4
-------- --------
Subtotal 7,461.3 6,943.1
Minimum pension liability adjustment (120.4) (104.3)
Accumulated foreign currency translation
adjustments (12.8) (23.8)
-------- --------
Total Stockholder's Equity 7,328.1 6,815.0
-------- --------
Total Liabilities and Stockholder's Equity $14,117.1 $14,209.2
======== ========
Certain amounts for 1992 have been reclassified to conform with 1993
classifications.
Reference should be made to the Notes to Consolidated Financial Statements.
IV-55
5
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Years Ended December 31,
------------------------------
(Dollars in Millions) 1993 1992 1991
-------- -------- --------
Cash Flows from Operating Activities
Income (Loss) before cumulative effect of
accounting changes $797.8 ($173.3) $381.1
Adjustments to reconcile income (loss) before
cumulative effect of accounting changes to
net cash provided by operating activities
Depreciation and amortization 503.5 487.1 501.1
Amortization of GM purchase accounting
adjustments related to Hughes 123.8 123.8 123.9
Special provision for restructuring - 1,237.0 -
Pension credit, including cash
contributions (25.6) (137.7) (69.6)
Net (gain) loss on sale of property 36.1 (18.0) 17.2
Net gain on sale of investments and
businesses (50.3) - -
Provision for postretirement benefits
other than pensions, net
of cash payments 91.0 78.7 -
Change in deferred income taxes and other* 207.1 (350.2) 82.7
Change in other operating assets and
liabilities
Accounts receivable (153.7) 161.9 (90.0)
Contracts in process* 70.9 46.6 65.7
Inventories* 104.6 26.8 (142.9)
Prepaid expenses 3.4 (10.0) 9.7
Accounts payable 81.5 63.2 83.0
Income taxes* 30.1 (54.5) (65.1)
Accrued and other liabilities* (143.5) (49.2) (34.7)
Other* (183.2) (232.8) (12.8)
------- ------- -----
Net Cash Provided by Operating Activities 1,493.5 1,199.4 849.3
------- ------- -----
Cash Flows from Investing Activities
Investment in companies, net of cash
acquired (149.3) (69.9) (54.0)
Expenditures for property and special tools (448.9) (456.9) (593.0)
Increase in telecommunications and
other equipment (230.3) (71.6) (87.1)
Proceeds from disposal of property 115.0 108.4 8.0
Proceeds from sale of investments and
businesses 281.6 - -
Proceeds from sale and leaseback of
satellite transponders - 314.8 204.7
Decrease (increase) in notes receivable 7.6 (45.2) (13.1)
------- ----- -----
Net Cash Used in Investing Activities (424.3) (220.4) (534.5)
------- ----- -----
Cash Flows from Financing Activities
Net decrease in notes and
loans payable (189.4) (525.8) (7.8)
Increase in long-term debt 84.0 236.0 6.5
Decrease in long-term debt (369.8) (46.8) (130.1)
Cash dividends paid to General Motors (288.0) (288.0) (288.0)
------- ----- -----
Net Cash Used in Financing Activities (763.2) (624.6) (419.4)
------- ----- -----
Net increase (decrease) in cash and
cash equivalents 306.0 354.4 (104.6)
Cash and cash equivalents at beginning
of the year 702.7 348.3 452.9
------- ----- -----
Cash and cash equivalents at end of the year $1,008.7 $702.7 $348.3
======= ===== =====
Certain amounts for 1992 and 1991 have been reclassified to conform with 1993
classifications.
*1992 and 1991 amounts exclude the effects of accounting changes.
Reference should be made to the Notes to Consolidated Financial Statements.
IV-56
6
GM 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 GM Hughes
Electronics Corporation (GMHE) and domestic and foreign subsidiaries that are
more than 50% owned, principally Hughes Aircraft Company (Hughes) 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 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 and which carried certain guarantees.
On February 28, 1989, GM and the Howard Hughes Medical Institute
(Institute) reached an agreement to terminate GM's then-existing guarantee
obligations with respect to the Institute's holding of GM Class H common
stock. Under terms of the agreement as amended, the Institute received put
options exercisable under most circumstances at $30 per share on March 1,
1991, 1992, 1993, and 1995 for 20 million, 10 million, 10.5 million, and 15
million shares, respectively. The Institute exercised these put options at
$30 per share on March 1, 1991, March 2, 1992, and March 1, 1993. GM has the
option to call the Institute's remaining 15 million shares until February 28,
1995, at a call price of $37.50 per share.
The acquisition of Hughes was accounted for as a purchase. The purchase
price exceeded the net book value of Hughes 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 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 over 40 years. The amount assigned to the future economic
benefits of the Hughes LTIP was fully amortized in 1990.
For the purpose of determining earnings per share and amounts available
for dividends on the common stocks of General Motors, the amortization of
these intangible assets is charged against earnings attributable to GM $1-2/3
par value common stock.
The earnings of GMHE and its subsidiaries since the acquisition of Hughes
form the base from which any dividends on the GM Class H common stock are
declared. These earnings include income earned from sales to GM and its
affiliates, but exclude purchase accounting adjustments (see Notes 2 and 7).
Revenue Recognition
Outside sales are attributable principally to long-term contracts primarily
recorded using the percentage-of-completion (cost-to-cost) method of
accounting. Under this method, sales are recorded equivalent to costs
incurred plus a portion of the profit expected to be realized, determined
based on the ratio of costs incurred to estimated total costs at completion.
Profits expected to be realized on contracts are based on estimates of
total sales value and costs at completion. These estimates are reviewed and
revised periodically throughout the lives of the contracts, and adjustments to
profits resulting from such revisions are recorded in the accounting period in
which the revisions are made. Estimated losses on contracts are recorded in
the period in which they are identified.
IV-57
7
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Certain contracts contain cost or performance incentives which provide for
increases in profits for surpassing stated objectives and decreases in profits
for failure to achieve such objectives. Amounts associated with incentives
are included in estimates of total sales values when there is sufficient
information to relate actual performance to the objectives.
Effective January 1, 1992, Hughes changed its revenue recognition policy
for certain commercial long-term contracts from the percentage-of-completion
(cost-to-cost) method to the units-of-delivery method. GMHE believes this
method more appropriately aligns the accounting methods of Hughes' commercial
businesses with other commercial enterprises. The unfavorable effect of this
change was $40.0 million after-tax ($0.10 per share of GM Class H common
stock).
Sales under United States Government contracts were 44.2%, 46.1%, and
49.7% of total sales in 1993, 1992, and 1991, respectively.
Cash Flows
For purposes of preparing the statement of consolidated cash flows, all highly
liquid investments purchased with original maturities of 90 days or less are
considered to be cash equivalents.
Net cash provided by operating activities reflects cash payments for
interest and income taxes as follows:
(Dollars in Millions) 1993 1992 1991
------ ------ ------
Interest $72.5 $75.2 $80.5
----- ----- -----
Income taxes $245.0 $333.0 $283.5
----- ----- -----
With respect to material noncash transactions, as described more fully in
Note 13, in 1992 GMHE purchased 21,508,563 shares of GM Class H common stock
in exchange for $425.0 million of notes payable to GM and cash of $25.0
million in connection with the acquisition of General Dynamics' missile
business.
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 $267.4 million of the
1993 amount is expected to be billed after one year. Contracts in process in
1993 also include approximately $92.9 million relating to claims, requests for
equitable adjustments, and amounts withheld pending negotiation or settlement
with customers. Under certain contracts with the United States 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 United States Government.
IV-58
8
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Inventories
Inventories are stated at the lower of cost or market principally using the
first-in, first-out (FIFO) or average cost methods.
Major Classes of Inventories
(Dollars in Millions) 1993 1992
-------- --------
Productive material, work in process, and supplies $957.1 $1,145.2
Finished product 103.3 54.4
------- -------
Total $1,060.4 $1,199.6
======= =======
Effective January 1, 1991, accounting procedures at Delco Electronics 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 $17.0 million, or $0.04 per share of GM Class H common
stock.
Property and Depreciation
Property is carried at cost. Depreciation of property is provided based on
estimated useful lives (three to 45 years) generally using accelerated
methods.
Telecommunications and Other Equipment
Telecommunications and other equipment includes all satellite transponders and
other equipment subject to operating leases or service agreements. Such
equipment is carried at GMHE's direct and indirect manufacturing cost and is
amortized over the estimated useful lives (seven to 23 years) using the
straight-line method. The net book value of equipment subject to operating
leases was $523.8 million and $531.6 million at December 31, 1993 and 1992,
respectively.
Income Taxes
Effective January 1, 1991, GMHE adopted Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. The favorable
cumulative effect at January 1, 1991 was $37.4 million, or $0.09 per share of
GM Class H common stock.
Deferred income tax (benefits) liabilities reflect the impact of temporary
differences between amounts of assets and liabilities for financial reporting
purposes and such amounts recognized for tax purposes. Provision has been
made for U.S. Federal income taxes to be paid on that portion of the
undistributed earnings of foreign subsidiaries that have not been deemed
permanently reinvested.
