UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 38-0572515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Renaissance Center, Detroit, Michigan 48243-7301
3044 West Grand Boulevard, Detroit, Michigan 48202-3091
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
As of June 30, 1998, there were outstanding 654,201,294 shares of the
issuer's $1-2/3 par value common stock and 105,616,597 shares of Class H $0.10
par value common stock.
- 1 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Income for the Three
and Six Months Ended June 30, 1998 and 1997 3
Consolidated Balance Sheets as of June 30, 1998,
December 31, 1997 and June 30, 1997 4
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Part II - Other Information (Unaudited)
Item 1. Legal Proceedings 30
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 6. Exhibits and Reports on Form 8-K 33
Signature 33
Exhibit 99 Hughes Electronics Corporation and Subsidiaries
Consolidated Financial Statements and Management's
Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) 34
Exhibit 27 Financial Data Schedule (for SEC information only)
- 2 -
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in Millions Except Per Share Amounts)
Net sales and revenues
Manufactured products $33,577 $39,724 $70,137 $77,164
Financial services 3,280 3,204 6,441 6,401
Other income (Note 9) 2,044 2,218 3,894 3,822
------- ------- ------- -------
Total net sales and revenues 38,901 45,146 80,472 87,387
------ ------ ------ ------
Costs and expenses
Cost of sales and other operating
charges, exclusive of items listed
below 28,623 33,008 58,980 64,118
Selling, general, and administrative
expenses 4,401 3,984 8,143 7,575
Depreciation and amortization
expenses 2,931 3,101 5,838 6,166
Interest expense 1,753 1,500 3,383 2,961
Other deductions (Note 9) 632 320 1,145 568
-------- -------- ------- --------
Total costs and expenses 38,340 41,913 77,489 81,388
------ ------ ------ ------
Income before income taxes and
minority interests 561 3,233 2,983 5,999
Income taxes 175 1,153 983 2,142
Minority interests 3 18 (7) 37
----- ------- ------- -------
Net income 389 2,098 1,993 3,894
Dividends on preference stocks 15 20 31 40
---- ------- ------ -------
Earnings on common stocks $374 $2,078 $1,962 $3,854
=== ===== ===== =====
Basic earnings per share attributable to
common stocks (Note 8)
Earnings per share attributable to
$1-2/3 par value $0.54 $2.68 $2.88 $4.98
Earnings per share attributable
to Class H (prior to its
recapitalization on
December 17, 1997) $1.35 $1.94
Earnings per share attributable
to Class H (subsequent to its
recapitalization on
December 17, 1997) $0.14 $0.27
Diluted earnings per share
attributable to common stocks
(Note 8)
Earnings per share attributable to
$1-2/3 par value $0.52 $2.67 $2.82 $4.93
Earnings per share attributable to
Class H (prior to its
recapitalization on
December 17, 1997) $1.35 $1.94
Earnings per share attributable to
Class H (subsequent to its
recapitalization on
December 17, 1997) $0.14 $0.27
Reference should be made to the notes to consolidated financial statements.
- 3 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
1998 Dec. 31, 1997
(Unaudited) 1997 (Unaudited)
--------- ------ ---------
(Dollars in Millions)
ASSETS
Cash and cash equivalents $8,721 $11,262 $11,674
Other marketable securities 8,407 11,722 9,605
------- ------ -------
Total cash and marketable securities 17,128 22,984 21,279
Finance receivables - net 60,766 58,870 60,357
Accounts and notes receivable (less allowances) 8,771 7,493 7,461
Inventories (less allowances) (Note 2) 13,253 12,102 13,528
Deferred income taxes 22,179 22,478 19,291
Equipment on operating leases (less accumulated
depreciation) 35,335 33,302 32,300
Property - net (Note 3) 36,050 34,567 37,653
Intangible assets - net 12,204 11,469 15,029
Other assets - net 24,938 25,623 25,007
-------- -------- --------
Total assets $230,624 $228,888 $231,905
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable (principally trade) $15,395 $15,782 $14,197
Notes and loans payable 98,957 93,027 89,918
Deferred income taxes 3,188 2,923 3,530
Postretirement benefits other than pensions
(Note 4) 40,338 41,168 44,007
Pensions 5,537 7,043 7,774
Accrued expenses and other liabilities 50,710 50,490 47,330
-------- -------- --------
Total liabilities 214,125 210,433 206,756
------- ------- -------
Minority interests 581 727 716
General Motors - obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely junior
subordinated debentures of General Motors
(Note 5)
Series D 79 79 -
Series G 143 143 -
Redeemable preferred stock of subsidiary - - 402
Stockholders' equity
Preference stocks 1 1 1
Common stocks
$1-2/3 par value (Note 6; issued, 655,007,825;
693,456,394; and 721,480,932 shares) 1,092 1,156 1,202
Class H (issued, 101,641,092 shares) - - 10
Class H (issued, 105,731,028, and
103,885,803 shares) 11 10 -
Capital surplus (principally additional
paid-in capital) 12,773 15,369 17,250
Retained earnings 6,706 5,416 9,201
------- ------- -------
Subtotal 20,583 21,952 27,664
Minimum pension liability adjustment (4,062) (4,062) (3,490)
Accumulated foreign currency translation
adjustments (1,332) (888) (642)
Net unrealized gains on securities 507 504 499
------ ------- --------
Accumulated other comprehensive loss (4,887) (4,446) (3,633)
Total stockholders' equity 15,696 17,506 24,031
-------- -------- --------
Total liabilities and stockholders'
equity $230,624 $228,888 $231,905
======= ======= =======
Reference should be made to the notes to consolidated financial statements.
- 4 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------
1998 1997
---- ----
(Dollars in Millions)
Net cash provided by operating activities $4,837 $9,773
----- ------
Cash flows from investing activities
Expenditures for property (4,614) (4,268)
Investments in other marketable securities
- acquisitions (13,487) (18,147)
Investments in other marketable securities
- liquidations 17,197 17,595
Investments in companies, net of cash acquired (1,322) (1,652)
Finance receivables - acquisitions (78,491) (79,997)
Finance receivables - liquidations 58,951 63,304
Proceeds from sales of finance receivables 17,356 12,930
Operating leases - acquisitions (12,379) (10,649)
Operating leases - liquidations 7,732 6,227
Other 26 954
----- ------
Net cash used in investing activities (9,031) (13,703)
----- ------
Cash flows from financing activities
Net increase in loans payable 1,709 3,269
Increase in long-term debt 11,019 8,485
Decrease in long-term debt (7,564) (7,061)
Proceeds from issuing common stocks 344 281
Repurchases of common stocks (3,071) (2,292)
Cash dividends paid to stockholders (703) (829)
------ ------
Net cash provided by financing activities 1,734 1,853
----- -----
Effect of exchange rate changes on cash and
cash equivalents (81) (312)
----- -----
Net decrease in cash and cash equivalents (2,541) (2,389)
Cash and cash equivalents at beginning of the period 11,262 14,063
------ ------
Cash and cash equivalents at end of the period $8,721 $11,674
===== ======
Reference should be made to the notes to consolidated financial statements.
- 5 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. The consolidated financial statements include the
accounts of General Motors Corporation (hereinafter referred to as the
"Corporation") and domestic and foreign subsidiaries that are more than 50%
owned, principally General Motors Acceptance Corporation and Subsidiaries (GMAC)
and Hughes Electronics Corporation, prior to the December 17, 1997 restructuring
of the company (hereinafter referred to as "former Hughes") and subsequent to
the December 17, 1997 restructuring of the company (hereinafter referred to as
"Hughes") (collectively referred to as "General Motors" or "GM"). In the opinion
of management, all adjustments (consisting of only normal recurring items),
which are necessary for a fair presentation have been included. The results for
interim periods are not necessarily indicative of results which may be expected
for any other interim period or for the full year. For further information,
refer to the consolidated financial statements and notes thereto included in the
GM 1997 Annual Report on Form 10-K, as amended, filed with the Securities and
Exchange Commission.
Certain amounts for 1997 were reclassified to conform with the 1998
classifications.
Note 2. Inventories
Inventories included the following (in millions):
June 30, Dec. 31, June 30,
1998 1997 1997
------- -------- --------
Productive material, work in process,
and supplies $7,945 $7,023 $7,879
Finished product, service parts, etc. 7,579 7,347 7,981
----- ------- -------
Total inventories at FIFO 15,524 14,370 15,860
Less LIFO allowance 2,271 2,268 2,332
------- ------- -------
Total inventories (less allowances) $13,253 $12,102 $13,528
====== ====== ======
Note 3. Property - Net
Property - net included the following (in millions):
June 30, Dec. 31, June 30,
1998 1997 1997
-------- -------- --------
Real estate, plants, and equipment $71,369 $69,680 $69,671
Less accumulated depreciation (42,685) (41,915) (40,911)
-------- ------ ------
Real estate, plants, and equipment - net 28,684 27,765 28,760
Special tools - net 7,366 6,802 8,893
------- ------- -------
Total property - net $36,050 $34,567 $37,653
====== ====== ======
Note 4. Postretirement Benefits Other Than Pensions
GM has disclosed in the consolidated financial statements certain amounts
associated with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, GM does not admit or otherwise acknowledge that such
amounts or existing postretirement benefit plans of GM (other than pensions)
represent legally enforceable liabilities of GM.
- 6 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 5. Preferred Securities of Subsidiary Trusts
General Motors - Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts
In July 1997, the General Motors Capital Trust D (Series D Trust) issued
approximately $79 million of its 8.67% Trust Originated Preferred Securitiessm
(TOPrSsm) Series D, (Series D Preferred Securities), in a one-for-one exchange
for 3,055,255 of the outstanding GM Series D 7.92% Depositary Shares, each
representing one-fourth of a share of GM Series D Preference Stock, $0.10 par
value per share. In addition, the General Motors Capital Trust G (Series G
Trust) issued approximately $143 million of its 9.87% TOPrS, Series G (Series G
Preferred Securities), in a one-for-one exchange for 5,064,489 of the
outstanding GM Series G 9.12% Depositary Shares, each representing one-fourth of
a share of GM Series G Preference Stock, $0.10 par value per share.
