Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 93 540K
2: EX-10.(A) Material Contract 123 261K
3: EX-10.(B) Material Contract 162 358K
4: EX-11 Statement re: Computation of Earnings Per Share 3 24K
5: EX-12 Statement re: Computation of Ratios 1 8K
6: EX-18 Letter re: Change in Accounting Principles 1 8K
7: EX-21 Subsidiaries of the Registrant 9 55K
8: EX-23 Consent of Experts or Counsel 2± 12K
9: EX-27 Financial Data Schedule (Pre-XBRL) 1 10K
10: EX-99.(A) Miscellaneous Exhibit 26 153K
11: EX-99.(B) Miscellaneous Exhibit 32 182K
EXHIBIT 99(B)
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of GM Hughes Electronics
Corporation and subsidiaries were prepared by management which is responsible
for their integrity and objectivity. The statements have been prepared in
conformity with generally accepted accounting principles and, as such, include
amounts based on judgments of management.
Management is further responsible for maintaining a system of internal
accounting controls, designed to provide reasonable assurance that the books and
records reflect the transactions of the companies and that its established
policies and procedures are carefully followed. Perhaps the most important
feature in the system of control is that it is continually reviewed for its
effectiveness and is augmented by written policies and guidelines, the careful
selection and training of qualified personnel, and a strong program of internal
audit.
Deloitte & Touche LLP, an independent auditing firm, is engaged to audit
the consolidated financial statements of GM Hughes Electronics Corporation and
its subsidiaries and issue reports thereon. The audit is conducted in accordance
with generally accepted auditing standards which comprehend the consideration of
internal accounting controls and tests of transactions to the extent necessary
to form an independent opinion on the financial statements prepared by
management. The Independent Auditors' Report appears on the next page.
The Board of Directors, through its Audit Committee, is responsible for
assuring that management fulfills its responsibilities in the preparation of the
consolidated financial statements and engaging the independent auditors. The
Committee reviews the scope of the audits and the accounting principles being
applied in financial reporting. The independent auditors, representatives of
management, and the internal auditors meet regularly (separately and jointly)
with the Committee to review the activities of each, to ensure that each is
properly discharging its responsibilities, and to assess the effectiveness of
the system of internal accounting controls. It is management's conclusion that
the system of internal accounting controls at December 31, 1994 provides
reasonable assurance that the books and records reflect the transactions of the
companies and that its established policies and procedures are complied with. To
ensure complete independence, Deloitte & Touche LLP has full and free access to
meet with the Committee, without management representatives present, to discuss
the results of the audit, the adequacy of internal accounting controls, and the
quality of the financial reporting.
/s/ C. Michael Armstrong
------------------------------------------------------
C. Michael Armstrong
Chairman of the Board and
Chief Executive Officer
/s/ Charles H. Noski
------------------------------------------------------
Charles H. Noski
Senior Vice President and
Chief Financial Officer
IV-47
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Board of Directors of
GM Hughes Electronics Corporation:
We have audited the Consolidated Balance Sheet of GM Hughes Electronics
Corporation and subsidiaries as of December 31, 1994 and 1993 and the related
Statements of Consolidated Operations and Available Separate Consolidated Net
Income (Loss) and Consolidated Cash Flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of GM Hughes Electronics Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of GM Hughes Electronics Corporation and
subsidiaries at December 31, 1994 and 1993 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective January 1,
1994 GM Hughes Electronics Corporation changed its method of accounting for
postemployment benefits. Also, as discussed in Notes 1 and 5 to the financial
statements, effective January 1, 1992 GM Hughes Electronics Corporation changed
its revenue recognition policy for certain commercial businesses and its method
of accounting for postretirement benefits other than pensions.
/s/ DELOITTE & TOUCHE LLP
------------------------------------------------------
DELOITTE & TOUCHE LLP
Los Angeles, California
January 30, 1995
IV-48
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
Revenues
Net sales
Outside customers......................................... $ 9,108.7 $ 9,062.8 $ 8,267.6
General Motors and affiliates (Note 2).................... 4,953.6 4,387.4 3,901.4
Other income -- net......................................... 37.1 67.3 128.1
--------- --------- ---------
Total Revenues.............................................. 14,099.4 13,517.5 12,297.1
--------- --------- ---------
Costs and Expenses
Cost of sales and other operating charges, exclusive of
items listed below (Note 2)............................... 10,943.4 10,557.5 9,602.9
Selling, general, and administrative expenses............... 1,018.3 929.1 1,036.2
Depreciation and amortization............................... 470.2 503.5 487.1
Amortization of GM purchase accounting adjustments related
to Hughes (Note 1)........................................ 123.8 123.8 123.8
Interest expense -- net..................................... 15.1 33.2 60.6
Special provision for restructuring (Note 12)............... -- -- 1,237.0
--------- --------- ---------
Total Costs and Expenses.................................... 12,570.8 12,147.1 12,547.6
--------- --------- ---------
Income (Loss) before Income Taxes........................... 1,528.6 1,370.4 (250.5)
Income taxes (credit) (Note 6).............................. 572.8 572.6 (77.2)
--------- --------- ---------
Income (Loss) before cumulative effect of accounting
changes................................................... 955.8 797.8 (173.3)
Cumulative effect of accounting changes (Notes 1 and 5)..... (30.4) -- (872.1)
--------- --------- ---------
Net Income (Loss)........................................... 925.4 797.8 (1,045.4)
Adjustments to exclude the effect of GM purchase accounting
adjustments related to Hughes (Note 7).................... 123.8 123.8 123.8
--------- --------- ---------
Earnings (Loss) Used for Computation of Available Separate
Consolidated Net Income (Loss)............................ $ 1,049.2 $ 921.6 $ (921.6)
========= ========= =========
Available Separate Consolidated Net Income (Loss) (Note 7)
Average number of shares of General Motors Class H Common
Stock outstanding (in millions) (Numerator)............ 92.1 88.6 75.3
Class H dividend base (in millions) (Denominator)......... 399.9 399.9 399.9
Available Separate Consolidated Net Income (Loss)......... $ 241.6 $ 204.5 $ (142.3)
========= ========= =========
Earnings (Loss) Attributable to General Motors Class H
Common Stock on a Per Share Basis (Note 7)
Before cumulative effect of accounting changes......... $ 2.70 $ 2.30 $ (0.11)
Cumulative effect of accounting changes (Notes 1 and
5)................................................... (0.08) -- (2.18)
--------- --------- ---------
Net earnings (loss) attributable to General Motors
Class H Common Stock................................. $ 2.62 $ 2.30 $ (2.29)
========= ========= =========
Reference should be made to the Notes to Consolidated Financial Statements.