GMHE and its domestic subsidiaries join with General Motors in filing a
consolidated United States Federal income tax return. The portion of the
consolidated income tax liability recorded by GMHE and its subsidiaries
included in the consolidated return generally is equivalent to the liability
they would have incurred on a separate return basis.
IV-59
9
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Research and Development
Expenditures for research and development are charged to costs and expenses as
incurred and amounted to $612.1 million in 1993, $680.5 million in 1992, and
$634.9 million in 1991.
Foreign Currency Translation
Exchange and translation net gains included in consolidated operating results
amounted to $2.4 million in 1993, $11.7 million in 1992, and $0.7 million in
1991.
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. GMHE uses such
contracts to hedge risk of changes in foreign currency exchange rates
associated with certain assets and obligations denominated in foreign
currency. Gains and losses on contracts designated as economic hedges of
specific assets and obligations, denominated in a foreign currency, are
deferred and recognized in the period the transaction is completed. At
December 31, 1993 and 1992, GMHE held contracts designated as hedges with
notional amounts of approximately $111 million and $357 million, respectively.
Financial Instruments
In accordance with the requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, Note 9 provides certain fair value estimates
and information. The estimated fair value amounts have been determined using
available market information or other appropriate valuation methodologies.
Certain financial instruments included in other balance sheet accounts have
carrying values which approximate fair value.
New Accounting Standard
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, Employers' Accounting for Postemployment Benefits, which GMHE will adopt
effective January 1, 1994. The Standard requires accrual of the costs of
benefits provided to former or inactive employees after employment, but before
retirement. Management expects the adoption of this Standard in 1994 to
result in an unfavorable cumulative effect adjustment which is not expected to
have a material impact on the consolidated financial statements.
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 and common administrative expenses
allocated by GM, amounted to approximately $285.9 million, $447.0 million, and
$372.6 million in 1993, 1992, and 1991, respectively.
IV-60
10
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Incentive Plans
Certain eligible employees of GMHE participate in various incentive plans of
GM and its subsidiaries.
Other
Delco Electronics employees participate in GM's pension and other
postretirement benefit programs.
NOTE 3: INCENTIVE PLANS
Under the GMHE Incentive Plan (the Plan) as approved by the GM Board of
Directors in 1987 and 1992, shares, rights, or options to acquire up to 20
million shares of GM Class H common stock may be granted through May 31, 1995.
The GM Incentive and Compensation Committee may grant options and other
rights to acquire shares of GM Class H common stock under the provisions of
the Plan. The option price is equal to 100% of the fair market value of GM
Class H common stock on the date the options were granted. These nonqualified
options generally expire 10 years from the dates of grant and are subject to
earlier termination under certain conditions.
Changes in the status of outstanding options were as follows:
GM Class H common stock Option Prices Shares Under Option
-----------------------------------------------------------------------
Outstanding at January 1, 1991 $19.75-$30.25 3,592,099
Granted 17.07-18.94 1,520,120
Terminated 17.07-30.25 (51,010)
-----------------------------------------------------------------------
Outstanding at December 31, 1991 17.07-30.25 5,061,209
Granted 23.63-25.38 1,927,860
Exercised 17.07-24.35 (136,764)
Terminated 17.07-30.25 (335,550)
-----------------------------------------------------------------------
Outstanding at December 31, 1992 17.07-30.25 6,516,755
Granted 28.00-28.56 2,027,260
Exercised 17.07-30.25 (1,960,162)
Terminated 17.07-30.25 (217,845)
-----------------------------------------------------------------------
Outstanding at December 31, 1993 $17.07-$30.25 6,366,008
-----------------------------------------------------------------------
Options for 3,505,578 shares of GM Class H common stock were exercisable
at December 31, 1993, and the maximum number of shares for which additional
options and other rights may be granted under the Plan was 7,443,559 shares.
Hughes also maintains an annual incentive plan for certain key employees,
under which awards are based on operating results and individual performance.
Approximately $43.6 million, $47.7 million, and $44.2 million in compensation
cost was recognized under this plan in 1993, 1992, and 1991, respectively.
Certain key officers and employees of GMHE participate in various
incentive plans of GM.
IV-61
11
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTE 4: PENSION PROGRAM
GMHE does not administer or maintain any pension plans; however, as discussed
below, Delco Electronics employees are covered by General Motors-administered
pension plans and Hughes employees are covered by Hughes-administered pension
plans. GMHE's total pension credit for employees covered by these plans
amounted to $8.1 million in 1993, $54.0 million in 1992, and $39.4 million in
1991.
Substantially all of the employees of Delco Electronics participate in the
defined benefit pension plans of General Motors. Plans covering represented
employees generally provide benefits of negotiated stated amounts for each
year of service as well as significant supplemental benefits for employees who
retire with 30 years of service before normal retirement age. The benefits
provided by the plans covering salaried employees are generally based on years
of service and the employee's salary history. Certain nonqualified pension
plans covering executives are based on targeted wage replacement percentages
and are unfunded. The accumulated plan benefit obligation and plan net assets
for the employees of Delco Electronics are not determinable separately;
however, GM charged Delco Electronics $69.8 million, $30.6 million, and $26.6
million for benefits provided to these employees in 1993, 1992, and 1991,
respectively.
Hughes maintains contributory and non-contributory defined benefit
retirement plans covering substantially all of its employees. Benefits are
based on years of service and compensation earned during a specified period of
time before retirement. Hughes also has an unfunded, nonqualified pension
plan covering certain executives. The net pension credit of Hughes included
the components shown below.
(Dollars in Millions) 1993 1992 1991
------ ------ ------
Benefits earned during the year $121.1 $99.9 $100.2
Interest accrued on benefits earned
in prior years 369.1 357.9 338.6
Actual return on assets (953.7) (647.5) (731.8)
Net amortization and deferral 385.6 105.1 227.0)
----- ----- -----
Net retirement plan credit ($77.9) ($84.6) ($66.0)
===== ===== =====
Costs are actuarially determined using the projected unit credit method
and are funded in accordance with United States Government cost accounting
standards to the extent such costs are tax-deductible. SFAS No. 87,
Employers' Accounting for Pensions, requires the recognition of an additional
liability to increase the amounts recorded up to the unfunded accumulated
benefit obligation. The adjustment required to recognize the minimum
liability required by SFAS No. 87 is recorded as an intangible asset to the
extent of unrecognized prior service cost and the remainder, net of applicable
deferred income taxes, is recorded as a reduction of Stockholder's Equity. At
December 31, 1993 and 1992, the additional minimum liability recorded was
$208.1 million and $182.2 million, respectively, of which $120.4 million and
$104.3 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, United States 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 7.5% and 8.9% at December 31, 1993 and 1992, respectively. The
rate of increase in future compensation levels was 5.0% in 1993 and 1992. The
expected long-term rate of return on assets used in determining pension cost
was 10.5% for 1993 and 11.0% for 1992.
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12
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
The following table sets forth the funded status of the Hughes plans and
the amounts included in the Consolidated Balance Sheet at December 31, 1993
and 1992.
1993 1992
------------------ ------------------
Assets Accum. Assets Accum.
Exceed Benefits Exceed Benefits
Accum. Exceed Accum. Exceed
(Dollars in Millions) Benefits Assets Benefits Assets
-------- -------- -------- --------
Actuarial present value of benefits
based on service to date and
present pay levels
Vested $3,936.3 $246.4 $3,492.3 $219.7
Nonvested 313.6 3.9 240.3 1.8
------- ----- ------- -----
Accumulated benefit obligation 4,249.9 250.3 3,732.6 221.5
Additional amounts related to
projected pay increases 431.5 8.5 365.4 6.2
------- ----- ------- -----
Total projected benefit obligation
based on service to date 4,681.4 258.8 4,098.0 227.7
Plan assets at fair value 6,001.4 - 5,365.7 -
------- ----- ------- -----
Plan assets in excess of (less than)
projected benefit obligation 1,320.0 (258.8) 1,267.7 (227.7)
Unamortized net amount resulting
from changes in plan experience
and actuarial assumptions (135.8) 209.2 (128.0) 180.0
Unamortized net asset at date of
adoption (280.0) - (347.5) -
Unamortized net amount resulting from
changes in plan provisions 4.5 7.4 5.2 8.3
Adjustment for unfunded pension
liabilities - (208.1) - (182.2)
------- ----- ------- -----
Net prepaid pension cost (accrued
liability) $908.7 ($250.3) $797.4 ($221.6)
======= ===== ======= =====
NOTE 5: OTHER POSTRETIREMENT BENEFITS
Effective January 1, 1992, GMHE adopted SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. This Statement requires that
the cost of such benefits be recognized in the financial statements during the
period employees provide service to GMHE. GMHE's previous practice was to
recognize the cost of such postretirement benefits when incurred (pay-as-you-
go). The cumulative effect of this accounting change as of January 1, 1992
was $1,366.6 million, or $832.1 million after-tax ($2.08 per share of GM Class
H common stock). The incremental ongoing effect increased costs and expenses
by $91.0 million and $78.7 million in 1993 and 1992, respectively.