Concurrently with the exchanges and the related purchases by GM from the
Series D and Series G Trusts (Trusts) of the common securities of such Trusts,
which represent approximately 3 percent of the total assets of such Trusts, GM
issued to the wholly-owned Trusts, as the Series D Trust's sole assets its 8.67%
Junior Subordinated Deferrable Interest Debentures, Series D, due July 1, 2012
and as the Series G Trust's sole assets, its 9.87% Junior Subordinated
Deferrable Interest Debentures, Series G, due July 1, 2012 (the "Series D
Debentures" and "Series G Debentures" or collectively the "Debentures"), having
aggregate principal amounts equal to the aggregate stated liquidation amounts of
the Series D and Series G Preferred Securities and the related common
securities, respectively ($79 million with respect to the Series D Debentures
and $131 million with respect to the Series G Debentures).
The Series D Debentures are redeemable, in whole or in part, at GM's option
on or after August 1, 1999, at a redemption price equal to 100% of the
outstanding principal amount of the Series D Debentures plus accrued and unpaid
interest, or, under certain circumstances, prior to August 1, 1999, at a
redemption price equal to 105% of the outstanding principal of the Series D
Debentures from the Series D expiration date through July 31, 1998, declining
ratably on each August 1 thereafter to 100% on August 1, 1999, plus accrued and
unpaid interest. The Series D Preferred Securities will be redeemed upon the
maturity or earlier redemption of the Series D Debentures.
The Series G Debentures are redeemable, in whole or in part, at GM's option
on or after January 1, 2001, at a redemption price equal to 100% of the
outstanding principal amount of the Series G Debentures plus accrued and unpaid
interest, or, under certain circumstances, prior to January 1, 2001, at a
redemption price equal to 114% of the outstanding principal of the Series G
Debentures from the Series G expiration date through December 31, 1997,
declining ratably on each January 1 thereafter to 100% on January 1, 2001, plus
accrued and unpaid interest. The Series G Preferred Securities will be redeemed
upon the maturity or earlier redemption of the Series G Debentures.
GM has guaranteed the payment in full to the holders of the Series D and
Series G Preferred Securities (collectively the "Preferred Securities") of all
distributions and other payments on the Preferred Securities to the extent not
paid by the Trusts only if and to the extent that the Trusts have assets
therefore, GM has made payments of interest or principal on the related
Debentures. These guarantees, when taken together with GM's obligations under
the Preferred Securities Guarantees, the Debentures, and the Indentures relating
thereto and the obligations under the Declaration of Trust of the Trusts,
including the obligations to pay certain costs and expenses of the Trusts,
constitute full and unconditional guarantees by GM of each Trust's obligations
under its Preferred Securities.
sm "Trust Originated Preferred Securities" and "TOPrS" are service trademarks of
Merrill Lynch & Co.
Note 6. Common Stock Repurchases
During the six months ended June 30, 1998, GM used $2.6 billion to acquire
approximately 38 million shares of $1-2/3 par value common stock, which
completed the second $2.5 billion stock repurchase program announced in August
of 1997 and represented approximately 33 percent of the $4 billion stock
repurchase program announced in February 1998. Due to work stoppages at various
GM component plants, stock repurchases were suspended as part of GM's cash
conservation initiatives. GM also used approximately $485 million to repurchase
shares of $1-2/3 par value common stock for certain employee benefit plans
during the six months ended June 30, 1998.
- 7 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 7. Comprehensive Income
GM's total comprehensive income was as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
Net income $389 $2,098 $1,993 $3,894
Other comprehensive (loss) income:
Foreign currency translation
adjustments (68) (167) (444) (529)
Unrealized gains (losses) on
securities (32) 156 3 76
---- --- ----- ----
Other comprehensive loss (100) (11) (441) (453)
--- ----- ----- -----
Total comprehensive income $289 $2,087 $1,552 $3,441
=== ===== ===== =====
Note 8. Earnings Per Share Attributable to Common Stocks
Basic earnings per share attributable to each class of GM common stock was
determined based on the attribution of earnings to each such class of common
stock for the period divided by the weighted-average number of common shares for
each such class outstanding during the period. Diluted earnings per share
attributable to each class of GM common stock considers the impact of potential
common shares, unless the inclusion of the potential common shares would have an
antidilutive effect.
The assumed exercise of stock options has no effect on Class H common stock
earnings per share, because to the extent that shares of Class H common stock
deemed to be outstanding would increase, such increased shares would also
increase the numerator of the fraction used to determine Available Separate
Consolidated Net Income (ASCNI).
The attribution of earnings to each class of common stock was as follows (in
millions):
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
Earnings attributable to common stocks
Earnings attributable to
$1-2/3 par value $359 $1,941 $1,933 $3,658
--- ----- ----- -----
Earnings attributable to Class H
(prior to its recapitalization
on December 17, 1997) $ - $137 $ - $196
--- --- --- ---
Earnings attributable to Class H
(subsequent to its
recapitalization on
December 17, 1997) $15 $ - $29 $ -
-- --- -- ---
Earnings attributable to $1-2/3 par value common stock for the period
represent the earnings attributable to all GM common stocks for the period,
reduced by the ASCNI of former Hughes and Hughes for the respective period.
Earnings attributable to Class H common stock for the three and six months
ended June 30, 1998 represent the ASCNI of Hughes, excluding the effects of
purchase accounting adjustments arising at the time of the Corporation's
acquisition of Hughes Aircraft Company (HAC) which remains after the spin-off of
Hughes Defense, calculated for such period and multiplied by a fraction, the
numerator of which was a number equal to the weighted-average number of shares
of Class H common stock outstanding for each of the periods (105 million) and
the denominator of which was 400 million.
Earnings attributable to Class H common stock for the three and six months
ended June 30, 1997 represent the ASCNI of former Hughes. The ASCNI of former
Hughes was determined quarterly in amounts equal to the separate consolidated
net income of former Hughes for the respective quarter, excluding the effects of
purchase accounting adjustments arising at the time of the Corporation's
acquisition of HAC, calculated for such period and multiplied by a fraction, the
numerator of which was a number equal to the weighted-average number of shares
of Class H common stock outstanding for each of the periods (101 million) and
the denominator of which was 400 million.
The denominator used in determining the ASCNI of former Hughes was adjusted
from time-to-time as deemed appropriate by GM's Board of Directors (GM Board) to
reflect subdivisions or combinations of the Class H common stock and to reflect
certain transfers of capital to or from former Hughes. The denominator used in
determining the ASCNI of Hughes may be adjusted from time-to-time as deemed
appropriate by the GM Board to reflect subdivisions or combinations of the Class
H common stock and to reflect certain transfers of capital to or from Hughes.
The GM Board's discretion to make such adjustments is limited by criteria set
forth in the Corporation's Restated Certificate of Incorporation.
- 8 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 8. Earnings Per Share Attributable to Common Stocks (concluded) The
reconciliation of the amounts used in the basic and diluted earnings per
share computations for net income was as follows (in millions except per share
amounts):
Class H Common Stock - Class H Common Stock -
Prior to its recapitalization Subsequent to its recapitalization
$1-2/3 Par Value Common Stock on December 17,1997 on December 31, 1997
----------------------------- ----------------------------- ----------------------------------
Per Share Per Share Per Share
Income Shares Amount ASCNI Shares Amount ASCNI Shares Amount
------ ------ --------- ----- ------ --------- ----- ------ ---------
Three Months Ended June 30, 1998
Net income $374 $15
Less: Dividends on
preference stocks 15 -
---- ---
Basic EPS
Net income available to
common stockholders 359 661 0.54 15 105 0.14
Effect of Dilutive Securities
Assumed exercise of dilutive
stock options (1) 11 1 6
------ ---- --- ----
Diluted EPS
Adjusted net income
available to
common stockholders $358 672 $0.52 $16 111 $0.14
=== === ==== == === ====
Three Months Ended June 30, 1997
Net income $1,961 $137
Less: Dividends on
preference stocks 20 -
----- -----
Basic EPS
Net income available to
common stockholders 1,941 724 2.68 137 101 1.35
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options (3) 5 3 3
------ ---- ---- ----
Diluted EPS
Adjusted net income available
to common stockholders $1,938 729 $2.67 $140 104 $1.35
===== === ==== === === ====
Six Months Ended June 30, 1998
Net income $1,964 $29
Less:Dividends on
preference stocks 31 -
------ ----
Basic EPS
Net income available to
common stockholders 1,933 672 2.88 29 105 0.27
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options (2) 10 2 5
------ ---- --- ----
Diluted EPS
Adjusted net income available
to common stockholders $1,931 682 $2.82 $31 110 $0.27
===== === ==== == === ====
Six Months Ended June 30, 1997
Net income $3,698 $196
Less: Dividends on
preference stocks 40 -
------ -----
Basic EPS
Net income available to
common stockholders 3,658 736 4.98 196 101 1.94
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options (5) 4 5 2
------ ----- ---- ----
Diluted EPS
Adjusted net income available
to common stockholders $3,653 740 $4.93 $201 103 $1.94
===== === ==== === === ====
- 9 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 9. Other Income and Other Deductions
Other income and other deductions consisted of the following (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ -------
Other income
Nonfinancing interest $575 $483 $1,147 $949
Insurance premiums 369 261 738 516
Claims and commissions 154 137 288 258
Income from sales of receivables
programs 97 85 204 213
Mortgage servicing and
processing fees 221 196 403 367
Insurance capital and
investment gains 123 73 271 210
Mortgage investment and other income 279 177 515 307
VW Settlement (1) - - - 88
Gain on PAS merger (2) - 490 - 490
Gain on sale of interest in
Avis Europe (3) - 128 - 128
Equity in net (losses) earnings
of associates (28) 33 (33) 28
Other 254 155 361 268
----- ----- ----- -----
Total other income $2,044 $2,218 $3,894 $3,822
===== ===== ===== =====
Other deductions
Provision for financing losses 128 $127 $229 $257
Insurance losses and loss
adjustment expenses 283 153 540 292
Other 221 40 376 19
--- ---- ------ ----
Total other deductions $632 $320 $1,145 $568
=== === ===== ===
- -----------------------
(1) During the 1997 first quarter, an agreement with Volkswagen A.G. (VW) that
settled a civil lawsuit GM brought against VW resulted in a pre-tax gain of
$88 million ($55 million after-tax or $0.07 per share of $1-2/3 par value
common stock), after deducting certain legal expenses.
(2) During the 1997 second quarter, Hughes and PanAmSat Corporation (PAS)
completed the merger of their respective satellite service operations into a
new publicly-held company which resulted in a one-time pre-tax gain of $490
million ($318 million after-tax or $0.33 per share of $1-2/3 par value
common stock and $0.80 per share of Class H common stock).
(3) During the 1997 second quarter, the sale of GM's Europe's equity interest in
Avis Europe resulted in a pre-tax gain of $128 million ($103 million
after-tax or $0.14 per share of $1-2/3 par value common stock).