IV-49
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
[Enlarge/Download Table]
DECEMBER 31,
---------------------------
1994 1993
--------- ---------
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNT)
ASSETS
Current Assets
Cash and cash equivalents (Note 1)......................................... $ 1,501.8 $ 1,008.7
Accounts and notes receivable
Trade receivables (less allowances)...................................... 1,039.5 736.7
General Motors and affiliates (Note 2)................................... 153.9 404.1
Contracts in process, less advances and progress payments of $2,311.2 and
$2,739.2................................................................. 2,265.4 2,376.8
Inventories (less allowances) (Note 1)..................................... 1,087.9 1,060.4
Prepaid expenses, including deferred income taxes of $89.0 and $36.7....... 195.1 127.6
--------- ---------
Total Current Assets....................................................... 6,243.6 5,714.3
--------- ---------
Property-Net (Notes 8 and 9)............................................... 2,611.8 2,634.4
--------- ---------
Telecommunications and Other Equipment, net of accumulated depreciation
of $198.0 and $150.2..................................................... 1,071.7 767.6
--------- ---------
Intangible Assets, net of amortization of $1,276.7 and $1,144.6 (Note 1)... 3,271.3 3,374.4
--------- ---------
Investments and Other Assets, including deferred income taxes of $214.0 and
$203.7 -- principally at cost (less allowances).......................... 1,652.1 1,626.4
--------- ---------
Total Assets........................................................... $14,850.5 $14,117.1
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable
Outside.................................................................. $ 779.9 $ 717.1
General Motors and affiliates (Note 2)................................... 80.5 117.5
Advances on contracts...................................................... 645.1 660.6
Notes and loans payable (Note 9)........................................... 125.7 77.8
Income taxes payable (Note 6).............................................. 31.4 102.1
Accrued liabilities (Note 10).............................................. 1,885.5 1,874.0
--------- ---------
Total Current Liabilities.............................................. 3,548.1 3,549.1
--------- ---------
Long-Term Debt and Capitalized Leases (Note 9)............................. 353.5 416.8
--------- ---------
Postretirement Benefits Other Than Pensions (Note 5)....................... 1,541.4 1,446.3
--------- ---------
Other Liabilities, Deferred Income Taxes, and Deferred Credits............. 1,431.7 1,376.8
--------- ---------
Stockholder's Equity (Note 11)
Capital stock (outstanding, 1,000 shares, $0.10 par value) and additional
paid-in capital.......................................................... 6,326.5 6,323.1
Net income retained for use in the business.............................. 1,743.6 1,138.2
--------- ---------
Subtotal............................................................... 8,070.1 7,461.3
Minimum pension liability adjustment..................................... (76.1) (120.4)
Accumulated foreign currency translation adjustments..................... (18.2) (12.8)
--------- ---------
Total Stockholder's Equity............................................... 7,975.8 7,328.1
--------- ---------
Total Liabilities and Stockholder's Equity................................. $14,850.5 $14,117.1
========= =========
Reference should be made to the Notes to Consolidated Financial Statements.
IV-50
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
Cash Flows from Operating Activities Income (Loss) before
cumulative effect of accounting changes...................... $ 955.8 $ 797.8 $ (173.3)
Adjustments to reconcile income (loss) before cumulative effect
of accounting changes to net cash provided by operating
activities
Depreciation and amortization............................. 470.2 503.5 487.1
Amortization of GM purchase accounting adjustments related
to Hughes............................................... 123.8 123.8 123.8
Special provision for restructuring....................... -- -- 1,237.0
Pension expense (credit), net of cash contributions....... 20.3 (25.6) (137.7)
Provision for postretirement benefits other than pensions,
net of cash payments.................................... 78.4 91.0 78.7
Net (gain) loss on sale of property....................... 14.3 36.1 (18.0)
Net gain on sale of investments and businesses............ (3.6) (50.3) --
Change in deferred income taxes and other*................ (60.1) 207.1 (350.2)
Change in other operating assets and liabilities
Accounts receivable..................................... (238.1) (153.7) 161.9
Contracts in process*................................... 111.4 70.9 46.6
Inventories*............................................ (27.5) 104.6 26.8
Prepaid expenses........................................ (15.2) 3.4 (10.0)
Accounts payable........................................ 25.8 81.5 63.2
Income taxes*........................................... (70.7) 30.1 (54.5)
Accrued and other liabilities*.......................... (28.2) (143.5) (49.2)
Other*.................................................. 20.2 (183.2) (232.8)
-------- -------- --------
Net Cash Provided by Operating Activities...................... 1,376.8 1,493.5 1,199.4
-------- -------- --------
Cash Flows from Investing Activities
Investment in companies, net of cash acquired................ (7.0) (149.3) (69.9)
Expenditures for property and special tools.................. (490.5) (448.9) (456.9)
Increase in telecommunications and other equipment........... (351.9) (230.3) (71.6)
Proceeds from disposal of property........................... 90.6 115.0 108.4
Proceeds from sale of investments and businesses............. 3.6 281.6 --
Proceeds from sale and leaseback of satellite transponders... -- -- 314.8
Decrease (increase) in notes receivable...................... 206.9 7.6 (45.2)
-------- -------- --------
Net Cash Used in Investing Activities.......................... (548.3) (424.3) (220.4)
-------- -------- --------
Cash Flows from Financing Activities
Net decrease in notes and loans payable........................ (2.1) (189.4) (525.8)
Increase in long-term debt................................... 7.5 84.0 236.0
Decrease in long-term debt................................... (20.8) (369.8) (46.8)
Cash dividends paid to General Motors........................ (320.0) (288.0) (288.0)
-------- -------- --------
Net Cash Used in Financing Activities.......................... (335.4) (763.2) (624.6)
-------- -------- --------
Net increase in cash and cash equivalents...................... 493.1 306.0 354.4
Cash and cash equivalents at beginning of the year............. 1,008.7 702.7 348.3
-------- -------- --------
Cash and cash equivalents at end of the year................... $1,501.8 $1,008.7 $ 702.7
======== ======== ========
-------------------------
* 1994 and 1992 amounts exclude the effects of accounting changes.
Reference should be made to the Notes to Consolidated Financial Statements.
IV-51
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONSOLIDATION
The consolidated financial statements include the accounts of GM Hughes
Electronics Corporation (GMHE) and its domestic and foreign subsidiaries that
are more than 50% owned, principally Hughes Aircraft Company (Hughes) and Delco
Electronics Corporation (Delco Electronics). Investments in associated companies
in which at least 20% of the voting securities is owned are accounted for under
the equity method of accounting.
Effective December 31, 1985, General Motors Corporation (General Motors or
GM) acquired Hughes and its subsidiaries for $2.7 billion in cash and cash
equivalents and 100 million shares of GM Class H common stock having an
estimated value of $2,561.9 million, which carried certain guarantees.
On February 28, 1989, GM and the Howard Hughes Medical Institute
(Institute) reached an agreement to terminate GM's then-existing guarantee
obligations with respect to the Institute's holding of GM Class H common stock.
Under terms of the agreement as amended, the Institute received put options
exercisable under most circumstances at $30 per share on March 1, 1991, 1992,
1993, and 1995 for 20 million, 10 million, 10.5 million, and 15 million shares,
respectively. The Institute exercised these put options at $30 per share on
March 1, 1991, March 2, 1992, and March 1, 1993. GM has the option to call the
Institute's remaining 15 million shares until February 28, 1995, at a call price
of $37.50 per share.
The acquisition of Hughes was accounted for as a purchase. The purchase
price exceeded the net book value of Hughes by $4,244.7 million, which was
assigned as follows: $500.0 million to patents and related technology, $125.0
million to the future economic benefits to GM of the Hughes Long-Term Incentive
Plan (LTIP), and $3,619.7 million to other intangible assets, including
goodwill. The amounts assigned to patents and related technology are being
amortized on a straight-line basis over 15 years and other intangible assets,
including goodwill, over 40 years. The amount assigned to the future economic
benefits of the Hughes LTIP was fully amortized in 1990.
For the purpose of determining earnings per share and amounts available for
dividends on the common stocks of General Motors, the amortization of these
intangible assets is charged against earnings attributable to GM $1 2/3 par
value common stock.
The earnings of GMHE and its subsidiaries since the acquisition of Hughes
form the base from which any dividends on the GM Class H common stock are
declared. These earnings include income earned from sales to GM and its
affiliates, but exclude purchase accounting adjustments (see Notes 2 and 7).
REVENUE RECOGNITION
Outside sales are attributable principally to long-term contracts,
primarily recorded using the percentage-of-completion (cost-to-cost) method of
accounting. Under this method, sales are recorded equivalent to costs incurred
plus a portion of the profit expected to be realized, determined based on the
ratio of costs incurred to estimated total costs at completion.
Profits expected to be realized on contracts are based on estimates of
total sales value and costs at completion. These estimates are reviewed and
revised periodically throughout the lives of the contracts, and adjustments to
profits resulting from such revisions are recorded in the accounting period in
which the revisions are made. Estimated losses on contracts are recorded in the
period in which they are identified.