GMHE has disclosed in the financial statements certain amounts associated
with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit
obligations," "liabilities," or "obligations." Notwithstanding the recording
of such amounts and the use of these terms, GMHE does not admit or otherwise
acknowledge that such amounts or existing postretirement benefit plans of GMHE
(other than pensions) represent legally enforceable liabilities of GMHE.
IV-63
13
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
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 retirees to
participate in health care and life insurance benefits, generally until they
reach age 65. Qualified employees who elect 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 GMHE and its
subsidiaries, excluding the cumulative effect of adopting SFAS No. 106 in
1992, included the components set forth as follows:
(Dollars in Millions) 1993 1992
------- -------
Benefits earned during the year $49.2 $42.9
Interest accrued on benefits earned in
prior years 127.2 116.8
------ ------
Total non-pension postretirement
benefit cost $176.4 $159.7
====== ======
Retiree benefit payments were $68.2 million in 1991.
The following table displays the components of GMHE's obligation
recognized for postretirement benefit plans included in the Consolidated
Balance Sheet at December 31, 1993 and 1992:
December 31,
---------------------
(Dollars in Millions) 1993 1992
- --------- ---------
Accumulated postretirement benefit
obligation attributable to
Current retirees $906.8 $655.7
Fully eligible active plan
participants 193.1 219.2
Other active plan participants 844.9 735.0
-------- --------
Accumulated postretirement benefit
obligation 1,944.8 1,609.9
Unrecognized net amount resulting
from changes in plan experience and
actuarial assumptions (392.7) (149.5)
-------- --------
Net postretirement benefit obligation 1,552.1 1,460.4
Less current portion 105.8 108.1
-------- --------
Net long-term postretirement benefit obligation $1,446.3 $1,352.3
======== ========
The assumed weighted average discount rates used in determining the
actuarial present value of the accumulated postretirement benefit obligation
were 6.99% and 8.32% at December 31, 1993 and 1992, respectively. The assumed
weighted average rate of increase in future compensation levels related to pay-
related life insurance benefits was 5.3% at December 31, 1993 and 1992.
The assumed weighted average health care cost trend rate was 7.95% in
1993, increasing to 9.98% in 1994 and decreasing linearly each successive year
until it reaches 5.5% in 2006, and it remains constant thereafter. A one
percentage point increase in each year of this annual trend rate would
increase the accumulated postretirement benefit obligation at December 31,
1993 by approximately $201 million, and increase the service and interest cost
components of the 1993 postretirement benefit expense by approximately $23
million.
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GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTE 6: UNITED STATES, FOREIGN, AND OTHER INCOME TAXES - DEFERRED AND PAYABLE
(Dollars in Millions) 1993 1992 1991
------ ------ ------
Taxes currently payable (refundable)
United States Federal $222.0 $319.7 $181.0
Foreign 10.7 4.2 (8.5)
State and local 94.3 39.8 25.5
----- ----- -----
Total 327.0 363.7 198.0
----- ----- -----
Deferred tax (benefits) liabilities - net
United States Federal 229.7 (368.0) 74.9
Foreign - 0.1 (0.2)
State and local 15.9 (73.0) 17.5
----- ----- -----
Total 245.6 (440.9) 92.2
----- ----- -----
Total taxes (credit) $572.6 ($77.2)* $290.2*
===== ===== =====
*Excluding effect of accounting changes.
As discussed in Note 1, GMHE adopted SFAS No. 109 as of January 1, 1991, and
the cumulative effect of this change is reported in the 1991 Statement of
Consolidated Operations and Available Separate Consolidated Net Income.
Deferred income tax (benefits) liabilities for 1993, 1992, and 1991 reflect
the impact of "temporary differences" between amounts of assets and
liabilities for financial reporting purposes and the basis of such assets and
liabilities as measured by tax laws.
Income (Loss) before income taxes includes the following components:
(Dollars in Millions) 1993 1992 1991
-------- ------ ------
U.S. income (loss) $1,286.7 ($225.1) $667.9
Foreign income (loss) 83.7 (25.4) 3.4
-------- ------ ------
Total $1,370.4 ($250.5) $671.3
======== ====== ======
The consolidated income tax (credit) was different than the amount
computed using the United States statutory income tax rate for the reasons set
forth in the following table:
(Dollars in Millions) 1993 1992 1991
------ ------ ------
Expected tax (credit) at U.S.
statutory income tax rate $479.5 ($85.2) $228.3
Foreign tax rate differential (6.9) (13.1) 11.5
State and local income taxes 70.1 (19.8) 27.6
Purchase accounting adjustments 43.3 42.1 42.1
Deferred tax impact of Federal income
tax rate change (10.0) - -
Other (3.4) (1.2) (19.3)
------ ----- ------
Consolidated income tax (credit) $572.6 ($77.2)* $290.2*
====== ===== ======
*Excluding effect of accounting changes.
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15
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at December 31, 1993 and 1992 are as follows:
1993 1992
--------------------- ---------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
(Dollars in Millions) Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
Postretirement benefits other
than pensions $663.7 $- $565.0 $-
Profits on long-term contracts 229.3 437.0 146.2 460.5
Leveraged leases 99.9 - 112.8 18.4
Employee benefit programs 104.0 353.0 82.6 309.8
Depreciation - 403.0 7.3 445.1
Special provision for restructuring 255.0 - 459.4 -
Other 445.5 287.6 436.0 138.0
------- ------- ------- -------
Subtotal 1,797.4 1,480.6 1,809.3 1,371.8
Valuation allowance (76.4) - (26.9) -
------- ------- ----- -------
Total deferred taxes $1,721.0 $1,480.6 $1,782.4 $1,371.8
======= ======= ======= =======
Provision has been made for U.S. Federal income taxes to be paid on that
portion of the undistributed earnings of foreign subsidiaries that have not
been deemed permanently reinvested. At December 31, 1993 and 1992,
undistributed earnings of foreign subsidiaries amounted to approximately
$446.3 million and $362.8 million, respectively. Repatriation of all
accumulated foreign earnings would have resulted in tax liabilities of $113.8
million and $110.2 million, respectively, for which GMHE has provided deferred
tax liabilities of $75.0 million and $48.0 million, respectively.
At December 31, 1993, GMHE has $150 million of capital loss carryforwards
that expire in 1998. In addition, GMHE has $31.2 million of foreign loss
carryforwards which expire in varying amounts between 1995 and 1998. A
valuation allowance has been made for all of the capital loss and foreign loss
carryforwards.
NOTE 7: EARNINGS (LOSS) ATTRIBUTABLE TO GENERAL MOTORS CLASS H
COMMON STOCK ON A PER SHARE BASIS AND AVAILABLE SEPARATE
CONSOLIDATED NET INCOME (LOSS)
Earnings (Loss) attributable to General Motors Class H common stock on a per
share basis have been determined based on the relative amounts available for
the payment of dividends to holders of the GM Class H common stock. Holders
of GM Class H common stock have no direct rights in the equity or assets of
GMHE, but rather have rights in the equity and assets of GM (which includes
100% of the stock of GMHE).
Dividends on the GM Class H common stock are declared by GM's Board of
Directors out of the Available Separate Consolidated Net Income (Loss) of GMHE
since the acquisition of Hughes by GM. The Available Separate Consolidated
Net Income (Loss) of GMHE is determined quarterly and is equal to the separate
consolidated net income (loss) of GMHE, excluding the effects of GM purchase
accounting adjustments arising from the acquisition of Hughes (Earnings (Loss)
Used for Computation of Available Separate Consolidated Net Income (Loss)),
multiplied by a fraction, the numerator of which is the weighted average
IV-66
16
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
number of shares of GM Class H common stock outstanding during the period and
the denominator of which was 399.9 million shares during the fourth quarter of
1993. Comparable denominators for 1992 and 1991 were 399.9 million shares in
both years.
The denominator used in determining the Available Separate Consolidated
Net Income (Loss) of GMHE 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 GMHE. In this
regard, the GM Board has generally caused the denominator to decrease as
shares are purchased by GMHE and to increase as such shares are used, at GMHE
expense, for GMHE 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 GMHE for the prior year. The GM Board determined that 1992
Available Separate Consolidated Net Income (Loss) of GMHE used as a basis for
1993 dividends was calculated without giving effect to the special
restructuring charge at Hughes (Note 12). Notwithstanding the current
dividend policy, the GM Board declared a dividend on the GM Class H Common
Stock of $0.18 per share for each of the quarters of 1993, 1992, and 1991,
which was more than 35% of the Available Separate Consolidated Net Income
(Loss) of GMHE for 1992, 1991, and 1990. In February 1994, the GM Board of
Directors increased the quarterly dividends on GM Class H common stock from
$0.18 per share to $0.20 per share.
Consistent with Delaware law, which governs the amount legally available
for the payment of dividends on GM's common stock, the GM Board of Directors
has determined that such amount is materially higher than GM's capital surplus
less accumulated deficit as reported in its financial statements.