Note 10. Segment Reporting
Selected information regarding GM's operating segments follows:
Operating Segments(a)
GM-NAO Delphi(b)GMIO GMAC Hughes(c) Other Total
------ ------ ---- ---- ------ ----- -----
For the Three Months Ended: (in millions)
June 30, 1998
Net sales and revenues from
external customers $21,233 $1,592 $8,697 $ - $1,366 $574 $33,462
Intersegment net sales
and revenues 671 5,449 206 - 3 (6,329) -
------- ----- ------ --- ------ ----- ------
Total net sales and
revenues $21,904 $7,041 $8,903 $ - $1,369 $(5,755) $33,462
====== ===== ===== === ===== ===== ======
Net income (loss) (d) $(196) $84 $137 $365 $56 $(57) $389
Segment assets (e) $63,527 $23,215 $25,322 $ - $12,347 $5,863 $130,274
June 30, 1997
Net sales and revenues from
external customers $25,621 $1,281 $9,276 $ - $2,932 $631 $39,741
Intersegment net sales
and revenues 202 5,497 435 - 1,334 (7,468) -
------- ----- ------ --- ----- ----- ------
Total net sales
and revenues $25,823 $6,778 $9,711 $ - $4,266 $(6,837) $39,741
====== ===== ===== === ===== ===== ======
Net income (loss) (d) $474 $310 $488 $338 $542 $(54) $2,098
Segment assets (e) $66,976 $22,039 $25,181 $ - $18,482 $8,018 $140,696
See notes on next page.
- 10 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 10: Segment Reporting (concluded)
Operating Segments(a)
GM-NAO Delphi(b) GMIO GMAC Hughes(c) Other Total
------ ------ ---- ---- ------ ----- -----
For the Six Months Ended: (in millions)
June 30, 1998
Net sales and revenues from
external customers $46,318 $3,110 $16,632 $ - $2,651 $1,178 $69,889
Intersegment net sales
and revenues 1,475 11,554 421 - 9 (13,459) -
------- ------ ------- --- -------- ------ ------
Total net sales
and revenues $47,793 $14,664 $17,053 $ - $2,660 $(12,281) $69,889
====== ====== ====== === ===== ====== ======
Net income (loss) (d) $630 $347 $297 $714 $110 $(105) $1,993
June 30, 1997
Net sales and revenues from
external customers $50,280 $2,486 $17,475 $ - $5,698 $1,259 $77,198
Intersegment net sales
and revenues 402 10,956 519 - 2,696 (14,573) -
------- ------ ------- --- ----- ------ ------
Total net sales
and revenues $50,682 $13,442 $17,994 $ - $8,394 $(13,314) $77,198
====== ====== ====== === ===== ====== ======
Net income (loss) (d) $1,238 $490 $805 $710 $777 $(126) $3,894
- -------------------------
(a)Calculated with financing and insurance operations on an equity basis, which
is the basis upon which such operations are evaluated.
(b)Includes Delco Electronics Corporation's assets as of June 30, 1998 and
operating results for the periods ended June 30, 1998.
(c Represents Hughes and former Hughes for the periods ended June 30, 1998 and
1997, respectively. (d) The amount reported for Hughes excludes amortization
of GM purchase accounting adjustments of approximately $5
million and $30 million for the three months ended June 30, 1998 and 1997,
respectively, and $11 million and $61 million for the six months ended June
30, 1998 and 1997, respectively, related to GM's acquisition of HAC. Such
amortization was allocated to GM's Other segment which is consistent with the
basis upon which the segments are evaluated.
(e)The amount reported for Hughes excludes the unamortized GM purchase
accounting adjustments of approximately $437 million and $2,663 million, for
1998 and 1997, respectively, related to GM's acquisition of HAC. These
adjustments were allocated to GM's Other segment which is consistent with the
basis upon which the segments are evaluated.
Note 11. Contingent Matters
Hughes has maintained a suit against the U.S. Government since September
1973 regarding the Government's infringement and use of a Hughes patent (the
"Williams Patent") covering "Velocity Control and Orientation of a Spin
Stabilized Body," principally satellites. On April 7, 1998, the Court of Appeals
for the Federal Circuit (CAFC) reaffirmed earlier decisions in the Williams case
and the award of $114 million in damages. The CAFC ruled that the conclusions
previously reached in the Williams case were consistent with the U.S. Supreme
Court's findings in the Warner-Jenkinson case. The U.S. Government petitioned
the CAFC for a rehearing and was denied. Hughes is unable to estimate the
duration of any further appeal effort by the U.S. Government. While no amount
has been recorded in the financial statements of Hughes to reflect the $114
million award or the interest accumulating thereon, a resolution of this issue
could result in a gain that would be material to the earnings of GM attributable
to Class H common stock. In connection with the 1997 spin-off of Hughes
Electronics Corporation's defense business and its subsequent merger with
Raytheon Company, a process was agreed to among GM, Hughes and Raytheon for
resolving disputes that might arise in connection with post-closing adjustments
called for by the terms of the merger agreement. Such adjustments might call for
a cash payment between Hughes and Raytheon. A dispute currently exists regarding
the post-closing adjustments which Hughes and Raytheon have proposed to one
another. If the dispute is not resolved by negotiation, the parties will proceed
to an agreed upon form of binding arbitration under which either party may be
required by arbitration to make a payment to the other. It is possible that
Hughes may be
- 11 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded
(Unaudited)
Note 11. Contingent Matters - concluded
required by arbitration to make a payment to Raytheon that would be material
to Hughes. However, the amount of payment that might be required of either party
is not determinable at this time. Hughes intends to vigorously oppose the
adjustments Raytheon seeks. GM is subject to potential liability under
government-regulations and various claims and legal actions which are pending or
may be asserted against them. Some of the pending actions purport to be class
actions. The aggregate ultimate liability of GM under these government
regulations, and under these claims and actions, was not determinable at June
30,1998. After discussion with counsel, it is the opinion of management that
such liability is not expected to have a material adverse effect on the
Corporation's consolidated financial statements.
Note 12. Subsequent Event
On August 3, 1998, GM and Delphi Automotive Systems jointly announced that
the GM Board of Directors has approved in principle to proceed with a series of
planned transactions that would result in Delphi becoming a fully independent,
publicly traded company. It is currently expected that Delphi would be
incorporated and then offer 15-20 percent of its common stock in an initial
public offering during the first quarter of 1999. Later in the year, all of the
Delphi shares held by GM would be distributed to holders of General Motors
$1-2/3 par value common stock through one of the following transactions:
- A split-off transaction in which Delphi shares would be offered in
exchange for GM $1-2/3 par value common stock to those GM
stockholders who elected to participate in an exchange offer.
- A spin-off transaction in which the shares of Delphi would be
distributed to GM $1-2/3 par value common stockholders on a pro-rata
basis.
- Some combination of the above.
General Motors also plans to structure the separation to enable GM to
preserve its current credit ratings, including GMAC's "Top Tier" commercial
paper rating, and to allow Delphi to have an investment-grade credit rating that
would be competitive with other major automotive components and systems
suppliers. An initial public offering and either split-off or spin-off of Delphi
common stock would be subject to the development of definitive separation terms,
further corporate approvals and government actions, including receipt of a
favorable Internal Revenue Service ruling that the separation would be tax-free
to GM and its stockholders for U.S. federal income tax purposes. No offer of
Delphi securities will be made except by means of a prospectus. While an initial
public offering of Delphi common stock is planned for the first quarter of 1999
and a full separation later in the year, it should be noted that due to the
numerous uncertainties involved in these matters, there can be no assurance that
an initial public offering or full separation will be completed as described or
within the time periods outlined above.
* * * * * *
- 12 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the MD&A
included in the General Motors (GM) 1997 Annual Report on Form 10-K, as amended,
(the "1997 Form 10-K"), the Hughes Electronics Corporation (Hughes) consolidated
financial statements and MD&A for the period ended December 31, 1997, included
as Exhibit 99 to the 1997 Form 10-K, the GMAC Annual Report on Form 10-K for the
period ended December 31, 1997, the Hughes consolidated financial statements and
MD&A for the period ended June 30, 1998, included as Exhibit 99 to this GM 1998
Quarterly Report on Form 10-Q, and the GMAC Quarterly Report on Form 10-Q for
the period ended June 30, 1998, filed with the Securities and Exchange
Commission. All earnings per share amounts included in the MD&A are reported as
basic.
The disaggregated financial results for GM's automotive sectors (GM's North
American Operations (GM-NAO), Delphi Automotive Systems (Delphi) and GM's
International Operations (GMIO)) have been prepared using a management approach,
which is consistent with the basis and manner in which GM management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. In this regard, certain common expenses were
allocated among sectors less precisely than would be required for standalone
financial information prepared in accordance with generally accepted accounting
principles (GAAP) and certain expenses (primarily certain U.S. taxes related to
non-U.S. operations) were included in GM's "Other" sector. The financial results
represent the historical information used by management for internal decision
making purposes; therefore, other data prepared to represent the way in which
the business will operate in the future, or data prepared on a GAAP basis, may
be materially different. Net profit margins presented in the MD&A represent net
income as a percentage of net sales and revenues.