Certain contracts contain cost or performance incentives which provide for
increases in profits for surpassing stated objectives and decreases in profits
for failure to achieve such objectives. Amounts associated with incentives are
included in estimates of total sales values when there is sufficient information
to relate actual performance to the objectives.
IV-52
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Effective January 1, 1992, Hughes changed its revenue recognition policy
for certain commercial long-term contracts from the percentage-of-completion
(cost-to-cost) method to the units-of-delivery method. GMHE believes this method
more appropriately aligns the accounting methods of Hughes' commercial
businesses with other commercial enterprises. The unfavorable effect of this
change was $40.0 million after-tax ($0.10 per share of GM Class H common stock).
Sales under United States Government contracts were 37.6%, 44.2%, and 46.1%
of total sales in 1994, 1993, and 1992, respectively.
CASH FLOWS
For purposes of preparing the statement of consolidated cash flows, all
highly liquid investments purchased with original maturities of 90 days or less
are considered to be cash equivalents.
Net cash provided by operating activities reflects cash payments for
interest and income taxes as follows:
[Download Table]
1994 1993 1992
------ ------ ------
(DOLLARS IN MILLIONS)
Interest.............................................. $ 40.7 $ 72.5 $ 75.2
------ ------ ------
Income taxes.......................................... $686.2 $245.0 $333.0
------ ------ ------
With respect to material noncash transactions, as described more fully in
Note 13, in 1992 GMHE purchased 21,508,563 shares of GM Class H common stock in
exchange for $425.0 million of notes payable to GM and cash of $25.0 million in
connection with the acquisition of General Dynamics' missile business.
ACCOUNTS RECEIVABLE AND CONTRACTS IN PROCESS
Trade receivables are principally related to long-term contracts and
programs. Amounts billed under retainage provisions of contracts are not
significant, and substantially all amounts are collectible within one year.
Contracts in process are stated at costs incurred plus estimated profit,
less amounts billed to customers and advances and progress payments applied.
Engineering, tooling, manufacturing, and applicable overhead costs, including
administrative, research and development, and selling expenses, are charged to
costs and expenses when incurred. Contracts in process include amounts relating
to contracts with long production cycles, and $371.7 million of the 1994 amount
is expected to be billed after one year. Contracts in process in 1994 also
include approximately $96.2 million relating to claims, requests for equitable
adjustments, and amounts withheld pending negotiation or settlement with
customers. Under certain contracts with the U.S. Government, progress payments
are received based on costs incurred on the respective contracts. Title to the
inventories related to such contracts (included in contracts in process) vests
with the U.S. Government.
INVENTORIES
Inventories are stated at the lower of cost or market principally using the
first-in, first-out (FIFO) or average cost methods.
[Download Table]
MAJOR CLASSES OF INVENTORIES 1994 1993
---------------------------------------------------------- -------- --------
(DOLLARS IN
MILLIONS)
Productive material, work in process, and supplies........ $ 968.0 $ 957.1
Finished product.......................................... 119.9 103.3
-------- --------
Total................................................ $1,087.9 $1,060.4
======== ========
IV-53
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
PROPERTY AND DEPRECIATION
Property is carried at cost. Depreciation of property is provided for based
on estimated useful lives (3 to 45 years) generally using accelerated methods.
TELECOMMUNICATIONS AND OTHER EQUIPMENT
Telecommunications and other equipment includes satellite transponders and
other equipment subject to operating leases or service agreements. Such
equipment is carried at GMHE's direct and indirect manufacturing cost and is
amortized over the estimated useful lives (7 to 23 years) using the
straight-line method. The net book value of equipment subject to operating
leases was $572.9 million and $523.8 million at December 31, 1994 and 1993,
respectively.
INTANGIBLE ASSETS
Intangible assets, principally the excess of cost over the fair value of
identifiable net assets of purchased businesses, are being amortized using the
straight-line method over periods not exceeding 40 years.
INCOME TAXES
The provision (credit) for income taxes is based on reported income (loss)
before income taxes. Deferred income tax assets and liabilities reflect the
impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for tax
purposes, as measured by applying currently enacted tax laws. Provision has been
made for U.S. Federal income taxes to be paid on that portion of the
undistributed earnings of foreign subsidiaries that has not been deemed
permanently reinvested.
GMHE and its domestic subsidiaries join with General Motors in filing a
consolidated U.S. Federal income tax return. The portion of the consolidated
income tax liability recorded by GMHE is generally equivalent to the liability
it would have incurred on a separate return basis.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to costs and expenses
as incurred and amounted to $699.3 million in 1994, $612.1 million in 1993, and
$680.5 million in 1992.
FINANCIAL INSTRUMENTS
GMHE enters into foreign exchange-forward contracts and interest rate swap
agreements in connection with management of its exposure to fluctuations in
foreign exchange rates and interest rates. Foreign exchange-forward contracts
are accounted for as hedges to the extent they are designated as, and are
effective as, hedges of firm foreign currency commitments. The cash flows from
interest rate swaps are accounted for as interest expense, and gains and losses
from terminated contracts are deferred and amortized over the remaining life of
the underlying debt. Open swap positions are reviewed regularly to ensure that
they remain effective.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency transaction net gains (losses) included in consolidated
operating results amounted to ($4.2) million in 1994, $2.4 million in 1993, and
$11.7 million in 1992.
IV-54
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, GMHE adopted SFAS No. 112, Employers' Accounting
for Postemployment Benefits. The Statement requires accrual of the costs of
benefits provided to former or inactive employees after employment, but before
retirement. The unfavorable cumulative effect of adopting this Standard was
$30.4 million, net of income taxes of $19.2 million, or $0.08 per share of GM
Class H common stock. The charge is primarily related to extended-disability
benefits which, under the new accounting Standard, are accrued on a
service-driven basis.
NOTE 2. RELATED-PARTY TRANSACTIONS
SALES, PURCHASES, AND ADMINISTRATIVE EXPENSES
The amounts due from and to GM and affiliates result from sales of products
to and purchases of materials and services from units controlled by GM.
Purchases from GM and affiliates, including computer systems services provided
by Electronic Data Systems Corporation and common administrative expenses
allocated by GM, amounted to approximately $257.1 million, $285.9 million, and
$447.0 million in 1994, 1993, and 1992, respectively.
INCENTIVE PLANS
Certain eligible employees of GMHE participate in various incentive plans
of GM and its subsidiaries.
OTHER
Delco Electronics employees participate in GM's pension and other
postretirement benefit programs.
NOTE 3. INCENTIVE PLAN
Under the GMHE Incentive Plan (the Plan) as approved by the GM Board of
Directors in 1987 and 1992, shares, rights, or options to acquire up to 20
million shares of GM Class H common stock may be granted through May 31, 1997
(extended an additional two years in 1995).
The GM Executive Compensation Committee may grant options and other rights
to acquire shares of GM Class H common stock under the provisions of the Plan.
The option price is equal to 100% of the fair market value of GM Class H common
stock on the date the options were granted. These nonqualified options generally
expire 10 years from the dates of grant and are subject to earlier termination
under certain conditions.