NOTE 8: PROPERTY - NET
(Dollars in Millions) 1993 1992
------- -------
Land and improvements $208.4 $209.7
Buildings and unamortized leasehold
improvements 1,277.9 1,214.5
Machinery and equipment 2,902.5 3,182.8
Furniture, fixtures, and office machines 102.3 131.8
Construction in progress 310.6 294.1
------- -------
Total 4,801.7 5,032.9
Less accumulated depreciation 2,200.7 2,214.3
------- -------
Net real estate, plants, and equipment 2,601.0 2,818.6
Special tools - less amortization 33.4 48.3
------- -------
Property - net $2,634.4 $2,866.9
======= =======
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17
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTE 9: NOTES AND LOANS PAYABLE AND LONG-TERM DEBT AND CAPITALIZED LEASES
(Dollars in Millions) 1993 1992
----- ------
Commercial paper $- $43.7
Loans payable to banks 8.6 15.0
Current portion of long-term debt 5.7 117.4
Other 63.5 91.1
----- -----
Total notes and loans payable $77.8 $267.2
===== =====
Foreign bank debt $72.2 $206.5
Term loans
GM 143.8 398.8
Other 200.0 200.0
Other debt 4.8 13.0
----- -----
Total 420.8 818.3
Less current portion 5.7 117.4
----- -----
Long-term debt 415.1 700.9
Capitalized leases 1.7 10.1
----- -----
Total long-term debt and capitalized leases $416.8 $711.0
===== =====
At December 31, 1993, GMHE had unused credit available of $425.0 million
and $650.0 million under short-term lines of credit and an unsecured revolving
credit loan agreement, respectively.
The unsecured revolving credit loan agreement, renewed on January 5, 1994,
provides for a commitment of $250.0 million through January 1995, subject to a
facility fee of 0.09% per annum, and a commitment of $400.0 million through
January 1998, subject to a facility fee of 0.125% per annum, bearing interest
at a rate which approximates the London Interbank Offered Rate plus 0.25%
(3.4% at December 31, 1993). No amounts were outstanding under the line at
December 31, 1993.
At December 31, 1993, foreign bank debt includes $72.2 million denominated
in British pound sterling, bearing interest at rates ranging from 3.6% to
10.3%, with maturity dates from 1994 to 2005.
The GM term loans bear interest at rates ranging from 5.2% to 6.1% with
maturity dates in 1996 and 1997. The other term loans consist of notes
payable to an insurance company bearing interest at rates ranging from 7.1% to
8.0%, with maturity dates from 1995 to 1997.
Annual maturities of long-term debt and capitalized leases are $13.8
million in 1994, $57.2 million in 1995, $92.9 million in 1996, $214.9 million
in 1997, $5.4 million in 1998, and $46.4 million thereafter.
Property with a net book value of $42.7 million at December 31, 1993 is
pledged as collateral under such debt.
The fair value of notes and loans payable and long-term debt approximates
book value. GMHE primarily utilizes interest rate swap agreements to manage
its interest rate exposure. Interest rate swap agreements are contractual
agreements between GMHE 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. At December 31, 1993 and 1992,
the total notional amount of such agreements with off-balance-sheet risk was
approximately $200 million and $715 million, respectively, and the fair value
of such agreements at December 31, 1993 was a net positive amount of
approximately $12.6 million.
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GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTE 10: ACCRUED LIABILITIES
(Dollars in Millions) 1993 1992
-------- --------
Payrolls and other compensation $504.4 $436.0
Provision for losses on contracts 204.2 231.3
Accrual for restructuring 222.8 521.1
Other 942.6 925.8
------- -------
Total $1,874.0 $2,114.2
======= =======
NOTE 11: STOCKHOLDER'S EQUITY
The authorized capital stock of GMHE consists of 1,000 shares of $0.10 par
value common stock. At December 31, 1993 and 1992, 1,000 shares having an
aggregate par value of $100 were issued and outstanding. All of the
outstanding capital stock of GMHE is held by General Motors.
(Dollars in Millions) 1993 1992 1991
-------- -------- --------
Capital stock and additional paid-in capital
Balance at beginning of the year $6,314.7 $6,365.9 $6,365.9
Tax benefit on GM Class H common stock options 8.4 - -
GM Class H common stock price guarantee
in connection with the acquisition of
General Dynamics' missile business - (51.2) -
------- ------- -------
Balance at end of the year $6,323.1 $6,314.7 $6,365.9
======= ======= =======
Net income retained for use in the business
Balance at beginning of the year $628.4 $1,961.8 $1,814.3
Net income (loss) 797.8 (1,045.4) 435.5
Cash dividends paid to General Motors (288.0) (288.0) (288.0)
------- ------- -------
Balance at end of the year $1,138.2 $628.4 $1,961.8
======= ======= =======
Minimum pension liability adjustment
Balance at beginning of the year ($104.3) ($101.8) ($83.9)
Change during the year (16.1) (2.5) (17.9)
------- ------- -------
Balance at end of the year ($120.4) ($104.3) ($101.8)
======= ======= =======
Accumulated foreign currency translation adjustments
Balance at beginning of the year ($23.8) ($7.7) $2.0
Change during the year 11.0 (16.1) (9.7)
------- ------- -------
Balance at end of the year ($12.8) ($23.8) ($7.7)
======= ======= =======
As the sole stockholder of GMHE, GM is able to cause GMHE 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 GMHE 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 GMHE
to GM.
IV-69
19
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTE 12: SPECIAL PROVISION FOR RESTRUCTURING
The 1992 operating results include a special restructuring charge of $1,237.0
million ($749.4 million after-tax, or $1.87 per share of GM Class H common
stock) primarily attributable to redundant facilities and related employment
costs at Hughes. 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 $472.6 million and $250.9 million were charged against
the reserve during 1993 and 1992, respectively. The remaining liability of
$513.5 million relates primarily to severance payments to be made in 1994 and
reserves for excess leased facilities.
NOTE 13: ACQUISITIONS
In August 1992, GMHE acquired the missile business of General Dynamics
Corporation (GD) in exchange for 21,508,563 shares of GM Class H common stock
and cash with an aggregate value of $450 million. GMHE had purchased the GM
Class H shares from GM in August 1992 principally in exchange for a series of
notes. The acquisition was accounted for as a purchase, and accordingly, the
operating results have been consolidated since the acquisition date. The pro
forma effect on 1992 and 1991 operating results was not material.
GMHE has acquired several other enterprises with operations that
complement existing technological capabilities at aggregate purchase prices,
paid in cash, of $10.4 million, $9.7 million, and $26.7 million in 1993, 1992,
and 1991, respectively. These acquisitions were accounted for using the
purchase method of accounting. The operating results of the entities
acquired, which were not material, were consolidated with those of GMHE from
their respective acquisition dates.
The purchase prices of these acquisitions were allocated to the net assets
acquired, including intangible assets, based upon their estimated fair values
at the dates of acquisition.
Intangible assets, principally the excess of cost over the fair value of
identifiable net assets of purchased businesses, are being amortized using the
straight-line method over periods not exceeding 40 years.
NOTE 14: SEGMENT REPORTING
GMHE operates principally within the field of modern high-technology
electronics for use in Automotive Electronics, Telecommunications and Space,
Defense Electronics, and Commercial Technologies business segments. Radios,
controls for engines and transmissions, monitors and sensors for airbags,
controllers for anti-lock brakes, climate control, dashboard instrumentation,
and other automotive electronic products are included in the Automotive
Electronics segment. The Telecommunications and Space segment includes
satellite construction, ownership and operation, communication services and
ground equipment. The Defense Electronics segment includes missile systems,
command and control systems, electro-optical systems, airborne radar systems,
military training and simulation systems, and guidance and control systems.
The Commercial Technologies segment includes commercial electronics products
and services such as commercial training, air traffic control, aircraft
passenger communications and entertainment, inertial navigation, information
systems, space sensors for environmental and scientific applications, and
entertainment and leisure products. Intercompany transfers between segments
are not material. Information concerning operations by segment is shown on
the next page:
IV-70
20
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
(Dollars Automotive Telecom. Defense Commercial
in Millions) Electronics & Space Electronics Tech. Corporate Total
----------- -------- ----------- ---------- --------- ---------
Revenues
1993 $4,491.6 $2,178.0 $6,112.1 $735.8 $- $13,517.5
1992 3,985.8 1,927.9 5,547.0 836.4 - 12,297.1
1991 3,666.5 1,643.3 5,467.9 762.9 - 11,540.6
Operating Profit
(Loss) (1)(2)
1993 $626.1 $195.9 $538.0 ($0.4) ($23.3) $1,336.3
1992 462.4 33.4 (596.6) (195.1) (22.1)
(318.0)
1991 273.9 210.9 282.9 (65.6) (25.8) 676.3
Identifiable Assets
at Year End (3)
1993 $2,840.5 $2,797.1 $7,385.4 $957.7 $136.4 $14,117.1
1992 2,471.8 2,843.6 7,281.7 1,505.0 107.1 14,209.2
1991 2,116.1 2,552.1 6,645.3 1,531.6 85.7 12,930.8
Depreciation and
Amortization (1)
1993 $153.2 $118.8 $298.1 $57.2 $- $627.3
1992 124.1 128.8 307.3 50.7 - 610.9
1991 115.2 127.7 332.3 49.8 - 625.0
Capital Expenditures (4)
1993 $149.2 $264.9 $132.9 $33.0 $- $580.0
1992 266.1 174.4 99.4 18.6 - 558.5
1991 281.6 212.9 146.5 40.3 - 681.3
Certain amounts for 1992 and 1991 have been reclassified to conform with 1993
classifications.