- 13 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM-NAO Financial Highlights
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
(Dollars in Millions)
Net sales and revenues $21,904 $25,823 $47,793 $50,682
------ ------ ------ ------
Pre-tax (loss) income (341) 683 861 1,810
Income tax (benefit) expense (128) 225 251 603
Earnings of nonconsolidated affiliates 17 16 20 31
---- ---- ---- ------
Net (loss) income $(196) $474 $630 $1,238
=== === === =====
Net profit margin (0.9)% 1.8% 1.3% 2.4%
Vehicle Unit Deliveries of Cars and Trucks - GM-NAO
Three Months Ended June 30,
1998 1997
------------------------ ------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- -- -------- -------- -- --------
(Units in Thousands)
United States
Cars 2,333 750 32.1% 2,211 712 32.2%
Trucks 2,211 683 30.9% 1,891 540 28.5%
----- ---- ----- -----
Total United States 4,544 1,433 31.5% 4,102 1,252 30.5%
Canada and Mexico 604 184 30.5% 525 162 30.9%
--- --- ------ ------
Total North America 5,148 1,617 31.4% 4,627 1,414 30.6%
----- ----- ----- -----
Other (Central America,
Caribbean, Puerto Rico) 83 10 11.7% 66 8 12.7%
----- ----- ----- -----
Total GM-NAO 5,231 1,627 31.1% 4,693 1,422 30.3%
===== ===== ===== =====
Wholesale Sales - GM-NAO
Cars 637 807
Trucks 554 616
----- -----
Total 1,191 1,423
===== =====
Six Months Ended June 30,
1998 1997
------------------------ ------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- -- -------- -------- -- --------
(Units in Thousands)
United States
Cars 4,205 1,320 31.4% 4,237 1,351 31.9%
Trucks 3,960 1,206 30.5% 3,584 1,024 28.6%
----- ----- ----- -----
Total United States 8,165 2,526 30.9% 7,821 2,375 30.4%
Canada and Mexico 1,055 313 29.7% 908 283 31.2%
----- --- ----- -----
Total North America 9,220 2,839 30.8% 8,729 2,658 30.4%
----- ----- ----- -----
Other (Central America,
Caribbean, Puerto Rico) 148 19 13.1% 125 16 12.9%
----- ----- ----- -----
Total GM-NAO 9,368 2,858 30.5% 8,854 2,674 30.2%
===== ===== ===== =====
Wholesale Sales - GM-NAO
Cars 1,303 1,597
Trucks 1,234 1,236
----- -----
Total 2,537 2,833
===== =====
- 14 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM-NAO Financial Review
GM-NAO reported a net loss of $196 million for the 1998 second quarter
compared with net income of $474 million in the prior year quarter. The decrease
in net income was primarily due to lower production volumes associated with the
work stoppages at two component plants in Flint, Michigan, as discussed below,
and model change overs, combined with higher retail incentives ($1,703 per unit
in the second quarter of 1998 compared with $1,060 per unit in the second
quarter of 1997), partially offset by material and structural cost savings. Net
income for the six months ended June 30, 1998 totaled $630 million compared with
$1.2 billion for the prior year six month period. The decrease in net income for
the first six months of 1998 was primarily due to the current year's work
stoppages and higher retail incentives, partially offset by material and
structural cost savings and an improved product mix.
Members of United Auto Workers Locals 659 and 651 in Flint, Michigan ceased
production at two component plants on June 5 and June 11, 1998, respectively.
Work stoppages at both facilities were resolved July 28, 1998 when tentative
agreements were reached. Both agreements were ratified by the rank and file July
29, 1998. Operations began to ramp-up to normal production levels July 30, 1998.
GM estimates that the work stoppages in Flint have had an aggregate unfavorable
after-tax impact of $1.2 billion, or $1.79 per share of GM $1-2/3 par value
common stock, during the 1998 second quarter that resulted from a loss of
227,000 units of production. The above estimated unfavorable after-tax impact
represents the combined effects for GM-NAO (through June 30,1998 - $890 million)
and Delphi (through June 30,1998 - $290 million). GM estimates that an
additional loss of 318,000 units of production occurred from the beginning of
the third quarter 1998 to the point in which normal production levels were
resumed. The third quarter loss of production has had an estimated aggregate
unfavorable after-tax impact of $1.65 billion, representing the combined effects
for GM-NAO ($1.3 billion) and Delphi ($350 million). The above estimated
unfavorable after-tax impacts do not take into account the effect of possible
recoveries that may occur through production increases that GM is likely to
pursue at various facilities in future periods.
Local union members in Oklahoma City, Oklahoma, and Pontiac, Michigan, ceased
production at two assembly plants on April 4 and April 22, 1997, respectively,
where new local union agreements had not been completed. The work stoppages in
Oklahoma City and Pontiac, which ended on May 27, 1997 and July 21, 1997,
respectively, resulted in a loss of 96,000 units of production which had an
aggregate unfavorable after-tax impact of approximately $490 million, or $0.67
per share of $1-2/3 par value common stock, on the 1997 second quarter results.
The above estimated unfavorable after-tax impact represents the combined effects
for GM-NAO ($375 million) and Delphi ($115 million).
Net sales and revenues for the 1998 second quarter were $21.9 billion, which
represented a decrease of approximately $3.9 billion or 15.2% compared with the
prior year quarter. Excluding the effect of the current and prior year work
stoppages, GM-NAO's production volumes would have decreased approximately
156,000 units. This decrease is attributable to the start-up of the GMT-800 and
the ramp-up of the high volume Grand Am and Alero. Net sales and revenues for
the six months ended June 30, 1998 totaled $47.8 billion, which represented a
decrease of approximately $2.9 billion or 5.7% compared with the prior year six
month period. This decrease in net sales and revenues resulted from lower
wholesale sales volumes primarily due to the work stoppages previously discussed
and the start-up of the above mentioned models, partially offset by a favorable
mix.
Pre-tax income in the second quarter of 1998 decreased by $1.0 billion
compared with the prior year quarter primarily due to lower wholesale sales
volumes and higher retail incentives, partially offset by material and
structural cost savings. Pre-tax income for the six months ended June 30, 1997
decreased by approximately $949 million over the prior year period primarily due
to decreased wholesale sales volumes and higher retail incentives, partially
offset by material and structural cost savings and favorable product mix.
GM vehicle deliveries in North America were 1,617,000 in the 1998 second
quarter, which represented a market share of 31.4% compared with 30.6% in the
prior year quarter. The increase in market share was primarily due to improved
consumer acceptance of GM's products, including newly introduced models. GM's
North American market share for the six months ended June 30, 1998 was 30.8%
compared with 30.4% in the prior year period. Market penetration will be
affected in the second half of 1998 depending on the duration of the above
mentioned work stoppages.
- 15 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Delphi Financial Highlights
Three Months Ended Six Months Ended
June 30, June 30,
----------------- --------------------
Adjusted Reported Adjusted Reported
1998(1) 1997(1) 1997 1998(1) 1997(1) 1997
---- ------- ------- ---- ------- -------
(Dollars in Millions)
Net sales and revenues $7,041 $8,190 $6,778 $14,664 $16,185 $13,442
----- ----- ----- ------ ------ ------
Pre-tax income 84 620 468 460 991 705
Income taxes 20 228 170 140 351 242
Minority interests 3 5 5 3 6 6
Earnings of nonconsolidated
affiliates 17 10 7 24 25 21
-- ---- --- --- --- ---
Net income $84 $407 $310 $347 $671 $490
== === === === === ===
Net profit margin 1.2% 5.0% 4.6% 2.4% 4.1% 3.6%
(1)Amounts have been adjusted to reflect the changes to GM's organizational
structure resulting from the Hughes Transactions which occured in December
1997. The 1998 and adjusted 1997 amounts include the results of Delco
Electronics (Delco).
Delphi Financial Review
Delphi reported net income of $84 million for the 1998 second quarter
compared with $407 million of income in the adjusted prior year quarter. The
1998 second quarter net income decreased primarily due to lower production
volume at GM-NAO related to the current year work stoppages previously
discussed. Excluding the $290 million and $115 million after-tax effect of the
work stoppages in the second quarters of 1998 and 1997, respectively, Delphi's
second quarter adjusted income decreased by $148 million or 28.4%. This decrease
is primarily due to decreases in GM-NAO's production volumes due to model
changes, competitive pressures leading to price reductions to Original Equipment
Manufacturer (OEMs) customers and the economic downturn in Asia and Latin
America, partially offset by significant progress in manufacturing performance
and a reduction in material costs. Net income for the six months ended June 30,
1998 decreased to $347 million compared with $671 million of income for the
adjusted prior year six month period. The decrease in income for the first six
months of 1998 is primarily due to the unfavorable impact of the work stoppages
and the other factors referred to above.
Net sales and revenues for the 1998 second quarter were $7.0 billion, a
decrease of approximately $1.1 billion or 14.0% compared with adjusted sales and
revenues for the prior year quarter. This decrease was primarily due to work
stoppages, additional decreases in GM-NAO's production volumes due to model
changes and pricing pressures from customers. Delphi's 1998 second quarter sales
to customers outside the GM-NAO vehicle groups represented approximately 35% of
total sales, including all joint ventures. After adjusting for the work
stoppages in 1998 and 1997, this is an increase of two percentage points over
the same period in 1997. Net sales and revenues for the six months ended June
30, 1998 totaled $14.7 billion, compared with $16.2 billion adjusted sales and
revenue in the prior year six month period. The decrease in sales and revenues
for the first six months of 1998 was primarily due to work stoppages, additional
decreases in GM-NAO's production volumes, pricing reductions to OEM's during the
period and the economic downturn in Asia and Latin America.
Pre-tax income in the second quarter of 1998 decreased by $536 million
compared with the prior year quarter. Pre-tax income for the six months ended
June 30, 1997 decreased to $460 million from the prior year adjusted amount of
$991 million. These decreases are primarily due to decreases in GM-NAO's
production volumes due to the work stoppages and model change-over, competitive
pressures that resulted in price reductions to customers and the financial
turmoil in Asia and Latin America partially offset by strong progress in
manufacturing performance and a reduction in material costs.
Delphi is the principal supplier of automotive components and systems to
GM-NAO. Delphi's sales of automotive components and systems today is highly
dependent on GM's production of vehicles in North America, the level of
Delphi-supplied content per GM-NAO vehicle, the price of such automotive
components and systems, and the competitiveness of Delphi's product offerings.
Delphi's strategy is to reduce its dependence on GM-NAO sales by growing its
automotive components and systems sales globally and by expanding its non-GM-NAO
sales base in North America. In addition, the global automotive components and
systems market is highly competitive which has led Delphi to refine its strategy
to focus on profitable growth, as well as increased market share through
technology leadership, quality, cost control and responsiveness. On August 3,
1998, GM and Delphi Automotive Systems jointly announced that the GM Board of
Directors has approved in principle to proceed with a series of planned
transactions that would result in Delphi becoming a fully independent, publicly
traded company. The transactions would include the incorporation of Delphi and
then an offering of 15-20 percent of its common stock in an initial public
offering during the first quarter of 1999. Later in the year, all of the Delphi
shares held by GM would be distributed to share holders of $1-2/3 par value
common stock through a tax-free spin-off, split-off or some combination of both.
Additional information regarding these planned transactions is included in Note
12 to the June 30, 1998 GM consolidated financial statements.
- 16 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Delphi Financial Review (concluded)
In response to the increasingly competitive automotive components and systems
market, Delphi continuously reviews competitiveness of its operations, growth
opportunities, and its strategy of increasing market share through technology
leadership, quality, cost control, and responsiveness. Consistent with this
practice, during the third quarter of 1997, Delphi initiated steps to effect the
sale of its lighting, coil springs, and seating businesses. These businesses,
with combined revenues of approximately $2 billion and global employment of over
11,000 are not core to Delphi's strategic growth objectives. Delphi continues to
negotiate with prospective buyers for these businesses, and expects that the
sale of one or all of these businesses could be concluded during the third
quarter of 1998. In connection with the possible consummation of such
transactions, management would expect to record an aggregate charge against
earnings, the amount of which is currently not estimable.