Changes in the status of outstanding options were as follows:
[Enlarge/Download Table]
OPTION SHARES UNDER
GM CLASS H COMMON STOCK PRICES OPTION
------------------------------------------------------------------ ------------- ------------
Outstanding at January 1, 1992.................................... $17.07-$30.25 5,061,209
Granted........................................................... 23.63- 25.38 1,927,860
Exercised......................................................... 17.07- 24.35 (136,764)
Terminated........................................................ 17.07- 30.25 (335,550)
----------
Outstanding at December 31, 1992.................................. 17.07- 30.25 6,516,755
Granted........................................................... 28.00- 28.56 2,027,260
Exercised......................................................... 17.07- 30.25 (1,960,162)
Terminated........................................................ 17.07- 30.25 (217,845)
----------
Outstanding at December 31, 1993.................................. 17.07- 30.25 6,366,008
Granted........................................................... 36.75 1,612,640
Exercised......................................................... 17.07- 30.25 (712,107)
Terminated........................................................ 17.07- 36.75 (202,220)
----------
Outstanding at December 31, 1994.................................. $17.07-$36.75 7,064,321
==========
IV-55
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Options for 4,739,664 shares of GM Class H common stock were exercisable at
December 31, 1994, and the maximum number of shares for which additional options
and other rights may be granted under the Plan was 5,472,562 shares.
NOTE 4. PENSION PROGRAMS
GMHE's total pension expense (credit) amounted to $54.9 million in 1994,
($8.1) million in 1993, and ($54.0) million in 1992.
Substantially all of the employees of Delco Electronics participate in the
defined benefit pension plans of General Motors. Plans covering represented
employees generally provide benefits of negotiated stated amounts for each year
of service as well as significant supplemental benefits for employees who retire
with 30 years of service before normal retirement age. The benefits provided by
the plans covering salaried employees are generally based on years of service
and the employee's salary history. Certain nonqualified pension plans covering
executives are based on targeted wage replacement percentages and are unfunded.
The accumulated plan benefit obligation and plan net assets for the employees of
Delco Electronics are not determinable separately; however, GM charged Delco
Electronics $93.3 million, $69.8 million, and $30.6 million for benefits
provided to these employees in 1994, 1993, and 1992, respectively.
Hughes maintains contributory and non-contributory defined benefit
retirement plans covering substantially all of its employees. Benefits are based
on years of service and compensation earned during a specified period of time
before retirement. Hughes also has an unfunded, nonqualified pension plan
covering certain executives. The net pension credit of Hughes included the
components as shown below.
[Enlarge/Download Table]
1994 1993 1992
------- ------- -------
(DOLLARS IN MILLIONS)
Benefits earned during the year.................................. $ 146.7 $ 121.1 $ 99.9
Interest accrued on benefits earned in prior years............... 377.0 369.1 357.9
Actual return on assets.......................................... (104.7) (953.7) (647.5)
Net amortization and deferral.................................... (457.4) 385.6 105.1
------- ------- -------
Net retirement plan credit..................................... $ (38.4) $ (77.9) $ (84.6)
======= ======= =======
Costs are actuarially determined using the projected unit credit method and
are funded in accordance with U.S. Government cost accounting standards to the
extent such costs are tax-deductible. SFAS No. 87, Employers' Accounting for
Pensions, requires the recognition of an additional liability to increase the
amounts recorded up to the unfunded accumulated benefit obligation. The
adjustment required to recognize the minimum liability required by SFAS No. 87
is recorded as an intangible asset to the extent of unrecognized prior service
cost and the remainder, net of applicable deferred income taxes, is recorded as
a reduction of Stockholder's Equity. At December 31, 1994 and 1993, the
additional minimum liability recorded was $152.4 million and $208.1 million,
respectively, of which $76.1 million and $120.4 million, respectively, was
recorded as a reduction of Stockholder's Equity.
Plan assets are invested primarily in listed common stock, cash and
short-term investment funds, U.S. Government securities, and other investments.
The weighted average discount rates used in determining the actuarial
present values of the projected benefit obligation shown in the table below were
8.75% and 7.5% at December 31, 1994 and 1993, respectively. The rate of increase
in future compensation levels was 5.0% in 1994 and 1993. The expected long-term
rate of return on assets used in determining pension cost was 9.75% for 1994 and
10.5% for 1993.
IV-56
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table sets forth the funded status of the Hughes plans and
the amounts included in the Consolidated Balance Sheet at December 31, 1994 and
1993.
[Enlarge/Download Table]
1994 1993
-------------------- --------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED ACCUM. EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
Actuarial present value of benefits based on service to
date and present pay levels
Vested............................................... $3,572.5 $ 195.9 $3,936.3 $ 246.4
Nonvested............................................ 337.9 0.9 313.6 3.9
-------- -------- -------- --------
Accumulated benefit obligation......................... 3,910.4 196.8 4,249.9 250.3
Additional amounts related to projected pay
increases............................................ 438.1 22.4 431.5 8.5
-------- -------- -------- --------
Total projected benefit obligation based on service to
date................................................. 4,348.5 219.2 4,681.4 258.8
Plan assets at fair value.............................. 5,717.4 -- 6,001.4 --
-------- -------- -------- --------
Plan assets in excess of (less than) projected
benefit obligation................................... 1,368.9 (219.2) 1,320.0 (258.8)
Unamortized net amount resulting from changes in plan
experience and actuarial assumptions................. (152.4) 150.2 (135.8) 209.2
Unamortized net asset at date of adoption.............. (217.3) -- (280.0) --
Unamortized net amount resulting from changes in plan
provisions........................................... (14.2) 24.6 4.5 7.4
Adjustment for unfunded pension liabilities............ -- (152.4) -- (208.1)
-------- -------- -------- --------
Net prepaid pension cost (accrued liability)........... $ 985.0 $ (196.8) $ 908.7 $ (250.3)
======== ======== ======== ========
NOTE 5. OTHER POSTRETIREMENT BENEFITS
Effective January 1, 1992, GMHE adopted SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. This Statement requires that
the cost of such benefits be recognized in the financial statements during the
period employees provide service to GMHE. GMHE's previous practice was to
recognize the cost of such postretirement benefits when incurred
(pay-as-you-go). The cumulative effect of this accounting change as of January
1, 1992 was $1,366.6 million, or $832.1 million after-tax ($2.08 per share of GM
Class H common stock). The incremental ongoing effect increased costs and
expenses by $96.8 million, $91.0 million, and $78.7 million in 1994, 1993, and
1992, respectively.
GMHE has disclosed in the financial statements certain amounts associated
with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, GMHE does not admit or otherwise acknowledge that
such amounts or existing postretirement benefit plans of GMHE (other than
pensions) represent legally enforceable liabilities of GMHE.
Substantially all of the employees of Delco Electronics participate in
various postretirement medical, dental, vision, and life insurance plans of
General Motors. Hughes maintains a program for eligible retirees to participate
in health care and life insurance benefits generally until they reach age 65.
Qualified employees who elected to participate in the Hughes' contributory
defined benefit pension plans may become eligible for these benefits if they
retire from Hughes between the ages of 55 and 65.
IV-57
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The total non-pension postretirement benefit cost of GMHE and its
subsidiaries, excluding the cumulative effect of adopting SFAS No. 106 in 1992,
included the components set forth as follows:
[Enlarge/Download Table]
1994 1993 1992
------ ------ ------
(DOLLARS IN MILLIONS)
Benefits earned during the year..................................... $ 50.1 $ 49.2 $ 42.9
Interest accrued on benefits earned in prior years.................. 130.3 127.2 116.8
Net amortization.................................................... 7.6 -- --
------ ------ ------
Total non-pension postretirement benefit cost..................... $188.0 $176.4 $159.7
====== ====== ======
The following table displays the components of GMHE's obligation recognized
for postretirement benefit plans included in the Consolidated Balance Sheet at
December 31, 1994 and 1993:
[Enlarge/Download Table]
1994 1993
-------- --------
(DOLLARS IN
MILLIONS)
Accumulated postretirement benefit obligation attributable to
Current retirees....................................................... $ 816.6 $ 906.8
Fully eligible active plan participants................................ 191.9 193.1
Other active plan participants......................................... 576.6 844.9
-------- --------
Accumulated postretirement benefit obligation............................ 1,585.1 1,944.8
Unrecognized net amount resulting from changes in plan experience and
actuarial assumptions.................................................. 44.7 (392.7)
-------- --------
Net postretirement benefit obligation.................................... 1,629.8 1,552.1
Less current portion..................................................... 88.4 105.8
-------- --------
Net long-term postretirement benefit obligation.......................... $1,541.4 $1,446.3
======== ========
The assumed weighted average discount rates used in determining the
actuarial present value of the accumulated postretirement benefit obligation
were 8.57% and 6.99% at December 31, 1994 and 1993, respectively. The assumed
weighted average rate of increase in future compensation levels related to pay-
related life insurance benefits was 4.6% at December 31, 1994 and 5.3% at
December 31, 1993.