(1)1993 and 1992 include $123.8 million ($10.8 million, $102.7 million, and
$10.3 million related to Telecommunications and Space, Defense
Electronics, and Commercial Technologies, respectively) and 1991 includes
$123.9 million ($10.8 million, $102.8 million, and $10.3 million related
to Telecommunications and Space, Defense Electronics, and Commercial
Technologies, respectively) of purchase price accounting adjustments
associated with GM's purchase of Hughes.
(2)1992 includes $1,237.0 million ($195.3 million, $911.8 million, and $129.9
million related to Telecommunications and Space, Defense Electronics, and
Commercial Technologies, respectively) for the special provision for
restructuring.
(3)Identifiable assets include the unamortized goodwill associated with the
purchase of Hughes as detailed below:
Telecom Defense Commercial
& Space Electronics Tech. Total
------- ----------- ---------- --------
1993 $271.7 $2,597.3 $260.1 $3,129.1
1992 282.5 2,700.0 270.4 3,252.9
1991 293.3 2,802.7 280.7 3,376.7
(4)Telecommunications and Space includes expenditures related to
telecommunications and other equipment amounting to $131.1 million, $101.6
million, and $88.3 million in 1993, 1992, and 1991, respectively.
IV-71
21
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
A reconciliation of operating profit (loss) shown on the previous page to
Income (Loss) before Income Taxes shown in the Statement of Consolidated
Operations and Available Separate Consolidated Net Income (Loss) follows:
(Dollars in Millions) 1993 1992 1991
-------- ------ ------
Operating Profit (Loss) $1,336.3 ($318.0) $676.3
Other Income - net 67.3 128.1 60.1
Interest Expense (33.2) (60.6) (65.1)
-------- ------ ------
Income (Loss) before Income Taxes $1,370.4 ($250.5) $671.3
======== ====== ======
Export sales from the U.S. were as follows:
(Dollars in Millions) 1993 1992 1991
-------- -------- --------
Africa $29.4 $39.5 $114.1
Asia 555.8 424.5 403.2
Canada 1,156.7 642.9 599.0
Europe 593.3 524.6 637.8
Mexico 178.7 199.0 101.4
Other Latin America 72.1 108.7 76.2
Middle East 357.3 274.3 124.2
------- ------- -------
Total $2,943.3 $2,213.5 $2,055.9
======= ======= =======
NOTE 15: COMMITMENTS AND CONTINGENT LIABILITIES
Minimum future commitments under operating leases having noncancellable lease
terms in excess of one year, primarily for real property and satellite
transponders, aggregating $2,358.3 million, are payable as follows: $263.0
million in 1994, $213.4 million in 1995, $186.6 million in 1996, $162.4
million in 1997, $152.6 million in 1998, and $1,380.3 million thereafter.
Certain of these leases contain escalation clauses and renewal or purchase
options. Rental expenses under operating leases were $296.3 million in 1993,
$277.9 million in 1992, and $227.5 million in 1991.
GMHE 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 GMHE and
its subsidiaries under these government regulations, and under these claims
and actions, was not determinable at December 31, 1993. In the opinion of
management of GMHE, such liability is not expected to have a material adverse
effect on GMHE's consolidated operations or financial position.
* * *
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22
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited)
1993 Quarters
--------------------------------------
1st 2nd 3rd 4th
--------------------------------------
(Dollars in Millions
Except Per Share Amounts)
Revenues $3,181.2 $3,315.4 $3,319.9 $3,701.0
======= ======= ======= =======
Income before income taxes $279.4 $348.4 $334.7 $407.9
United States, foreign, and other
income taxes 121.1 147.3 141.6 162.6
------- ------- ------- -------
Net income $158.3 $201.1 $193.1 $245.3
Earnings used for computation of
available separate consolidated
net income $189.3 $232.0 $224.0 $276.3
Average number of shares of General
Motors Class H common stock
outstanding (in millions) 93.9 86.0 87.4 88.7
Class H dividend base (in millions) 399.9 399.9 399.9 399.9
Available separate consolidated
net income $44.4 $50.0 $48.9 $61.2
Net earnings attributable to General
Motors Class H common stock $0.47 $0.58 $0.56 $0.69
==== ==== ==== ====
Stock price range of
General Motors Class H common
High $27.50 $33.00 $38.00 $42.38
Low $22.88 $23.38 $30.50 $34.50
- ---------------------------------------------------------------------------
IV-73
23
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
1992 Quarters
--------------------------------------
1st 2nd 3rd 4th
--------------------------------------
(Dollars in Millions
Except Per Share Amounts)
Revenues $2,977.7 $2,974.8 $2,880.3 $3,464.3
======= ======= ======= =======
Income (Loss) before income taxes $244.5 ($1,036.2) $189.7 $351.5
United States, foreign, and other
income taxes (credit) 106.1 (408.4) 77.4 147.7
------- ------- ------- -------
Income (Loss) before cumulative effect
of accounting changes 138.4 (627.8)(1) 112.3 203.8
Cumulative effect of accounting
changes (872.1)(2) - - -
------- ------- ------- -------
Net income (loss) ($733.7) ($627.8) $112.3 $203.8
Earnings (Loss) used for computation
of available separate consolidated
net income (loss) ($702.7) ($596.9) $143.2 $234.8
Average number of shares of General
Motors Class H common stock
outstanding (in millions) 70.2 64.0 74.2 92.8
Class H dividend base (in millions) 399.9 399.9 399.9 399.9
Available separate consolidated
net income (loss) ($127.9) ($95.5) $26.6 $54.5
Earnings (Loss) attributable to General
Motors Class H common stock
on a per share basis
Before cumulative effect of
accounting changes $0.41 ($1.49)(1) $0.38 $0.59
Cumulative effect of accounting
changes (2.18)(2) - - -
---- ---- ---- ----
Net earnings (loss) attributable
to General Motors Class H
common stock ($1.77) ($1.49) $0.38 $0.59
==== ==== ==== ====
Stock price range of
General Motors Class H common
High $21.00 $25.88 $26.13 $26.00
Low $14.25 $19.63 $21.00 $17.88
- ---------------------------------------------------------------------------
(1)Includes special provision for restructuring of $749.4 million after-tax.
(2)Effective January 1, 1992, GMHE adopted SFAS No. 106. The unfavorable
cumulative effect of adopting SFAS No. 106 was $832.1 million, or $150.4
million attributable to GM Class H common stock. Also effective January
1, 1992, Hughes changed its revenue recognition policy for certain
commercial long-term contracts from the percentage-of-completion (cost-to-
cost) method to the units-of-delivery method which is more appropriate for
a commercial business. The unfavorable effect of this change was $40.0
million (after-tax), or $7.2 million attributable to GM Class H common
stock.
IV-74
24
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Selected Financial Data
(Dollars in Millions Except Per Share Amounts)
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
Revenues $13,517.5 $12,297.1 $11,540.6 $11,723.1 $11,359.0
Earnings (Loss) used for
computation of available
separate consolidated
net income (loss) $921.6 ($921.6) $559.4 $726.0 $781.2
Average number of shares
of General Motors
Class H common stock
outstanding (in millions) 88.6 75.3 73.7 88.1 95.7
Class H dividend base
(in millions) 399.9 399.9 399.9 399.7 400.0
Available separate
consolidated net
income (loss) $204.5 ($142.3) $104.6 $160.0 $188.1
GM Class H cash dividends $64.1 $53.3 $54.3 $63.4 $71.1
Dividend payout ratio (1) N/A 51.0% 33.9% 33.7% 27.7%
Earnings (Loss) attributable
to General Motors Class H
common stock on a per
share basis before
cumulative effect of
accounting changes $2.30 ($0.11) $1.26 $1.82 $1.94
Earnings (Loss) attributable
to General Motors Class H
common stock on a per
share basis after
cumulative effect of
accounting changes $2.30 ($2.29) $1.39 $1.82 $1.94
Expenditures for property
and special tools(2) $580.0 $558.5 $681.3 $884.3 $648.5
Cash and marketable
securities $1,008.7 $702.7 $348.3 $459.3 $656.0
Working capital $2,165.2 $1,692.4 $1,548.8 $1,373.9 $1,316.3
Total assets $14,117.1 $14,209.2 $12,930.8 $12,727.5 $12,200.1
Long-term debt and
capitalized leases $416.8 $711.0 $147.1 $271.9 $250.5
Return on equity*(3) 11.3% (13.9%) 5.3% 7.2% 8.2%
Income (Loss) before interest
and taxes as a percent of
capitalization (4) 18.0% (2.3%) 8.1% 12.4% 12.5%
Pre-tax return on total
assets (5) 9.7% (1.8%) 5.2% 8.3% 8.2%
- ------------------------------------------------------------------------------
Prior year data were reclassified to conform with 1993 classifications.