- 17 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMIO Financial Highlights
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ --------
(Dollars in Millions)
Net sales and revenues $8,903 $9,711 $17,053 $17,994
----- ----- ------ ------
Pre-tax income 265 727 478 1,200
Income taxes 123 233 195 397
Minority interests 1 7 - 10
Earnings (loss) of nonconsolidated
affiliates (6) (13) 14 (8)
--- --- --- ----
Net income
GM Europe 124 312 223 461
Other International 13 176 74 344
---- --- ---- ---
Total net income $137 $488 $297 $805
=== === === ===
Net profit margin 1.5% 5.0% 1.7% 4.5%
Vehicle Unit Deliveries of Cars and Trucks - GMIO
Three Months Ended June 30,
---------------------------
1998 1997
----------------------- -----------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- -- -------- -------- -- --------
(Units in Thousands)
International
Europe 4,925 456 9.3% 4,727 492 10.4%
Latin America, Africa and
the Middle East 1,083 184 7.0% 1,128 188 16.7%
Asia and Pacific 2,571 110 4.3% 3,100 125 4.0%
----- --- ----- ---
Total International 8,579 750 8.7% 8,955 805 9.0%
===== === ===== ===
Wholesale Sales - GMIO
Cars 721 630
Trucks 146 198
--- ---
Total 867 828
=== ===
Six Months Ended June 30,
-------------------------
1998 1997
----------------------- ------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- -- -------- -------- -- --------
(Units in Thousands)
International
Europe 9,899 948 9.6% 9,199 957 10.4%
Latin America, Africa and
the Middle East 2,052 360 17.5% 2,093 350 16.7%
Asia and Pacific 5,540 230 4.1% 6,911 306 4.4%
----- --- ----- ----
Total International 17,491 1,538 8.8% 18,203 1,613 8.9%
====== ===== ====== =====
Wholesale Sales - GMIO
Cars 1,258 1,180
Trucks 323 423
---- ------
Total 1,581 1,603
===== =====
- 18 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMIO Financial Review
GMIO's 1998 second quarter net income was $137 million or 1.5% of net sales
and revenues compared with $488 million or 5.0% of net sales and revenues in the
prior year quarter. This decrease in 1998 second quarter net income was
primarily due a special charge related to work schedule modifications at Opel
Belgium and lower wholesale sales volumes particularly in Europe associated with
the start-up of the new Astra. Additionally, the second quarter 1997 included a
gain related to the sale of GM Europe's (GME) interest in Avis Europe. Net
income for the six months ended June 30, 1998 totaled $297 million compared with
$805 million for the prior year period. The decrease in net income for the first
six months of 1998 was primarily due to lower net income for GME and LAAMO.
Pre-tax income for the 1998 second quarter was $265 million compared with
$727 million in the prior year quarter with the decrease primarily due a special
charge related to work schedule modifications at Opel Belgium and lower
wholesale sales volumes especially in Europe related to the start-up of the new
Astra and a gain on the sale of GME's interest in Avis Europe in the second
quarter 1997.
Net sales and revenues for the 1998 second quarter decreased by 8.3% to $8.9
billion compared with $9.7 billion in the prior year quarter. The decreased net
sales and revenues in the 1998 second quarter mainly reflected lower wholesale
sales volumes in Europe and the impact of translating foreign currencies against
a stronger U.S. dollar. Net sales and revenues for the six months ended June 30,
1998 totaled $17.1 billion, which represented a decrease of $941 million or 5.2%
compared with the prior year six month period.
Net income for GME totaled $124 million in the 1998 second quarter compared
with $312 million in the prior year quarter. Net income for GME for the six
months ended June 30, 1998 decreased $238 million compared with the prior year
period. The lower net income for the three and six months ended June 30, 1998
was due primarily to a special charge related to work schedule modifications at
Opel Belgium and lower wholesale sales volumes associated with the Astra
start-up and introduction. Additionally, 1997 included a gain related to the
sale of GME's interest in Avis Europe.
Net income from the remainder of GMIO's operations, which include the Latin
American and Asia and Pacific Operations, totaled $13 million in the second
quarter of 1998 compared with $176 million in the prior year quarter. The
decreased 1998 second quarter net income resulted primarily from the impact of
the economic downturn in the Asia-Pacific region and its subsequent effect on
Latin America. Net income from the remainder of GMIO's operations for the six
months ended June 30, 1998, totaled $73 million compared with $344 million in
the prior year period, primarily reflecting lower net income in Latin America.
- 19 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
General Motors Acceptance Corporation (GMAC) Financial Highlights
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in Millions)
Financing revenue
Retail and lease financing $950 $890 $1,852 $1,830
Operating leases 1,809 1,817 3,594 3,619
Wholesale and term loans 446 470 865 903
------ ------ ------ ------
Total automotive financing revenue 3,205 3,177 6,311 6,352
Interest and discount 1,455 1,312 2,839 2,578
Depreciation on operating leases 1,161 1,154 2,339 2,312
----- ----- ----- -----
Net automotive financing revenue 589 711 1,133 1,462
Insurance premiums earned 480 306 951 612
Mortgage revenue 500 372 918 673
Other income 337 237 668 562
------ ------ ------ ------
Net financing revenue and other 1,906 1,626 3,670 3,309
Expenses 1,378 1,043 2,627 2,096
----- ----- ----- -----
Pre-tax income 528 583 1,043 1,213
Income tax expense 163 245 329 503
--- --- --- ---
Net income $365 $338 $714 $710
=== === === ===
Net income from automotive financing
operations $288 $245 $534 $502
Net income from insurance operations 54 42 134 121
Net income from mortgage operations 23 51 46 87
---- ---- ---- ----
Net income $365 $338 $714 $710
=== === === ===
Return on average equity (1) 15.8% 16.1% 15.8% 17.0%
- ------------------------
(1) Return on average equity represents net income as a percentage of average
stockholder's equity outstanding for each month in the period.
- 20 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review
Consolidated net income for the second quarter and first six months of 1998
increased by 8% and 1% compared to the same periods during 1997. Earnings were
18% higher from automotive financing operations during the second quarter of
1998, compared to the same period in 1997, primarily as a result of an increase
in retail financing volumes and a lower effective income tax rate, partially
offset by lower net financing margins.
Earnings from insurance operations increased by 28% during the second quarter
of 1998, compared to the same period during 1997. Earnings were higher due to
increased capital gains, partially offset by higher weather-related losses on
dealership inventory coverages.
Net income from mortgage operations during the second quarter was $28 million
lower than the second quarter of 1997. The decline is the result of the effect
of higher than anticipated prepayment speeds, primarily on interest-only
products.
During the three months ended June 30, 1998, GMAC financed 36.5% of new GM
vehicles delivered in the U.S., up from 24% during the same period last year.
Penetration for the first six months of 1998 was 35.7% compared with 25% for the
same 1997 period. Increased retail incentive programs sponsored by GM resulted
in the higher retail financing penetration.
U.S. wholesale inventory financing was provided on 643,000 and 1,367,000 new
GM vehicles during the respective three and six month periods ended June 30,
1998, compared with 831,000 and 1,672,000 during the same 1997 periods. This
financing represented 63.1% and 67.8% of GM's U.S. vehicle sales to dealers
during the first six months of 1998 and 1997, respectively. Increased
competitive market conditions led to the decline in wholesale penetration
levels. The reduction in wholesale financing volume is primarily a result of the
work stoppages at two GM component plants previously discussed. The continuation
of the work stoppages through the settlement reached on July 28, 1998 will have
a significant unfavorable effect on the number of wholesale units financed by
GMAC in the third quarter of 1998.
Automotive financing revenue totaled $3.2 billion and $6.3 billion in the
second quarter and first six months of 1998, respectively, relatively unchanged
from $3.2 billion and $6.4 billion for the comparable periods in 1997. Higher
retail financing revenues were offset by a decline in wholesale revenues
principally as a result of the GM work stoppage-related reduction in wholesale
receivable balances. To the extent that work stoppages continued to disrupt GM's
production and shipment of vehicles through the settlement reached on July 28,
1998, the resulting decline in revenues will have a continuing impact on GMAC's
results of operations in the third quarter of 1998.
GMAC's worldwide cost of borrowing for the second quarter and first six
months of 1998 averaged 6.02% and 6.05%, respectively, a decrease of 29 and 23
basis points from the comparable periods of a year ago. Total borrowing costs
for U.S. operations averaged 5.92% and 6.00% for the second quarter and first
six months of 1998, compared to 6.38% and 6.35% for the respective periods in
1997. The lower average borrowing costs for the first six months of 1998 are the
result of lower long-term interest rates and a greater proportion of floating
rate debt compared to fixed rate debt.
Insurance premiums earned, mortgage revenue and other income totaled $1.3
billion and $2.5 billion for the second quarter and six months ended June 30,
1998, respectively, compared to $915 million and $1.8 billion during the
comparable 1997 periods. The increase during the first six months of 1998
compared to the same period in 1997 corresponds with higher insurance premiums
and investment income resulting from the acquisition of Integon by GMAC
Insurance Holdings, Inc. (GMACI) in October 1997, as well as an increase in
mortgage investment income and higher capital gains for insurance operations.
Consolidated salaries and other operating expenses totaled $855 million and
$1.6 billion for the second quarter and first six months of 1998, respectively,
compared to $675 million and $1.4 billion for the comparable periods last year.
The increase is mainly attributable to the acquisition of Integon by GMACI and
continued growth at GMAC Mortgage Group, Inc. (GMACMG).
Annualized net retail losses were 0.73% and 0.88% of total average serviced
automotive receivables during the second quarter and first six months of 1998,
respectively, compared to 1.28% and 1.35% for the same periods last year. The
provision for credit losses totaled $229 million and $257 million for the six
month periods ended June 30, 1998 and 1997, respectively. The decline in the
provision is primarily attributable to lower credit losses resulting from
tightened credit standards.
The effective income tax rate for the first six months of 1998 was 31.5%,
compared to 41.5% for the same period last year. The decrease in the effective
tax rate can be attributed to lower U.S. and foreign taxes assessed on foreign
source income and a favorable change resulting from periodic assessments of
state and local income tax accruals.