The assumed weighted average health care cost trend rate was 7.39% in 1994,
increasing to 9.70% in 1995 and decreasing linearly each successive year until
it reaches 5.68% in 2006, after which it remains constant. A one percentage
point increase in each year of this annual trend rate would increase the
accumulated postretirement benefit obligation at December 31, 1994 by
approximately $165 million, and increase the service and interest cost
components of the 1994 postretirement benefit expense by approximately $21
million.
IV-58
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6. INCOME TAXES
The income tax provision (credit) consists of the following:
[Enlarge/Download Table]
1994 1993 1992
------ ------ -------
(DOLLARS IN MILLIONS)
Taxes currently payable
U.S. Federal................................................... $532.2 $222.0 $ 319.7
Foreign........................................................ 10.3 10.7 4.2
U.S. State and local........................................... 100.5 94.3 39.8
------ ------ -------
Total..................................................... 643.0 327.0 363.7
------ ------ -------
Deferred tax (assets) liabilities -- net
U.S. Federal................................................... (62.2) 229.7 (368.0)
Foreign........................................................ 1.3 -- 0.1
U.S. State and local........................................... (9.3) 15.9 (73.0)
------ ------ -------
Total..................................................... (70.2) 245.6 (440.9)
------ ------ -------
Total income tax provision (credit).................... $572.8* $572.6 $ (77.2)*
====== ====== =======
-------------------------
* Excluding effect of accounting changes.
The deferred income tax benefit in 1994 includes a $63.0 million credit
that resulted from an adjustment to the beginning of the year valuation
allowance because of a change in circumstances with respect to GMHE's ability to
realize the benefit from a capital loss carryforward.
Income (Loss) before income taxes includes the following components:
[Enlarge/Download Table]
1994 1993 1992
-------- -------- -------
(DOLLARS IN MILLIONS)
U.S. income (loss).............................................. $1,448.1 $1,286.7 $(225.1)
Foreign income (loss)........................................... 80.5 83.7 (25.4)
-------- -------- -------
Total......................................................... $1,528.6 $1,370.4 $(250.5)
======== ======== =======
The consolidated income tax expense (credit) was different than the amount
computed using the U.S. statutory income tax rate for the reasons set forth in
the following table:
[Enlarge/Download Table]
1994 1993 1992
------ ------ ------
(DOLLARS IN MILLIONS)
Expected tax (credit) at U.S. statutory income tax rate............. $535.0 $479.5 $(85.2)
U.S. state and local income taxes................................... 59.3 70.1 (19.8)
Purchase accounting adjustments..................................... 43.3 43.3 42.1
Foreign tax rate differential....................................... (17.7) (6.9) (13.1)
Change in valuation allowance....................................... (63.0) -- --
Deferred tax impact of U.S. Federal income tax rate change.......... -- (10.0) --
Other............................................................... 15.9 (3.4) (1.2)
------ ------ ------
Consolidated income tax expense (credit).......................... $572.8* $572.6 $(77.2)*
====== ====== ======
-------------------------
* Excluding effect of accounting changes.
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at December 31, 1994 and 1993 are as follows:
IV-59
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
[Enlarge/Download Table]
1994 1993
----------------------- -----------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
(DOLLARS IN MILLIONS)
Postretirement benefits other than pensions........... $ 695.3 $ -- $ 663.7 $ --
Profits on long-term contracts........................ 259.3 417.3 229.3 437.0
Leveraged leases...................................... 86.7 -- 99.9 --
Employee benefit programs............................. 121.4 372.9 104.0 353.0
Depreciation.......................................... -- 399.4 -- 403.0
Special provision for restructuring................... 151.8 -- 255.0 --
Other................................................. 408.0 215.6 445.5 287.6
-------- ---------- -------- ----------
Subtotal............................................ 1,722.5 1,405.2 1,797.4 1,480.6
Valuation allowance................................... (16.1) -- (76.4) --
-------- ---------- -------- ----------
Total deferred taxes.................................. $1,706.4 $ 1,405.2 $1,721.0 $ 1,480.6
======== ========== ======== ==========
Provision has been made for U.S. Federal income taxes to be paid on that
portion of the undistributed earnings of foreign subsidiaries that has not been
deemed permanently reinvested. At December 31, 1994 and 1993, undistributed
earnings of foreign subsidiaries amounted to approximately $311.4 million and
$446.3 million, respectively. Repatriation of all accumulated foreign earnings
would have resulted in tax liabilities of $90.3 million and $113.8 million,
respectively, for which GMHE has provided deferred tax liabilities of $66.2
million and $75.0 million, respectively.
At December 31, 1994, GMHE had $36.5 million of foreign operating loss
carryforwards which expire in varying amounts between 1995 and 1999. A valuation
allowance has been provided for all of the foreign operating loss carryforwards.
NOTE 7. EARNINGS (LOSS) ATTRIBUTABLE TO GENERAL MOTORS CLASS H COMMON STOCK ON A
PER SHARE BASIS AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
Earnings (Loss) attributable to General Motors Class H common stock on a
per share basis have been determined based on the relative amounts available for
the payment of dividends to holders of the GM Class H common stock. Holders of
GM Class H common stock have no direct rights in the equity or assets of GMHE,
but rather have rights in the equity and assets of GM (which includes 100% of
the stock of GMHE).
Dividends on the GM Class H common stock are declared by GM's Board of
Directors out of the Available Separate Consolidated Net Income (Loss) of GMHE
earned since the acquisition of Hughes by GM. The Available Separate
Consolidated Net Income (Loss) of GMHE is determined quarterly and is equal to
the separate consolidated net income (loss) of GMHE, excluding the effects of GM
purchase accounting adjustments arising from the acquisition of Hughes (Earnings
(Loss) Used for Computation of Available Separate Consolidated Net Income
(Loss)), multiplied by a fraction, the numerator of which is a number equal to
the weighted average number of shares of GM Class H common stock outstanding
during the period and the denominator of which was 399.9 million during the
fourth quarters of 1994, 1993, and 1992.
The denominator used in determining the Available Separate Consolidated Net
Income (Loss) of GMHE is adjusted as deemed appropriate by the GM Board of
Directors to reflect subdivisions or combinations of the GM Class H common stock
and to reflect certain transfers of capital to or from GMHE. The Board's
discretion to make such adjustments is limited by criteria set forth in GM's
Certificate of Incorporation. In this regard, the GM Board has generally caused
the denominator to decrease as shares are purchased by GMHE, and to increase as
such shares are used, at GMHE expense, for GMHE employee benefit plans or
acquisitions.
IV-60
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Dividends may be paid on GM Class H common stock only when, as, and if
declared by the GM Board of Directors in its sole discretion. The current policy
of the GM Board with respect to GM Class H common stock is to pay cash dividends
approximately equal to 35% of the Available Separate Consolidated Net Income of
GMHE for the prior year. Notwithstanding the current dividend policy, the
dividends paid on the GM Class H Common Stock during 1994, 1993, and 1992
exceeded 35% of the Available Separate Consolidated Net Income (Loss) of GMHE
for the preceding year (excluding the effect of the $749.4 million after-tax
special restructuring charge at Hughes in 1992).