*Includes favorable (unfavorable) cumulative effect of accounting changes of
($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 $131.1 million, $101.6 million, $88.3 million, $182.6
million, and $161.2 million in 1993, 1992, 1991, 1990, and 1989,
respectively.
(3)Net income (loss) divided by average stockholder's equity (General Motors'
equity in its wholly-owned subsidiary, GMHE). Holders of GM Class H
common stock have no direct rights in the equity or assets of GMHE, but
rather have rights in the equity and assets of GM (which includes 100% of
the stock of GMHE).
(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-75
25
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS*
RESULTS OF OPERATIONS
REVENUES. GMHE reported revenues of $13,517.5 million in 1993, an increase of
9.9% over 1992, and $12,297.1 million in 1992, an increase of 6.6% compared
with 1991 revenues of $11,540.6 million. The increase in revenues over the
last three years is largely the result of continued growth in the Automotive
Electronics segment, the ongoing success in the telecommunications and space
businesses and revenues generated by the missile business acquired in August
1992 in the Defense Electronics segment. (Pro forma segment information is
presented on page IV-86).
Automotive Electronics. Revenues in the Automotive Electronics segment
continued to increase in 1993 to $4,491.6 million from $3,985.8 million in
1992, a 12.7% increase, and from $3,666.5 million in 1991, an 8.7% increase in
1992. The growth is primarily attributable to three factors: (1) an increase
in GMHE-supplied electronic content per GM North American-produced vehicle to
$782 in 1993 from $760 and $717 in 1992 and 1991, respectively; (2) an
increase in GM North American vehicle production of 9% between 1993 and 1992
and 2% between 1992 and 1991; and (3) an increase in sales to international
and non-GM customers to $603 million in 1993 from $484 million and $420
million in 1992 and 1991, respectively.
Telecommunications and Space. Revenues in the Telecommunications and Space
segment were $2,178.0 million in 1993, a 13.0% increase over 1992 revenues of
$1,927.9 million. The increase reflects additional sales of satellites to
commercial customers and increased sales of fixed wireless and digital
cellular communications equipment and services internationally. Revenues for
1992 were 17.3% higher than 1991 revenues of $1,643.3 million. The 1992
increase in revenues reflected higher satellite manufacturing and private
business network sales as well as increased transponder sales from GMHE's
Galaxy fleet, partially offset by a reduction of revenues from a previously
leased Leasat satellite that was purchased by the U.S. Navy in 1991.
Defense Electronics. Defense Electronics segment revenues were $6,112.1
million in 1993, a 10.2% increase over 1992 revenues of $5,547.0 million. The
increase is due largely to revenues from a full year of operations of the
missile business acquired in 1992, as well as increased effort on the Peace
Shield air defense system for Saudi Arabia. Revenues increased $79.1 million,
or 1.4%, between 1992 and 1991; 1992 revenues included $435 million of
revenues from the acquired missile business, offset by decreases from programs
nearing completion.
Commercial Technologies. Revenues in the Commercial Technologies segment were
$735.8 million in 1993, a 12.0% decrease from 1992 revenues of $836.4 million.
The decrease is primarily a result of the divestiture of several non-strategic
business units. Revenues increased $73.5 million, or 9.6%, in 1992 compared
with 1991, primarily due to other income of $63 million.
Other Income. Included in revenues is other income of $67.3 million, $128.1
million, and $60.1 million for 1993, 1992, and 1991, respectively. The 1993
amount includes a gain of $89.7 million on the sale of GMHE's 30% interest in
Japan Communications Satellite Company, Inc. (JCSAT) and a $55.0 million
charge related to the sale of Hughes Rediffusion Simulation Limited
(Rediffusion) and related entities in December 1993. The 1992 amount includes
proceeds of $35.0 million from settlement of a patent infringement suit and a
$28.0 million gain resulting from the formation of the Hughes-JVC Technology
Corporation joint venture.
*The following discussion excludes the purchase accounting adjustments related
to General Motors' acquisition of Hughes (See Supplemental Data on Page
IV-83).
IV-76
26
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
OPERATING PROFIT. Operating profit was $1,460.1 million in 1993, $1,042.8
million in 1992, excluding the special provision for restructuring discussed
on the next page, and $800.2 million in 1991. Operating profit margins, on a
comparable basis, were 10.8%, 8.5%, and 6.9% in 1993, 1992, and 1991,
respectively.
The improvement in both profitability and profit margins over this time
period was primarily the result of the continuing emphasis on cost reduction
efforts, most notably in the Automotive Electronics and Defense Electronics
segments, and the overall growth in revenues.
Automotive Electronics. Operating profit has steadily increased over the last
three years. In 1993, operating profit was $626.1 million compared with
$462.4 million in 1992 and $273.9 million in 1991. The increases are
attributed not only to the increased electronic content per vehicle and higher
vehicle volumes, but also to an aggressive cost reduction program at Delco
Electronics, which has yielded cost savings of 10% in 1993 and 9% in 1992.
The operating profit margin was 13.9%, 11.6%, and 7.5% in 1993, 1992, and
1991, respectively. The lower margin in 1991 was primarily due to costs
associated with the introduction of new products and increased expenditures
for plant operations and engineering to support current and future programs.
Telecommunications and Space. Operating profit was $206.7 million in 1993, a
13.7% decrease from 1992 operating profit, excluding the restructuring charge,
of $239.5 million. The decrease was due to a reduction in revenues from
satellite transponder sales and an increase in DIRECTV related costs,
partially offset by the recognition of cost savings from satellite
construction activities in 1992. Operating profit increased $17.8 million, or
8.0%, between 1992 and 1991, primarily because of increased sales of
satellites to commercial customers worldwide and the U.S. Navy, operations of
GMHE's fleet of Galaxy spacecraft, and increased sales of private business
networks.
Defense Electronics. Operating profit was $640.7 million in 1993, compared
with $417.9 million, excluding the restructuring charge, in 1992, an increase
of $222.8 million. The increase was due to continued cost reduction
activities resulting from the 1992 restructuring, as well as improved
operating efficiencies and earnings from the missile business acquired in
August 1992. Operating profit for 1992, excluding the restructuring charge,
increased $32.2 million over 1991 operating profit of $385.7 million primarily
due to earnings generated by the acquisition of the missile business.
Commercial Technologies. Operating profit (loss) was $9.9 million, ($54.9)
million, excluding the restructuring charge, and ($55.3) million in 1993,
1992, and 1991, respectively. The improvement in operating profitability
during 1993 was primarily due to reduced operating losses at Rediffusion,
actions which began in 1992 to reduce costs, and increased profits from the
air traffic control and information systems businesses.
COSTS AND EXPENSES. Selling, general, and administrative expenses were $929.1
million in 1993 compared with $1,036.2 million in 1992 and $969.1 million in
1991. The decrease of $107.1 million in 1993 was primarily due to the cost
reductions resulting from restructuring activities which began in the second
half of 1992. The increase of $67.1 million in 1992 was primarily due to the
incremental ongoing effect from the adoption of Statement of Financial
Accounting Standards (SFAS) No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, and the inclusion of selling, general, and
administrative expenses of the missile business acquired in August 1992,
IV-77
27
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
offset by the initial cost reductions achieved by the 1992 restructuring
effort. Certain reclassifications were made to overhead in 1993 to more
appropriately align expenses between cost of sales and selling, general, and
administrative expenses.
Interest expense decreased 45.2% in 1993 and 6.9% in 1992. The
significant decline in 1993 resulted from the prepayment of certain long-term
obligations. The decline between 1992 and 1991 is a result of lower borrowing
costs which more than offset expenses associated with higher total debt
balances maintained throughout most of 1992.
The effective income tax rate was 38.3%, 37.0%, and 36.5% in 1993, 1992,
and 1991, respectively. The Omnibus Budget Reconciliation Act of 1993 did not
have a material adverse effect on GMHE's 1993 earnings and is not expected to
have significant impact in future years.
EARNINGS. GMHE's 1993 earnings were $921.6 million, or $2.30 per share of GM
Class H common stock, compared with 1992 earnings, excluding the restructuring
charge and accounting changes, of $699.9 million, or $1.76 per share, and 1991
earnings, excluding accounting changes, of $505.0 million, or $1.26 per share.
The profit margin (earnings as a percent of revenues), excluding the
restructuring charge and accounting changes, increased to 6.8% in 1993 from
5.7% in 1992 and 4.4% in 1991. The growth trend is attributable to the
improvements in operating profit and increased other income in 1992, as
discussed above.
BACKLOG. Year-end backlog in 1993 was $13,399 million, compared with $14,022
million in 1992 and $12,051 million in 1991. The decrease in 1993 was
primarily due to the sale of Rediffusion, while the increase in 1992 was
primarily the result of the missile business acquisition. A portion of the
backlog is subject to appropriation decisions by the U.S. Government
subsequent to award. In addition, GMHE's contracts with the U.S. Government
are subject to termination by the Government either for its convenience or for
default by GMHE. 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 GMHE's
control.
SPECIAL PROVISION FOR RESTRUCTURING. GMHE took a special charge in June 1992
of $749.4 million (after-tax), or $1.87 per share, 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.