- 21 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Hughes Financial Highlights
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1998 1997(1) 1998 1997(1)
------- ------- ------ -------
(Dollars in Millions Except Per Share Amounts)
Revenues
Product sales $763 $739 $1,455 $1,423
Direct broadcast, leasing and
other services 606 412 1,205 752
------ ------ ----- ------
Total revenues 1,369 1,151 2,660 2,175
Income from continuing operations
before income taxes and
minority interests 65 519 144 525
Income taxes 23 208 55 210
Minority interests 9 8 10 22
Income from discontinued operations,
net of taxes - - - 1
--- --- --- ---
Net income $51 $319 $99 $338
== === == ===
Earnings used for computation of
Available Separate Consolidated
Net Income (2) $56 $324 $110 $348
== === === ===
Earnings per share attributable
to Class H common stock (3) $0.14 $0.81 $0.27 $0.87
- ----------------
(1)The 1997 amounts presented relate only to the results of the
telecommunications and space businesses of former Hughes. See Hughes
Financial Review for further discussion.
(2)Excludes amortization of GM purchase accounting adjustments of $5 million for
the second quarters of 1998 and 1997 and $11 million for the six-month
periods ended June 30, 1998 and 1997 related to GM's acquisition of HAC in
1985.
(3)The 1997 amounts are presented on a pro forma basis to reflect the changes to
GM's organizational structure resulting from the Hughes Transactions which
occurred in December 1997. See Hughes Financial Review for further
discussion.
- 22 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Hughes Financial Review
On December 17, 1997, GM and former Hughes completed a series of transactions
(Hughes Transactions) that were designed to address strategic challenges facing
the three principal businesses of former Hughes (consisting of the defense
electronics, automotive electronics and telecommunications and space
businesses). The Hughes Transactions included the tax-free spin-off of the
defense electronics business of former Hughes (Hughes Defense) to holders of
$1-2/3 par value and Class H common stocks, the transfer of Delco from former
Hughes to Delphi, and the recapitalization of Class H common stock into a new GM
tracking stock, Class H common stock, that is linked to the remaining
telecommunications and space businesses of Hughes. The Hughes Transactions were
followed immediately by the merger of Hughes Defense with Raytheon Company. The
1997 amounts presented for Hughes relate only to the telecommunications and
space businesses of former Hughes.
For 1997, earnings per share attributable to Class H common stock is
presented on a pro forma basis. Prior to the Hughes Transactions, such amounts
were calculated based on the financial performance of former Hughes. Since the
financial statements for 1997 relate only to the telecommunications and space
businesses of former Hughes, they do not reflect the earnings attributable to
the former Class H common stock on a historical basis. The pro forma
presentation, therefore, presents the financial results which would have been
achieved for 1997 relative to the Class H common stock based solely on the
performance of the telecommunications and space businesses of former Hughes.
In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat for
$851 million in cash, increasing Hughes' ownership interest in PanAmSat to 81%.
Hughes Electronics reported net income of $51 million for the second quarter
of 1998 compared with last year's $1 million, and $99 million for the first six
months of 1998 compared with $20 million in the same period of 1997. 1997 net
income excludes the $318 million after-tax gain ($0.80 per share of Class H
common stock) recognized in connection with the May 1997 PanAmSat merger.
Excluding amortization of purchase accounting adjustments related to GM's
acquisition of HAC and the 1997 $318 million after-tax gain, Hughes' earnings
used for computation of available separate consolidated net income was $56
million and $6 million for the second quarters of 1998 and 1997, respectively,
and $110 million and $30 million for the six months ended June 30, 1998 and
1997, respectively. Earnings per share on the same basis increased to $0.14 for
the second quarter of 1998 versus pro forma earnings per share of $0.01 for the
same period in 1997. Earnings per share on the same basis increased to $0.27 for
the first six months of 1998 versus pro forma earnings per share of $0.07 in
1997. The increases were principally due to record DIRECTV subscriber growth
through June, continued strong performance in the satellite services segment
resulting from the PanAmSat merger, and higher commercial satellite sales.
Second quarter 1998 revenues increased 18.9% to $1.4 billion compared with
$1.2 billion in the second quarter of 1997. Revenues for the first six months of
1998 increased 22.3% to $2.7 billion compared with $2.2 billion in the first
half of 1997. The 1998 increase in revenues compared to the same periods in 1997
resulted from an increase in the Direct-To-Home Broadcast segment due to strong
subscriber growth and average monthly revenues per subscriber, as well as low
subscriber churn rates; an increase in the Satellite Services segment primarily
from the May 1997 PanAmSat merger and increased operating lease revenues for
video, data and Internet-related services; and, an increase in the Satellite
Manufacturing segment which resulted principally from higher commercial
satellite sales.
Operating profit, excluding amortization of purchase accounting adjustments
related to GM's acquisition of HAC, increased 36.5% for the second quarter of
1998 to $78 million, compared with $57 million in the second quarter of 1997 and
increased 79.0% for the first six months of 1998 to $162 million from $90
million for the same period in 1997. The increases were primarily due to the
above noted increases in revenue. Second quarter operating profit margin on the
same basis increased to 5.7% from 5.0% in 1997 and increased to 6.1% in the
first half of 1998 compared with 4.2% in the first half of 1997. The increased
operating profit margin resulted primarily from increases in subscribers in the
Direct-To-Home Broadcast segment, and the May 1997 PanAmSat merger and increased
operating leases revenues in the Satellite Services segment.
- 23 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
To facilitate analysis, the following sections present GM's financial
statements with its financing and insurance operations (primarily GMAC)
reflected on an equity basis.
Consolidated Statements of Income With Financing and Insurance Operations on an
Equity Basis (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in Millions)
Net sales and revenues $33,462 $39,741 $69,889 $77,198
------ ------ ------ ------
Costs and expenses
Cost of sales and other operating charges,
exclusive of items listed below 28,619 32,998 58,942 64,102
Selling, general, and administrative
expenses 3,421 3,290 6,281 6,174
Depreciation and amortization expenses 1,727 1,918 3,410 3,797
------- ------- ------ -------
Total costs and expenses 33,767 38,206 68,633 74,073
------ ------ ------ ------
Operating (loss) income (305) 1,535 1,256 3,125
Other income less income deductions 654 1,330 1,236 2,069
Interest expense 322 219 577 438
----- ------ ------ ------
Income before income taxes, minority
interests, and earnings of
nonconsolidated affiliates 27 2,646 1,915 4,756
Income taxes 10 909 651 1,639
-- ------ ------ -----
Income before minority interests and earnings
of nonconsolidated affiliates 17 1,737 1,264 3,117
Minority interests 7 18 3 37
Earnings of nonconsolidated affiliates 365 343 726 740
--- ------ ------ ------
Net income $389 $2,098 $1,993 $3,894
=== ===== ===== =====
Net profit margin 1.2% 5.3% 2.9% 5.0%
Results of Operations With Financing and Insurance Operations on an Equity Basis
In the second quarter of 1998, GM's net income totaled $389 million or $.54
per share of $1-2/3 par value common stock, compared to $2.1 billion or $2.68
per share of $1-2/3 par value common stock. GM's net income for the six months
ended June 30, 1997 was $2.0 billion, or $2.88 per share of $1-2/3 par value
common stock, compared with $3.9 billion, or $4.98 per share of $1-2/3 par value
common stock, for the first six months ended June 30, 1996. GM's 1998 and 1997
net income included $1.2 billion and $490 million after-tax unfavorable impact
from the previously discussed work stoppages. The decreases in net income are
primarily due to the economic downturn in Asia and Latin America and the Hughes
Transactions.
Highlights of financial performance by GM's major business sectors for the
three months and six months ended June 30 were as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ -----
GM-NAO $(196) $474 $630 $1,238
Delphi 84 310 347 490
GMIO 137 488 297 805
GMAC 365 338 714 710
Hughes 56 542 110 777
Other (57) (54) (105) (126)
---- --- ----- -----
Net Income $389 $2,098 $1,993 $3,894
=== ===== ===== =====
- 24-
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Results of Operations With Financing and Insurance Operations on an Equity
Basis (concluded)
Reference should be made to the GM sectors' financial reviews that are
presented on pages 12 through 24 and incorporated by reference to supplement the
information presented herein.
Second quarter 1998 net sales and revenues were $33.5 billion, which
represented a decrease of $6.3 billion compared with the prior year quarter. Net
sales and revenues for the six months ended June 30, 1998 were $69.9 billion
compared with $77.2 billion for the first six months of 1997. These decreases in
net sales and revenues for the second quarter and the first six months were
primarily due to the spin-off of Hughes Defense and lower wholesale sales
volumes in North America due to the work stoppages previously discussed.
The gross margin percentage for the 1998 second quarter was 14.5% compared
with 17.0% in the prior year quarter. The gross margin percentage for the six
months ended June 30, 1998 was 15.7%, compared with 17.0% for the first six
months of 1997. The decreases in the gross margins primarily resulted from the
decrease in wholesale sales volumes and higher sales incentives in North
America.
Cost of sales and other operating charges decreased to $28.6 billion in the
second quarter and $59.0 billion for the first six months of 1998 compared with
$33.0 billion and $64.1 billion, respectively. These decreases were primarily
due to the spin-off of Hughes Defense and lower wholesale sales volumes in North
America due to the work stoppages and model change-overs previously discussed.
Depreciation and amortization expenses decreased by $191 million and $387
million in the second quarter of 1998 and for the six months ended June 30,
1998, respectively, primarily due to a reduction in tool amortization at GM-NAO
as a result of the previously reported competitiveness studies at GM.
Other income less income deductions decreased to $654 million for the 1998
second quarter compared with $1.3 billion in the prior year quarter primarily
due to a $490 million pre-tax gain ($318 million after-tax or $0.33 per share of
$1-2/3 par value common stock and $0.80 per share of Class H common stock)
related to the merger of the satellite service operations of Hughes and
PanAmSat(PAS) and a $128 million pre-tax gain ($103 million after-tax or $0.14
per share of $1-2/3 par value common stock) related to the sale of GME's equity
interest in Avis Europe in the second quarter of 1997. Other income less income
deductions for the six months ended June 30, 1998 was $1.2 billion compared with
$2.1 billion for the first six months of 1997. This decrease is primarily due to
the previously discussed second quarter 1997 gains and an $88 million pre-tax
gain ($55 million after-tax or $0.07 per share of $1-2/3 par value common stock)
related to an agreement in the first quarter of 1997 with Volkswagen A.G. (VW)
that settled a civil lawsuit which GM brought against VW.