Consistent with Delaware law, which governs the amount legally available
for the payment of dividends on GM's common stock, the GM Board of Directors has
determined that such amount is materially higher than GM's capital surplus plus
net income retained for use in the business (less accumulated deficit).
NOTE 8. PROPERTY -- NET
[Enlarge/Download Table]
1994 1993
-------- --------
(DOLLARS IN
MILLIONS)
Land and improvements.................................................... $ 196.5 $ 208.4
Buildings and unamortized leasehold improvements......................... 1,291.2 1,277.9
Machinery and equipment.................................................. 2,623.8 2,902.5
Furniture, fixtures, and office machines................................. 81.9 102.3
Construction in progress................................................. 448.9 310.6
-------- --------
Total............................................................. 4,642.3 4,801.7
Less accumulated depreciation............................................ 2,047.5 2,200.7
-------- --------
Net real estate, plants, and equipment................................... 2,594.8 2,601.0
Special tools -- less amortization....................................... 17.0 33.4
-------- --------
Property -- net................................................... $2,611.8 $2,634.4
======== ========
NOTE 9. NOTES AND LOANS PAYABLE AND LONG-TERM DEBT AND CAPITALIZED LEASES
[Enlarge/Download Table]
1994 1993
------ ------
(DOLLARS IN
MILLIONS)
Loans payable to banks.................................................. $ 17.6 $ 8.6
Current portion of long-term debt....................................... 55.4 5.7
Other................................................................... 52.7 63.5
------ ------
Total notes and loans payable.................................... $125.7 $ 77.8
====== ======
Foreign bank debt....................................................... $ 59.8 $ 72.2
Term loans
GM.................................................................... 143.8 143.8
Other................................................................. 200.0 200.0
Other debt.............................................................. 3.9 4.8
------ ------
Total............................................................ 407.5 420.8
Less current portion.................................................... 55.4 5.7
------ ------
Long-term debt.......................................................... 352.1 415.1
Capitalized leases...................................................... 1.4 1.7
------ ------
Total long-term debt and capitalized leases...................... $353.5 $416.8
====== ======
At December 31, 1994, GMHE had unused credit available of $450.0 million
and $650.0 million under short-term lines of credit and an unsecured revolving
credit loan agreement, respectively.
IV-61
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The unsecured revolving credit loan agreement provides for a commitment of
$250.0 million through January 1995, subject to a facility fee of 0.09% per
annum, and a commitment of $400.0 million through January 1998, subject to a
facility fee of 0.125% per annum. Borrowings under the agreement bear interest
at a rate which approximates the London Interbank Offered Rate plus 0.25%. No
amounts were outstanding under the agreement at December 31, 1994.
At December 31, 1994, foreign bank debt includes $59.8 million denominated
in British pounds sterling, bearing interest at rates ranging from 3.5% to
10.3%, with maturity dates from 1995 to 2005.
The GM term loans bear interest at rates ranging from 5.7% to 6.1% with
maturity dates in 1996 and 1997. The other term loans consist of notes payable
to an insurance company bearing interest at rates ranging from 7.1% to 8.0%,
with maturity dates in 1995 and 1997.
Annual maturities of long-term debt and capitalized leases are $55.9
million in 1995, $92.0 million in 1996, $213.7 million in 1997, $4.2 million in
1998, $4.5 million in 1999, and $38.6 million thereafter.
Property with a net book value of $38.3 million at December 31, 1994 is
pledged as collateral under such debt.
NOTE 10. ACCRUED LIABILITIES
[Enlarge/Download Table]
1994 1993
-------- --------
(DOLLARS IN
MILLIONS)
Payrolls and other compensation.......................................... $ 540.2 $ 504.4
Provision for losses on contracts........................................ 277.0 204.2
Accrual for restructuring................................................ 143.3 222.8
Other.................................................................... 925.0 942.6
-------- --------
Total............................................................. $1,885.5 $1,874.0
======== ========
NOTE 11. STOCKHOLDER'S EQUITY
The authorized capital stock of GMHE consists of 1,000 shares of $0.10 par
value common stock. At December 31, 1994 and 1993, 1,000 shares having an
aggregate par value of $100 were issued and outstanding. All of the outstanding
capital stock of GMHE is held by General Motors.
IV-62
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
[Enlarge/Download Table]
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
Capital stock and additional paid-in capital
Balance at beginning of the year............................. $6,323.1 $6,314.7 $6,365.9
Tax benefit from exercise of GM Class H common stock
options................................................... 3.4 8.4 --
GM Class H common stock price guarantee in connection with
the acquisition of General Dynamics' missile business..... -- -- (51.2)
-------- -------- --------
Balance at end of the year.............................. $6,326.5 $6,323.1 $6,314.7
======== ======== ========
Net income retained for use in the business
Balance at beginning of the year............................. $1,138.2 $ 628.4 $1,961.8
Net income (loss)............................................ 925.4 797.8 (1,045.4)
Cash dividends paid to General Motors........................ (320.0) (288.0) (288.0)
-------- -------- --------
Balance at end of the year.............................. $1,743.6 $1,138.2 $ 628.4
======== ======== ========
Minimum pension liability adjustment
Balance at beginning of the year............................. $ (120.4) $ (104.3) $ (101.8)
Change during the year....................................... 44.3 (16.1) (2.5)
-------- -------- --------
Balance at end of the year.............................. $ (76.1) $ (120.4) $ (104.3)
======== ======== ========
Accumulated foreign currency translation adjustments
Balance at beginning of the year............................. $ (12.8) $ (23.8) $ (7.7)
Change during the year....................................... (5.4) 11.0 (16.1)
-------- -------- --------
Balance at end of the year.............................. $ (18.2) $ (12.8) $ (23.8)
======== ======== ========
As the sole stockholder of GMHE, GM is able to cause GMHE to pay cash
dividends and make advances to or otherwise enter into transactions with GM as
GM deems desirable and appropriate. GM reserves the right to cause GMHE to pay
cash dividends to GM in such amounts as GM determines are desirable under the
then prevailing facts and circumstances. Such amounts may be the same as,
greater than, or less than the cash dividends paid by GM on its Class H common
stock. There is no fixed relationship, on a per share or aggregate basis,
between the cash dividends that may be paid by GM to holders of its Class H
common stock and the cash dividends or other amounts that may be paid by GMHE to
GM.
NOTE 12. SPECIAL PROVISION FOR RESTRUCTURING
The 1992 operating results include a special restructuring charge of
$1,237.0 million ($749.4 million after-tax, or $1.87 per share of GM Class H
common stock) primarily attributable to redundant facilities and related
employment costs at Hughes. The special charge comprehended a reduction of
Hughes' worldwide employment, a major facilities consolidation, and a
re-evaluation of certain business lines that no longer met Hughes' strategic
objectives. Restructuring costs of $228.3 million, $527.6 million, and $250.9
million were charged against the reserve during 1994, 1993, and 1992,
respectively. In addition, in 1994 and 1993 the restructuring reserve was
increased by $35.0 million and $78.0 million, respectively, primarily due to
changes in estimated loss on disposition of two subsidiaries. The remaining
liability of $343.2 million relates primarily to reserves for excess leased
facilities and other site consolidation costs. Approximately $288.2 million of
this total will require future cash outflows. It is expected that these costs
will be expended predominantly over the next three years.
IV-63
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13. ACQUISITIONS
In December 1994, GMHE announced that it had reached an agreement with CAE
Inc. of Toronto, Canada to acquire substantially all of the assets of its U.S.
subsidiary, CAE-Link Corporation, for $155 million in cash. CAE-Link is an
established supplier of simulation, training, and technical services, primarily
to the U.S. military and NASA. The transaction is expected to close during the
first quarter of 1995.