Through December 31, 1993, $723.5 million of expenditures and write-offs have
been charged against the original before-tax restructuring provision of
$1,237.0 million. The remaining amount of $513.5 million primarily relates to
severance payments to be made in 1994 and reserves for excess leased
facilities costs.
ACCOUNTING CHANGES. GMHE adopted SFAS No. 106 in January 1992. This
Statement requires that the cost of postretirement benefits other than
pensions be recognized in the financial statements during the period employees
provide service to GMHE. GMHE's previous practice was to recognize the cost
of such benefits when incurred (pay-as-you-go). The cumulative effect of this
accounting change as of January 1, 1992 was $1,366.6 million, or $832.1
million after-tax ($2.08 per share of GM Class H common stock).
IV-78
28
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
GMHE has disclosed in its financial statements certain amounts associated
with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit
obligations," "liabilities," or "obligations." Notwithstanding the recording
of such amounts and the use of these terms, GMHE does not admit or otherwise
acknowledge that such amounts or existing postretirement benefit plans of GMHE
(other than pensions) represent enforceable liabilities of GMHE.
Hughes changed its revenue recognition policy for certain commercial long-
term contracts effective January 1, 1992 from the percentage-of-completion
method to the units-of-delivery method. The unfavorable effect of this change
was $40 million after-tax, or $0.10 per share of GM Class H common stock.
Effective January 1, 1991, GMHE adopted SFAS No. 109, Accounting for
Income Taxes. The favorable cumulative effect of this accounting change was
$37.4 million, or $0.09 per share of GM Class H common stock. In addition,
accounting procedures at Delco Electronics were changed in 1991 to include in
inventory general purpose spare parts previously charged directly to expense.
The $17.0 million favorable cumulative effect of the change, or $0.04 per
share of GM Class H common stock, was net of income taxes of $11.4 million.
Including the effects of the restructuring charge and the accounting
changes, earnings (loss) attributable to General Motors Class H common stock
were $921.6 million, or $2.30 per share, in 1993, compared with a loss in 1992
of ($921.6) million, or ($2.29) per share, and 1991 earnings of $559.4
million, or $1.39 per share.
LIQUIDITY AND CAPITAL RESOURCES
CASH AND CASH EQUIVALENTS. Cash and cash equivalents were $1,008.7 million at
December 31, 1993, an increase of $306.0 million from December 31, 1992. The
increase was due to the excess of net cash provided by operating activities of
$1,493.5 million over net cash used in investing activities of $424.3 million
and cash used in financing activities of $763.2 million. The investing
activities consisted primarily of net expenditures for property and special
tools and expenditures for telecommunications and other equipment primarily
related to DIRECTV, partially offset by the net proceeds from the sale of
JCSAT and Rediffusion; the financing activities consisted primarily of cash
dividends paid to General Motors and payments on long-term debt and notes and
loans payable. Cash and cash equivalents at December 31, 1992 amounted to
$702.7 million, an increase of $354.4 million from December 31, 1991, also due
to cash from operations in excess of financing and investing expenditures.
Management anticipates that cash and cash equivalents will decrease in 1994
due to increased tax payments related to the recognition of income on long-
term contracts for income tax purposes.
LIQUIDITY MEASUREMENT. As a measure of liquidity, GMHE's current ratio (ratio
of current assets to current liabilities) was 1.61 at December 31, 1993, 1.44
at December 31, 1992, and 1.47 at December 31, 1991.
PROPERTY AND EQUIPMENT. Property, net of accumulated depreciation, decreased
$232.5 million in 1993 primarily due to the sale of Rediffusion, while
telecommunications and other equipment, net of accumulated depreciation,
increased $184.9 million primarily due to expenditures related to DIRECTV.
Capital expenditures were $448.9 million in 1993 compared with $456.9
million and $593.0 million in 1992 and 1991, respectively. Management
anticipates that capital expenditures in 1994 will increase approximately $100
million over 1993 and will be financed primarily from cash provided by
operating activities.
IV-79
29
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Telecommunications and other equipment expenditures were $131.1 million in
1993 compared with $101.6 million and $88.3 million in 1992 and 1991,
respectively. Management anticipates that telecommunications and other
equipment expenditures in 1994 will increase approximately $130 million over
1993 and will be financed primarily from cash provided by operating
activities.
Automotive Electronics. Capital expenditures decreased to $149.2 million in
1993 compared with $266.1 million in 1992 and $281.6 million in 1991. The
decrease in capital spending in 1993 reflects the completion of several
projects to upgrade and expand facilities, a large portion of which occurred
in 1992, and a decrease in capital expenditures related to model changes.
Telecommunications and Space. Capital expenditures, including expenditures
related to telecommunications and other equipment, increased from $174.4
million in 1992 to $264.9 million in 1993 primarily reflecting continuing
investment in satellite equipment associated with DIRECTV. Capital
expenditures, including expenditures related to telecommunications and other
equipment, declined by $38.5 million in 1992, upon the completion of
acquisition and construction activities to expand GMHE's Galaxy fleet.
Defense Electronics. Capital expenditures in the Defense Electronics segment
for 1993, 1992, and 1991 were $132.9 million, $99.4 million, and $146.5
million, respectively. The increase in 1993 is due to expenditures related to
the consolidation of facilities in an effort to increase the operational
efficiencies of manufacturing, engineering, and information systems.
Commercial Technologies. Capital expenditures were $33.0 million, $18.6
million, and $40.3 million in 1993, 1992, and 1991, respectively. The
increase in 1993 related to facilities and equipment for the EOSDIS program.
The reduction in expenditures in 1992, compared to 1991, was due to downsizing
activities in the commercial airline simulator business and the electronic
components business.
LONG-TERM DEBT. Long-term debt decreased by $285.8 million to $415.1 million
at December 31, 1993 from $700.9 million at December 31, 1992. This decrease
was partially due to the prepayment of GM debt arising from the missile
business acquisition and repayment of certain Japanese yen denominated debt
related to JCSAT. The ratio of long-term debt to the total of such debt and
pro forma stockholder's equity decreased to 9.0% in 1993 from 16.4% in 1992.
Long-term debt increased $557.4 million in 1992 from $123.5 million at
December 31, 1991, primarily due to the debt incurred in connection with the
missile business acquisition. The ratio of long-term debt to the total of
such debt and pro forma stockholder's equity increased to 16.4% from 2.5% in
1991.
OTHER BALANCE SHEET ITEMS. In evaluating both its pension and retiree medical
liabilities, GMHE recognized the impact of the recent decrease in long-term
interest rates by reducing the discount rate used in determining the actuarial
present values of the projected benefit obligations. In 1993, the weighted
average discount rate for Hughes' pension obligations decreased from 8.9% to
7.5% and GMHE's other postretirement benefits weighted average discount rate
decreased from 8.32% to 6.99%.
ACQUISITIONS AND DIVESTITURES. On December 31, 1993, GMHE 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.
IV-80
30
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
On August 21, 1992, GMHE acquired substantially all the assets and
business of General Dynamic's Air Defense Systems Division, the Unmanned
Strike Systems business unit, and the Convair Division (together, the GD
Missile Business). This acquisition provided GMHE with the opportunity to
expand its current military programs portfolio, its customer base, and expand
its share of the market for missiles and missile systems. The GD Missile
Business was acquired in exchange for 21,508,563 shares of GM Class H common
stock and cash with an aggregate value of $450.0 million. GMHE purchased the
GM Class H common stock from GM in August 1992, principally in exchange for a
series of notes.
SECURITY RATINGS. GMHE's security ratings are tied to the security ratings of
General Motors.
In February 1993, Standard & Poor's Corporation (S&P) lowered GMHE's long-
term debt and commercial paper rating from A-1 to BBB+ for senior debt, within
the ten investment grade ratings available from S&P for long-term debt, and
from A-1 to A-2 for commercial paper, within the four investment grade ratings
available from S&P for commercial paper.
In November 1992, Moody's Investor's Service, Inc. lowered its rating of
GMHE senior debt to Baa1 from A-2, within the ten investment grade ratings
available from Moody's for long-term debt. Concurrently, Moody's also lowered
GMHE's commercial paper rating from Prime-1, the highest of three investment
grade ratings available from Moody's for commercial paper, to Prime-2.
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.
NEW ACCOUNTING STANDARD
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, Employers' Accounting for Postemployment Benefits, effective January 1,
1994. The Standard requires accrual of the costs of benefits provided to
former or inactive employees after employment, but before retirement. GMHE
will adopt the Standard effective January 1, 1994. The adoption of the new
accounting Standard will result in an after-tax charge to earnings of $30
million, or $0.08 per share of GM Class H common stock in the first quarter of
1994. The ongoing effect in subsequent periods is not expected to be
material. The non-cash charge is primarily related to GMHE's extended-
disability benefit program in the U.S. which, under the new accounting
Standard, will be accrued on a service-driven basis.
IV-81
31
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
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 of
purchase accounting adjustments associated with GM's purchase of Hughes was
$123.8 million in 1993 and 1992, and $123.9 million 1991. Such amounts were
excluded from the earnings available for the payment of dividends on GM Class
H common stock and were charged against the earnings available for the payment
of dividends on GM's $1-2/3 par value stock. Unamortized purchase accounting
adjustments associated with GM's purchase of Hughes were $3,129.1 million,
$3,252.9 million, and $3,376.7 million in 1993, 1992, and 1991, respectively.