- 25 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets With Financing and Insurance Operations on an
Equity Basis (Unaudited)
June 30, Dec. 31, June 30,
1998 1997 1997
------- ------- -------
(Dollars in Millions)
ASSETS
Cash and cash equivalents $8,637 $10,685 $10,855
Other marketable securities 477 3,826 4,062
------ ------- -------
Total cash and marketable securities 9,114 14,511 14,917
Accounts and notes receivable
(less allowances)
Trade 4,617 5,164 5,887
Nonconsolidated affiliates 1,721 836 1,478
Inventories (less allowances) 11,942 12,102 13,528
Equipment on operating leases
(less accumulated depreciation) 4,754 4,677 4,047
Deferred income taxes and other 6,069 6,278 5,425
------- ------- -------
Total current assets 38,217 43,568 45,282
Equity in net assets of nonconsolidated
affiliates 11,091 10,164 10,061
Deferred income taxes 20,399 20,721 19,692
Other investments and miscellaneous assets 13,803 13,564 13,586
Property - net 35,293 33,914 37,211
Intangible assets -net 11,471 10,752 14,864
-------- -------- --------
Total assets $130,274 $132,683 $140,696
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $10,230 $12,474 $11,235
Loans payable 1,850 656 1,281
Accrued expenses and customer deposits 31,956 33,459 31,431
------ ------ ------
Total current liabilities 44,036 46,589 43,947
Long-term debt 7,097 5,491 5,967
Capitalized leases 178 185 188
Postretirement benefits other than
pensions 37,535 38,388 41,393
Pensions 4,780 4,271 5,822
Other liabilities and deferred
income taxes 20,192 19,336 18,230
-------- -------- --------
Total liabilities 113,818 114,260 115,547
------- ------- -------
Minority interests 538 695 716
General Motors - obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely
junior subordinated debentures of
General Motors
Series D 79 79 -
Series G 143 143 -
Redeemable preferred stock of subsidiary - - 402
Stockholders' equity 15,696 17,506 24,031
-------- -------- --------
Total liabilities and stockholders'
equity $130,274 $132,683 $140,696
======= ======= =======
Liquidity and Capital Resources With Financing and Insurance Operations on an
Equity Basis
GM's cash and marketable securities totaled $9.1 billion at June 30, 1998,
compared with $14.5 billion at December 31, 1997 and $14.9 billion at June 30,
1997. The decrease in cash and marketable securities from June 30, 1997 and
December 31, 1997 to June 30, 1998 was primarily due to the work stoppages
previously mentioned and approximately $2.6 billion in cash used in 1998 to
acquire 38.4 million shares of $1-2/3 par value common stock under the stock
repurchase program announced in August 1997, a $1.5 billion contibution to a
VEBA trust and a $1.1 billion pension contribution. Stock repurchases have been
temporarily suspended as part of GM's cash conservation initiatives due to the
work stoppages.
During the second quarter of 1998, loans payable and long-term debt increased
to $9.0 billion at June 30, 1998 from balances of $6.1 billion and $7.2 billion
at December 31, 1997 and June 30, 1997, respectively. The increases were
primarily due to issuances of commercial paper and an increase in long-term debt
to fund a VEBA. Net liquidity, calculated as cash and marketable securities less
the total of loans payable, long-term debt and capitalized leases was $(11)
million at June 30, 1998, compared with $8.2 billion at December 31, 1997 and
$7.5 billion at June 30, 1997.
- 26 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Liquidity and Capital Resources With Financing and Insurance Operations on an
Equity Basis (concluded)
Book value per share of $1-2/3 par value common stock decreased to $20.90 at
June 30, 1998, from $22.26 at December 31, 1997 and $29.99 at June 30, 1997.
Book value per share of Class H common stock increased to $12.54 at June 30,
1998, from $13.36 at December 31, 1997 and $14.99 at June 30, 1997.
Liquidity and Capital Resources for GMAC
At June 30, 1998, GMAC owned assets and serviced automotive receivables
totaling $124.8 billion, $3.6 billion above year-end 1997, and $13.1 billion
above June 30, 1997. The higher balance compared to year-end 1997 predominantly
reflects increases in retail earning assets partially offset by a decline in
off-balance sheet wholesale serviced assets.
Earning assets totaled $108.8 billion at June 30, 1998, compared to $104.5
billion and $100.9 billion at December 31 and June 30, 1997, respectively. The
change from year-end 1997 is principally the result of a $2.2 billion increase
in receivables due from GM as well as $1.8 billion and $1.7 billion increases in
net finance receivables and operating lease assets, respectively, partially
offset by a $1.2 billion decrease in real estate mortgages held for sale.
Finance receivables serviced by GMAC, including sold receivables, totaled
$73.4 billion at June 30, 1998, $65 million below December 31, 1997 levels and
$3.2 billion above June 30, 1997 levels. Retail receivables were $4.4 billion
higher than year-end 1997, a direct result of increased retail incentive
programs sponsored by GM. On-balance sheet wholesale receivables declined $3.3
billion during the same period due to the GM work stoppages. Also contributing
to the change, off-balance sheet serviced wholesale receivables decreased $1.6
billion, attributable to the scheduled wind down of a revolving wholesale trust
and the effects of the work stoppages.
Consolidated operating lease assets, net of depreciation, totaled $27.6
billion at June 30, 1998, reflecting an increase of $1.7 billion over both
December 31 and June 30, 1997 periods. The increase from year-end 1997 is
primarily attributable to additional GM sponsored lease incentive programs in
the U.S. during the first six months of 1998.
Investments in securities at June 30, 1998 totaled $7.9 billion, compared
with $7.9 billion and $5.5 billion at December 31 and June 30, 1997,
respectively. The increase from June 1997 to June 1998 is principally the result
of continued growth at GMACMG and the acquisition of Integon by GMACI.
GMAC's due and deferred from receivable sales (net) totaled $240 million at
June 30, 1998, compared with $691 million and $635 million at December 31 and
June 30, 1997, respectively. The significant decline in the June 30, 1998
balance was primarily due to the upgrade in GMAC's short-term debt rating by
Standard & Poor's Ratings Group (S&P) in January 1998, which eliminated the
requirement to segregate and hold in trust the collections on sold receivables.
As of June 30, 1998, GMAC's total borrowings were $88.3 billion, compared
with $86.7 billion and $82.5 billion at December 31, 1997 and June 30, 1997,
respectively. The higher borrowings were used to fund increased earning asset
levels. GMAC's ratio of debt to total stockholder's equity at June 30, 1998 was
9.5:1, compared to 9.9:1 at December 31, 1997 and 9.7:1 at June 30, 1997.
Continuing to utilize its asset securitization program, GMAC sold additional
retail finance receivables totaling $1.6 billion (net) during the second quarter
of 1998.
GMAC and its subsidiaries maintain substantial bank lines of credit which
totaled $40.7 billion at June 30, 1998, compared to $39.8 billion at year-end
1997 and $40.2 billion at June 30, 1997. The unused portion of these credit
lines totaled $31.9 billion at June 30, 1998, $1.5 billion and $370 million
higher than December 31 and June 30, 1997, respectively. Included in the unused
credit lines are a committed U.S. revolving credit facility of $10.0 billion
which serves primarily as back-up for GMAC's unsecured commercial paper program
and an $11.5 billion U.S. asset-backed commercial paper liquidity and
receivables credit facility for New Center Asset Trust (NCAT), a
non-consolidated limited purpose business trust established to issue
asset-backed commercial paper.
Effective April 23, 1998, Moody's Investors Service increased the rating of
GMAC's senior debt from A3 to A2. The increase in the rating was closely related
to the improved financial condition of GM. Effective August 3, 1998, S&P
affirmed its current ratings on GMAC and revised its outlook on GMAC from stable
to negative.
- 27 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows With Financing and Insurance
Operations on an Equity Basis (Unaudited)
Six Months Ended
June 30,
----------------
1998 1997
---- ----
(Dollars in Millions)
Net cash provided by operating activities $1,166 $7,582
----- -----
Cash flows from investing activities
Expenditures for property (4,369) (4,070)
Investments in companies, net of cash acquired (1,322) (1,652)
Investments in other marketable securities
- acquisitions (4,984) (7,963)
Investments in other marketable securities
- liquidations 8,332 7,543
Operating leases - acquisitions (3,042) (2,610)
Operating leases - liquidations 2,815 1,667
Other 72 (29)
----- -----
Net cash used in investing activities (2,498) (7,114)
----- -----
Cash flows from financing activities
Net increase in loans payable 1,194 66
Increase in long-term debt 2,652 195
Decrease in long-term debt (1,052) (37)
Proceeds from issuing common stocks 344 281
Repurchases of common stocks (3,071) (2,292)
Cash dividends paid to stockholders (703) (829)
------ ------
Net cash used in financing activities (636) (2,616)
------ -----
Effect of exchange rate changes on cash and
cash equivalents (80) (317)
----- -----
Net decrease in cash and cash equivalents (2,048) (2,465)
----- -----
Cash and cash equivalents at beginning of the period 10,685 13,320
------ ------
Cash and cash equivalents at end of the period $8,637 $10,855
===== ======
Cash Flows With Financing and Insurance Operations on an Equity Basis
Net cash provided by operating activities was approximately $1.2 billion for
the six months ended June 30, 1998, compared with net cash provided by operating
activities of approximately $7.6 billion in the prior year period. The decrease
was primarily the result of a decrease in cash generated from lower net income
and a run-off of trade payables due primarily to the work stoppages previously
discussed.
Net cash used in investing activities amounted to $2.5 billion for the six
months ended June 30, 1998 compared with $7.1 billion in the prior year period.
The decrease in net cash used in investing activities during the 1998 period was
primarily due to approximately $1.5 billion of cash consideration used in 1997
to consummate the merger of the satellite service operations of Hughes and PAS,
combined with a $1.7 billion net increase in cash used for operating leases in
1997.
Net cash used in financing activities totaled $636 million for the six months
ended June 30, 1998, compared with $2.6 billion for the prior year period. The
change was primarily due to net increases in short and long-term debt.
Dividends may be paid on common stocks only when, as and if declared by the
GM Board of Directors (GM Board) in its sole discretion. GM's policy is to
distribute dividends on its $1-2/3 par value common stock based on the outlook
and indicated capital needs of the business. On August 3,1998, the GM Board
declared quarterly dividends of $0.50 per share on $1-2/3 par value common
stock, payable September 10, 1998. The GM Board also declared quarterly
dividends on the Series B, Series D, and Series G Depositary Shares of $0.57,
$0.495, and $0.57 per share, respectively, payable November 2, 1998. With
respect to Class H common stock, which was recapitalized on December 17, 1997,
the GM Board has decided that initially no cash dividends will be paid in order
to allow the earnings of Hughes to be retained for investment in its
telecommunications and space businesses.