In August 1992, GMHE acquired the missile business of General Dynamics
Corporation (GD) in exchange for 21,508,563 shares of GM Class H common stock
and cash with an aggregate value of $450.0 million. GMHE had purchased the GM
Class H shares from GM in August 1992 principally in exchange for a series of
notes. The acquisition was accounted for as a purchase, and accordingly, the
operating results have been consolidated since the acquisition date. The pro
forma effect on 1992 operating results was not material.
GMHE has acquired several other enterprises with operations that complement
existing technological capabilities at aggregate purchase prices, paid in cash,
of $10.4 million and $9.7 million in 1993 and 1992, respectively. These
acquisitions were accounted for using the purchase method of accounting. The
operating results of the entities acquired, which were not material, were
consolidated with those of GMHE from their respective acquisition dates.
The purchase prices of these acquisitions were allocated to the net assets
acquired, including intangible assets, based upon their estimated fair values at
the dates of acquisition.
NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
GMHE is a party to financial instruments with off-balance sheet risk in the
normal course of business to reduce its exposure to fluctuations in interest and
foreign exchange rates. The primary classes of derivatives used by GMHE are
foreign exchange-forward contracts and interest rate swap agreements. These
instruments involve, to varying degrees, elements of credit risk in the event a
counterparty should default and market risk as the instruments are subject to
rate and price fluctuations. Credit risk is managed through the periodic
monitoring and approval of financially sound counterparties. Market risk is
mitigated because the derivatives are used to hedge underlying transactions.
Cash receipts or payments on these contracts normally occur at maturity, or for
interest rate swap agreements, at periodic contractually defined intervals. GMHE
holds derivatives only for purposes other than trading.
FOREIGN EXCHANGE-FORWARD CONTRACTS
Foreign exchange-forward contracts are legal agreements between two parties
to purchase and sell a foreign currency, for a price specified at the contract
date, with delivery and settlement in the future. GMHE uses these agreements to
hedge risk of changes in foreign currency exchange rates associated with certain
firm commitments denominated in foreign currency.
The total notional amount of foreign exchange-forward contracts GMHE held
at December 31, 1994 and 1993, was approximately $144 million and $111 million,
respectively. GMHE's open contracts extend for periods averaging nine months.
INTEREST RATE SWAP AGREEMENTS
Interest rate swap agreements are contractual agreements between GMHE and
another party to exchange fixed and floating interest rate payments periodically
over the life of the agreements without the exchange of underlying principal
amounts. These instruments are used by GMHE with the objective of minimizing
interest expense while maintaining the desired level of exposure to the risk of
interest rate fluctuations. There were no outstanding interest rate swap
agreements at December 31, 1994. At
IV-64
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1993, the total notional amount of outstanding contracts was
approximately $200 million. Interest rate swap agreements used to hedge an
underlying debt obligation are not marked to market, but are recognized as an
adjustment to interest expense over the life of the underlying debt agreement.
Gains and losses on terminated swap contracts are deferred and recognized as a
yield adjustment on the underlying debt; such unamortized gains totaled
approximately $10.8 million and $14.9 million at December 31, 1994 and 1993,
respectively.
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, and SFAS No. 119, Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments, the following
fair value estimates and information about valuation methodologies are
presented. For all financial instruments not described below, fair value
approximates book value.
For notes and loans payable and long-term debt, the estimated fair value
(which approximates book value) was $479.9 million and $506.5 million at
December 31, 1994 and 1993, respectively. Such fair value is based on the quoted
market prices for similar issues or on the current rates offered to GMHE for
debt of similar remaining maturities. The carrying value of debt with an
original term of less than 90 days is assumed to approximate fair value.
The fair values of derivative financial instruments reflect the estimated
amounts GMHE would receive or pay to terminate the contracts at the reporting
date, which takes into account the current unrealized gains or losses on open
contracts. The fair value of foreign exchange-forward contracts is estimated
based on foreign exchange rate quotes at the reporting date. At December 31,
1994 and 1993, the estimated fair value of open contracts in a loss position was
($0.1) million and ($0.3) million, respectively, which was approximately equal
to book value.
The fair value of interest rate swap agreements is estimated using pricing
models based upon current interest rates. There were no open interest rate swap
agreements at December 31, 1994. At December 31, 1993, the fair value of open
contracts in a gain position was $12.6 million.
NOTE 16. SEGMENT REPORTING
GMHE operates principally within the field of modern high-technology
electronics for use in Automotive Electronics, Telecommunications and Space,
Defense Electronics, and Commercial Technologies business segments. Radios,
controls for engines and transmissions, monitors and sensors for airbags,
controllers for anti-lock brakes, climate control, dashboard instrumentation,
and other automotive electronic products are included in the Automotive
Electronics segment. The Telecommunications and Space segment includes satellite
construction, ownership and operation, communication services, ground equipment,
and direct-to-home satellite television entertainment services. The Defense
Electronics segment includes missile systems, command and control systems,
electro-optical systems, airborne radar systems, military training and
simulation systems, and guidance and control systems. The Commercial
Technologies segment includes commercial electronics products and services such
as commercial training, air traffic control, aircraft passenger communications
and entertainment, inertial navigation, information systems, space sensors for
IV-65
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
environmental and scientific applications, and entertainment and leisure
products. Intercompany transfers between segments are not material. Information
concerning operations by segment is shown below.
[Enlarge/Download Table]
AUTOMOTIVE TELECOM. DEFENSE COMMERCIAL
ELECTRONICS & SPACE ELECTRONICS TECH. CORPORATE TOTAL
----------- -------- ----------- ---------- --------- ---------
(DOLLARS IN MILLIONS)
Revenues
1994.......................... $5,267.5 $2,528.7 $5,590.7 $ 712.5 $ -- $14,099.4
1993.......................... 4,491.6 2,178.0 6,112.1 735.8 -- 13,517.5
1992.......................... 3,985.8 1,927.9 5,547.0 836.4 -- 12,297.1
Operating Profit (Loss)(1)(2)
1994.......................... $ 793.6 $ 266.6 $ 583.6 $ (124.5) $(12.7) $ 1,506.6
1993.......................... 626.1 195.9 538.0 (0.4) (23.3) 1,336.3
1992.......................... 462.4 33.4 (596.6) (195.1) (22.1) (318.0)
Identifiable Assets at Year
End(3)
1994.......................... $3,466.4 $3,473.2 $6,808.8 $ 970.6 $131.5 $14,850.5
1993.......................... 2,840.5 2,797.1 7,385.4 957.7 136.4 14,117.1
1992.......................... 2,471.8 2,843.6 7,281.7 1,505.0 107.1 14,209.2
Depreciation and Amortization(1)
1994.......................... $ 143.4 $ 144.4 $ 260.9 $ 45.3 $ -- $ 594.0
1993.......................... 153.2 118.8 298.1 57.2 -- 627.3
1992.......................... 124.1 128.8 307.3 50.7 -- 610.9
Capital Expenditures(4)
1994.......................... $ 171.9 $ 395.0 $ 152.5 $ 26.9 $ -- $ 746.3
1993.......................... 149.2 264.9 132.9 33.0 -- 580.0
1992.......................... 266.1 174.4 99.4 18.6 -- 558.5
-------------------------
(1) 1994 includes $123.8 million ($10.7 million, $102.8 million, and $10.3
million related to Telecommunications and Space, Defense Electronics, and
Commercial Technologies, respectively) and 1993 and 1992 include $123.8
million ($10.8 million, $102.7 million, and $10.3 million related to
Telecommunications and Space, Defense Electronics, and Commercial
Technologies, respectively) of purchase accounting adjustments associated
with GM's purchase of Hughes.
(2) 1992 includes $1,237.0 million ($195.3 million, $911.8 million, and $129.9
million related to Telecommunications and Space, Defense Electronics, and
Commercial Technologies, respectively) for the special provision for
restructuring.