In order to provide additional analytical data to the users of GMHE's
financial information, supplemental data in the form of unaudited summary pro
forma financial data are provided. Consistent with the basis on which
earnings of GMHE available for the payment of dividends on GM Class H common
stock is determined, the pro forma data exclude the General Motors' purchase
accounting adjustments related to the acquisition of Hughes. 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 GMHE.
Summary Pro Forma Financial Data*
Pro Forma Condensed Statement of Consolidated Operations
(Dollars in Millions Years Ended December 31,
-------------------------------
Except per Share Amounts) 1993 1992 1991
--------- --------- ---------
Total Revenues $13,517.5 $12,297.1 $11,540.6
Total Costs and Expenses 12,023.3 12,423.8(1)10,745.4
-------- -------- --------
Income (Loss) before Income Taxes 1,494.2 (126.7) 795.2
United States, foreign, and other
income taxes (credit) 572.6 (77.2) 290.2
-------- -------- --------
Income (Loss) before cumulative effect of
accounting changes 921.6 (49.5) 505.0
Cumulative effect of accounting changes - (872.1) 54.4
-------- -------- --------
Earnings (Loss) Used for Computation of
Available Separate Consolidated
Net Income (Loss) $921.6 ($921.6) $559.4
======== ======== ========
Earnings (Loss) Attributable to General
Motors Class H Common Stock on a
Per Share Basis
Before cumulative effect of accounting
changes $2.30 ($0.11) $1.26
Cumulative effect of accounting changes - (2.18) 0.13
---- ---- ----
Net earnings (loss) attributable to
General Motors Class H Common Stock $2.30 ($2.29) $1.39
==== ==== ====
*The summary is unaudited and excludes GM purchase accounting adjustments
related to the acquisition of Hughes.
(1)Includes a special provision for restructuring of $1,237.0 million.
IV-82
32
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Summary Pro Forma Financial Data*
Pro Forma Condensed Consolidated Balance Sheet
December 31,
ASSETS 1993 1992
-------- --------
(Dollars in Millions)
Total Current Assets $5,714.3 $5,546.8
Property - Net 2,634.4 2,866.9
Telecommunications and Other Equipment - Net 767.6 582.7
Intangible Assets, Investments, and Other Assets 1,871.7 1,959.9
-------- -------
Total Assets $10,988.0 $10,956.3
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Total Current Liabilities $3,549.1 $3,854.4
Long-Term Debt and Capitalized Leases 416.8 711.0
Postretirement Benefits Other Than Pensions,
Other Liabilities, Deferred Income Taxes,
and Deferred Credits 2,823.1 2,828.8
Total Stockholder's Equity (1) 4,199.0 3,562.1
-------- --------
Total Liabilities and Stockholder's Equity (1) $10,988.0 $10,956.3
======== ========
Certain amounts for 1992 have been reclassified to conform with 1993
classifications.
(1)General Motors' equity in its wholly-owned subsidiary, GMHE. Holders of GM
Class H common stock have no direct rights in the equity or assets of
GMHE, but rather have rights in the equity and assets of GM (which
includes 100% of the stock of GMHE).
Pro Forma Selected Segment Data
Years Ended December 31,
(Dollars in Millions) 1993 1992 1991
-------- -------- --------
Automotive Electronics
Revenues
Amount $4,491.6 $3,985.8 $3,666.5
As a percentage of GMHE Revenues 33.2% 32.4% 31.8%
Operating Profit (1) $626.1 $462.4 $273.6
Operating Profit Margin (2) 13.9% 11.6% 7.5%
Identifiable Assets at Year End $2,840.5 $2,471.8 $2,116.1
Depreciation and Amortization $153.2 $124.1 $115.2
Capital Expenditures $149.2 $266.1 $281.6
Telecommunications and Space
Revenues
Amount $2,178.0 $1,927.9 $1,643.3
As a percentage of GMHE Revenues 16.1% 15.7% 14.2%
Restructuring Charge (3) $- $195.3 $-
Operating Profit (1) $206.7 $44.2 $221.7
Operating Profit Margin (2) 9.5% 2.3% 13.5%
Identifiable Assets at Year End $2,525.4 $2,561.1 $2,258.8
Depreciation and Amortization $108.0 $118.0 $116.9
Capital Expenditures (4) $264.9 $174.4 $212.9
*The summary is unaudited and excludes GM purchase accounting adjustments
related to the acquisition of Hughes.
Certain amounts for 1992 and 1991 have been reclassified to conform with 1993
classifications.
See notes on next page.
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33
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Summary Pro Forma Financial Data*
Pro Forma Selected Segment Data
Years Ended December 31,
(Dollars in Millions) 1993 1992 1991
-------- -------- --------
Defense Electronics
Revenues
Amount $6,112.1 $5,547.0 $5,467.9
As a percentage of GMHE Revenues 45.2% 45.1% 47.4%
Restructuring Charge (3) $- $911.8 $-
Operating Profit (Loss) (1) $640.7 ($493.9) $385.7
Operating Profit (Loss) Margin (2) 10.5% (8.9%) 7.1%
Identifiable Assets at Year End $4,788.1 $4,581.7 $3,842.6
Depreciation and Amortization $195.4 $204.6 $229.5
Capital Expenditures $132.9 $99.4 $146.5
Commercial Technologies
Revenues
Amount $735.8 $836.4 $762.9
As a percentage of GMHE Revenues 5.5% 6.8% 6.6%
Restructuring Charge (3) $- $129.9 $-
Operating Profit (Loss) (1) $9.9 ($184.8) ($55.3)
Operating Profit (Loss) Margin (2) 1.3% (22.1%) (7.3%)
Identifiable Assets at Year End $697.6 $1,234.6 $1,250.9
Depreciation and Amortization $46.9 $40.4 $39.5
Capital Expenditures $33.0 $18.6 $40.3
Corporate
Operating Loss (1) ($23.3) ($22.1) ($25.8)
Identifiable Assets at Year End $136.4 $107.1 $85.7
*The summary is unaudited and excludes GM purchase accounting adjustments
related to the acquisition of Hughes.
Certain amounts for 1992 and 1991 have been reclassified to conform with 1993
classifications.
(1) Net Sales less Total Costs and Expenses other than Interest Expense. Data
for 1993 and 1992 include the incremental ongoing effect of SFAS No. 106
amounting to $63.3 million, $7.3 million, $17.8 million, and $2.6 million
in 1993 and $54.4 million, $6.3 million, $15.5 million, and $2.5 million
in 1992 for the Automotive Electronics, Telecommunications and Space,
Defense Electronics, and Commercial Technologies segments, respectively.
(2) Operating Profit (Loss) as a percentage of Revenues.
(3) Recorded in the second quarter of 1992.
(4) Includes expenditures related to telecommunications and other equipment
amounting to $131.1 million in 1993, $101.6 million in 1992, and $88.3
million in 1991.
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34
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Summary Pro Forma Financial Data*
Pro Forma Selected Financial Data
(Dollars in Millions Years Ended December 31,
--------------------------------------
Except Per Share Amounts) 1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Operating profit (loss) $1,460 ($194) $800 $1,157 $1,046
Income (Loss) before income taxes and
cumulative effect of accounting
changes $1,494 ($127) $795 $1,187 $1,136
Earnings (Loss) used for computation
of available separate consolidated
net income (loss)** $922 ($922) $559 $726 $781
Average number of GM Class H dividend
base shares (1) 399.9 399.9 399.9 399.7 400.0
Stockholder's equity** $4,199 $3,562 $4,841 $4,598 $4,249
Dividends per share of GM Class H
common stock $0.72 $0.72 $0.72 $0.72 $0.72
Working capital $2,165 $1,692 $1,549 $1,374 $1,316
Operating profit (loss) as a percent
of revenues 10.8% (1.6%) 6.9% 9.9% 9.2%
Pre-tax income (loss) as a percent
of revenues 11.1% (1.0%) 6.9% 10.1% 10.0%
Net income (loss) as a percent of
revenues** 6.8% (7.5%) 4.8% 6.2% 6.9%
Return on equity**(2) 23.7% (21.9%) 11.9% 16.4% 19.5%
Income (Loss) before interest and taxes
as a percent of capitalization (3) 33.1% (1.3%) 15.3% 23.3% 24.9%
Pre-tax return on total assets (4) 13.6% (1.2%) 8.5% 13.4% 13.7%
*The summary is unaudited and excludes GM purchase accounting adjustments
related to the acquisition of Hughes.
**Includes cumulative effect of accounting changes of ($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 88.6
million for 1993.
(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, GMHE). Holders of GM Class H
common stock have no direct rights in the equity or assets of GMHE, but
rather have rights in the equity and assets of GM (which includes 100% of
the stock of GMHE).
(3) Income (Loss) before interest and taxes divided by average stockholder's
equity plus average total debt.
(4) Income (Loss) before income taxes divided by average total assets.
* * * * * * *
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