- 28-
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Cash Flows for GMAC
Cash provided by operating activities during the six months ended June 30,
1998 totaled $6.5 billion, an increase from the $3.2 billion provided during the
comparable 1997 period. The increase was mainly attributed to increased net
sales of mortgage loans and other mortgage liabilities.
Cash used for investing activities during the first six months of 1998
totaled $8.2 billion, compared with $7.2 billion during the same period in 1997.
The period-to-period increase was the result of lower finance receivable
liquidations, increases in both operating lease acquisitions and receivables due
from GM, partially offset by higher sale of receivable proceeds resulting from
increased wholesale asset securitization activity.
During the first six months of 1998, cash provided by financing activities
totaled $1.9 billion, compared with approximately $4 billion of cash provided by
financing activities during the first six months of 1997. The $2.1 billion
change was primarily attributable to lower proceeds from the issuance of short
term debt due to lower funding requirements for wholesale receivables, partially
offset by reduced long term debt liquidations and lower dividends paid to GM.
Employment and Payrolls
June 30,
1998 1997
---- ----
Worldwide Employment (in thousands)
GM-NAO 231 243
Delphi 205 207
GMIO 116 114
GMAC 22 18
Hughes 15 15
Other 9 10
--- ---
Total employees 598 607
=== ===
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------
1998 1997 1998 1997
---- ---- ---- ----
Worldwide payrolls - (in billions) $6.7 $7.1 $13.8 $14.1
=== === ==== ====
Employment and payroll amounts reported for 1997 have been adjusted to
reflect the changes to GM's organizational structure resulting from the Hughes
Transactions. As such, Delphi reported amounts include Delco and Hughes reported
amounts exclude Delco and Hughes Defense. The decrease in worldwide payrolls are
partially due to the work stoppages previously discussed.
New Accounting Standards
In April 1998, the AICPA issued Statement of Position (SOP) 98-5, Reporting
on the Costs of Start-Up Activities. SOP 98-5 provides guidance on the financial
reporting of start-up and organizational costs, requiring those costs to be
expensed as incurred. GM will adopt the standard by January 1, 1999. Adoption of
this standard is not expected to have a material impact on GM's consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Gains or losses resulting
from changes in the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting. GM
plans to adopt SFAS No. 133 by January 1, 2000, as required. GM is currently
assessing the impact of this Statement on GM's consolidated financial
statements.
* * * * * *
- 29 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
(a) Material pending legal proceedings, other than ordinary routine litigation
incidental to the business, to which the Corporation became, or was, a party
during the quarter ended June 30, 1998 or subsequent thereto, but before the
filing of this report are summarized below.
Environmental Matters
With respect to the previously reported matter in which the Illinois
Environmental Protection Agency and the U.S. Environmental Protections Agency
had asserted that portions of a facility maintained by the Electro-Motive
Division of General Motors (EMD) at LaGrange, Illinois for engine testing was
required to have permits under Title I of the Clean Air Act, the Corporation has
reached a settlement with the government agencies which is the subject of a
judicial consent order entered on June 17, 1998. The settlement provides for the
Corporation's payment of a $125,000 penalty, a $100,000 contribution to a local
education program and participation in two supplemental environmental projects.
EMD has obtained a permit for the subject facilities.
With respect to the previously reported matter in which the Delaware
Department of Natural Resources & Environmental Control (DDNREC) issued a Notice
of Administrative Penalty Assessment to the Corporation's Wilmington Assembly
Plant concerning alleged violations of the Delaware volatile organic compound
rules, the Corporation has agreed to a settlement which is contained in an
Administrative Order that became effective on June 16, 1998. The Order requires
the Corporation to, among other things, pay a $100,000 penalty and contribute
$100,000 to a supplemental environmental project.
With respect to the previously reported matter in which the Michigan
Department of Environmental Quality (MDEQ) had alleged that the Corporation's
Powertrain Group (GMPTG) had violated various MDEQ regulations at GMPTG's
Malleable Iron facility in Saginaw, Michigan, the Corporation has agreed to a
settlement which is contained in a March 16, 1998 Consent Judgment filed with
the Circuit Court for Saginaw County. The settlement provides for the
Corporation to pay a civil penalty of $200,000 and contribute $200,000 to
environmental projects in the Saginaw, Michigan area.
Other Matters
As previously reported, Hughes has maintained a suit against the U.S.
Government since September 1973 regarding the Government's infringement and use
of a Hughes patent (the "Williams Patent") covering "Velocity Control and
Orientation of a Spin Stabilized Body," principally satellites. On April 7,
1998, the Court of Appeals for the Federal Circuit (CAFC)reaffirmed earlier
decisions in the Williams case and the award of $114 million in damages. The
CAFC ruled that the conclusions previously reached in the Williams case were
consistent with the U.S. Supreme Court's findings in the Warner-Jenkinson case.
The U.S. Government petitioned the CAFC for a rehearing and was denied. Hughes
is unable to estimate the duration of any further appeal effort by the U.S.
Government. While no amount has been recorded in the financial statements of
Hughes to reflect the $114 million award or the interest accumulating thereon, a
resolution of this issue could result in a gain that would be material to the
earnings of GM attributable to Class H common stock.
In connection with the 1997 spin-off of Hughes Electronics Corporation's
defense business and its subsequent merger with Raytheon Company, a process was
agreed to among GM, Hughes and Raytheon for resolving disputes that might arise
in connection with post-closing adjustments called for by the terms of the
merger agreement. Such adjustments might call for a cash payment between Hughes
and Raytheon. A dispute currently exists regarding the post-closing adjustments
which Hughes and Raytheon have proposed to one another. If the dispute is not
resolved by negotiation, the parties will proceed to an agreed upon form of
binding arbitration under which either party may be required by arbitration to
make a payment to the other. It is possible that Hughes may be required by
arbitration to make a payment to Raytheon that would be material to Hughes.
However, the amount of payment that might be required of either party is not
determinable at this time. Hughes intends to vigorously oppose the adjustments
Raytheon seeks.
* * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The annual meeting of stockholders of the Registrant was held on
June 1, 1998.
At that meeting, the following matters were submitted to a vote of the
stockholders of General Motors Corporation:
1998 General Motors Annual Meeting
Final Voting Results
(All classes of common stock)
Proposal Voting Results
- -------- ---------------------
Votes* Percent**
------ ---------
Item No. 1
Nomination and Election of Directors
The Judges subscribed and delivered a certificate reporting that the
following nominees for directors had received the number of votes* set opposite
their respective names.
Percy N. Barnevik For 579,645,721 98.6%
Withheld 8,004,510 1.4
John H. Bryan For 579,649,967 98.6
Withheld 8,000,264 1.4
Thomas E. Everhart For 579,420,531 98.6
Withheld 8,229,700 1.4
Charles T. Fisher, III For 579,482,263 98.6
Withheld 8,167,968 1.4
George M. C. Fisher For 579,654,849 98.6
Withheld 7,995,382 1.4
Karen Katen For 579,546,199 98.6
Withheld 8,104,032 1.4
J. Willard Marriott, Jr. For 579,504,241 98.6
Withheld 8,145,990 1.4
Ann D. McLaughlin For 579,057,384 98.5
Withheld 8,592,847 1.5
Harry J. Pearce For 579,613,393 98.6
Withheld 8,036,838 1.4
Eckhard Pfeiffer For 579,781,652 98.6
Withheld 7,868,579 1.4
John G. Smale For 579,131,675 98.5
Withheld 8,518,556 1.5
John F. Smith, Jr. For 579,568,170 98.6
Withheld 8,082,061 1.4
Louis W. Sullivan For 579,079,186 98.5
Withheld 8,571,045 1.5
Dennis Weatherstone For 579,557,023 98.6
Withheld 8,093,208 1.4
Thomas H. Wyman For 579,335,078 98.6
Withheld 8,315,153 1.4
Item No. 2
A proposal of the Board of For 583,619,369 99.3%
Directors that the stockholders Against 2,069,231 0.4
ratify the selection of Abstain 1,961,624 0.3
Deloitte & Touche LLP as
independent public accountants
for the year 1998.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Concluded
Proposal Voting Results
- -------- ---------------------
Votes* Percent**
------ ---------
Item No. 3
A stockholder proposal that future For 20,113,835 4.0%
outside directors not serve for Against 475,813,051 94.7
more than six years Abstain 6,462,181 1.3
Item No. 4
A stockholder proposal that the For 141,501,553 28.2%
Board of Directors provide for Against 353,508,863 70.3
cumulative voting in the election Abstain 7,376,979 1.5
of directors.
Item No. 5
A stockholder proposal regarding For 22,117,577 4.4%
greenhouse gas emissions. Against 454,288,666 90.4
Abstain 25,955,848 5.2
Item No. 6
A stockholder proposal regarding For 23,455,070 4.7%
dealings with China and the Against 453,911,923 90.3
former Soviet Union. Abstain 25,014,978 5.0
Item No. 7
A stockholder proposal to limit For 29,472,032 5.9%
the outside board memberships Against 464,924,288 92.5
of GM directors. Abstain 7,993,372 1.6
* Numbers represent the aggregate voting power of all votes cast with holders
of $1-2/3 par value common stock casting one vote per share and holders of
Class H common stock casting one-half of a vote per share.
** Percentages represent the aggregate voting power of both classes of GM common
stock cast for each item.
* * * * * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS (Including Those Incorporated by Reference).
Exhibit
Number Exhibit Name Page No.
- ------- ------------ --------
3(i) Corrected Restated Certificate of Incorporation
of General Motors Corporation, filed as Exhibit 3(i
to the Current Report on Form 8-K of General Motors
Corporation dated June 8, 1998 and filed on July 30,
1998 N/A
99 Hughes Electronics Corporation and Subsidiaries
Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition
and Results of Operations 34
27 Financial Data Schedule (for SEC information only)
(b) REPORTS ON FORM 8-K.
Two reports on Form 8-K, dated April 16, 1998 and June 5, 1998 were filed
during the quarter ended June 30, 1998 reporting matters under Item 5, Other
Events.
* * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
--------------------------
(Registrant)
Date August 14, 1998 /s/Peter R. Bible
- -------------------- -----------------
(Peter R. Bible, Chief Accounting Officer)
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