(3) Identifiable assets include the unamortized purchase accounting adjustments
associated with the purchase of Hughes as detailed below:
[Download Table]
TELECOM. DEFENSE COMMERCIAL
& SPACE ELECTRONICS TECH. TOTAL
-------- ----------- ----------- --------
(DOLLARS IN MILLIONS)
1994................................. $261.0 $2,494.5 $249.8 $3,005.3
1993................................. 271.7 2,597.3 260.1 3,129.1
1992................................. 282.5 2,700.0 270.4 3,252.9
(4) Telecommunications and Space includes expenditures related to
telecommunications and other equipment amounting to $255.8 million, $131.1
million, and $101.6 million in 1994, 1993, and 1992, respectively.
IV-66
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
A reconciliation of operating profit (loss) shown on the previous page to
Income (Loss) before Income Taxes shown in the Statement of Consolidated
Operations and Available Separate Consolidated Net Income (Loss) follows:
[Download Table]
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
Operating Profit (Loss).......................... $1,506.6 $1,336.3 $(318.0)
Other Income -- net.............................. 37.1 67.3 128.1
Interest Expense................................. (15.1) (33.2) (60.6)
-------- -------- --------
Income (Loss) before Income Taxes.............. $1,528.6 $1,370.4 $(250.5)
======== ======== =======
Export sales from the U.S. were as follows:
[Download Table]
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
Africa........................................... $ 25.8 $ 28.2 $ 39.5
Asia............................................. 758.2 593.4 424.5
Canada........................................... 876.3 820.7 642.9
Europe........................................... 678.6 503.1 524.6
Mexico........................................... 96.9 122.9 199.0
Other Latin America.............................. 90.3 68.3 108.7
Middle East...................................... 370.1 404.4 274.3
-------- -------- --------
Total.......................................... $2,896.2 $2,541.0 $2,213.5
======== ======== ========
Certain amounts for 1993 have been reclassified to conform with 1994
classifications.
NOTE 17. COMMITMENTS AND CONTINGENT LIABILITIES
In December 1994, Hughes entered into an agreement with Computer Sciences
Corporation (CSC) whereby CSC will provide substantially all of the data
processing services required by Hughes. Baseline service payments to CSC are
expected to aggregate approximately $1.5 billion over the term of the eight-year
agreement. The contract is cancelable by Hughes with substantial early
termination penalties.
Minimum future commitments under operating leases having noncancelable
lease terms in excess of one year, primarily for real property and satellite
transponders, aggregating $2,142.4 million, are payable as follows: $233.5
million in 1995, $200.0 million in 1996, $169.5 million in 1997, $157.5 million
in 1998, $158.8 million in 1999, and $1,223.1 million thereafter. Certain of
these leases contain escalation clauses and renewal or purchase options. Rental
expenses under operating leases were $306.2 million in 1994, $296.3 million in
1993, and $277.9 million in 1992.
GMHE and its subsidiaries are subject to potential liability under
government regulations and various claims and legal actions which are pending or
may be asserted against them. The aggregate ultimate liability of GMHE and its
subsidiaries under these government regulations, and under these claims and
actions, was not determinable at December 31, 1994. In the opinion of management
of GMHE, such liability is not expected to have a material adverse effect on
GMHE's consolidated operations or financial position.
* * *
IV-67
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
SELECTED QUARTERLY DATA (UNAUDITED)
[Enlarge/Download Table]
1ST 2ND 3RD 4TH
-------- -------- -------- --------
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
1994 QUARTERS
Revenues.............................................. $3,587.3 $3,535.9 $3,354.5 $3,621.7
======== ======== ======== ========
Income before income taxes............................ $ 477.3 $ 400.6 $ 361.4 $ 289.3
Income taxes.......................................... 195.8 164.2 148.2 64.6
-------- -------- -------- --------
Income before cumulative effect of accounting
change.............................................. 281.5 236.4 213.2 224.7
Cumulative effect of accounting change................ (30.4)* -- -- --
-------- -------- -------- --------
Net income............................................ $ 251.1 $ 236.4 $ 213.2 $ 224.7
======== ======== ======== ========
Earnings used for computation of available separate
consolidated net income............................. $ 282.1 $ 267.3 $ 244.2 $ 255.6
Average number of shares of General Motors Class H
common stock outstanding (in millions).............. 90.6 91.7 92.7 93.3
Class H dividend base (in millions)................... 399.9 399.9 399.9 399.9
Available separate consolidated net income............ $ 64.0 $ 61.3 $ 56.6 $ 59.7
Earnings attributable to General Motors Class H common
stock on a per share basis
Before cumulative effect of accounting change.... $ 0.78 $ 0.67 $ 0.61 $ 0.64
Cumulative effect of accounting change........... (0.08)* -- -- --
-------- -------- -------- --------
Net earnings attributable to General Motors Class
H common stock................................. $ 0.70 $ 0.67 $ 0.61 $ 0.64
======== ======== ======== ========
Stock price range of General Motors Class H common
High................................................ $ 40.38 $ 38.75 $ 38.00 $ 37.75
Low................................................. $ 32.63 $ 31.75 $ 34.63 $ 31.00
1993 QUARTERS
Revenues.............................................. $3,181.2 $3,315.4 $3,319.9 $3,701.0
======== ======== ======== ========
Income before income taxes............................ $ 279.4 $ 348.4 $ 334.7 $ 407.9
Income taxes.......................................... 121.1 147.3 141.6 162.6
-------- -------- -------- --------
Net income............................................ $ 158.3 $ 201.1 $ 193.1 $ 245.3
======== ======== ======== ========
Earnings used for computation of available separate
consolidated net income............................. $ 189.3 $ 232.0 $ 224.0 $ 276.3
Average number of shares of General Motors Class H
common stock outstanding (in millions).............. 93.9 86.0 87.4 88.7
Class H dividend base (in millions)................... 399.9 399.9 399.9 399.9
Available separate consolidated net income............ $ 44.4 $ 50.0 $ 48.9 $ 61.2
Net earnings attributable to General Motors Class H
common stock........................................ $ 0.47 $ 0.58 $ 0.56 $ 0.69
======== ======== ======== ========
Stock price range of General Motors Class H common
High................................................ $ 27.50 $ 33.00 $ 38.00 $ 42.38
Low................................................. $ 22.88 $ 23.38 $ 30.50 $ 34.50
-------------------------
* Effective January 1, 1994, GMHE adopted SFAS No. 112. The unfavorable
cumulative effect of adopting SFAS No. 112 was $30.4 million, or $6.8 million
attributable to GM Class H common stock.
IV-68
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
[Enlarge/Download Table]
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Revenues............................. $14,099.4 $13,517.5 $12,297.1 $11,540.6 $11,723.1
Earnings (Loss) used for computation
of available separate consolidated
net income (loss).................. $ 1,049.2 $ 921.6 $ (921.6) $ 559.4 $ 726.0
Average number of shares of General
Motors Class H common stock
outstanding (in millions).......... 92.1 88.6 75.3 73.7 88.1
Class H dividend base (in
millions).......................... 399.9 399.9 399.9 399.9 399.7
Available separate consolidated net
income (loss)...................... $ 241.6 $ 204.5 $ (142.3) $ 104.6 $ 160.0
GM Class H cash dividends............ $ 73.8 $ 64.1 $ 53.3 $ 54.3 $ 63.4
Dividend payout ratio(1)............. 36.0% N/A 51.0% 33.9% 33.7%
Earnings (Loss) attributable to
General Motors Class H common stock
on a per share basis before
cumulative effect of accounting
changes............................ $ 2.70 $ 2.30 $ (0.11) $ 1.26 $ 1.82
Earnings (Loss) attributable to
General Motors Class H common stock
on a per share basis after
cumulative effect of accounting
changes............................ $ 2.62 $ 2.30 $ (2.29) $ 1.39 $ 1.82
Expenditures for property and special
tools(2)........................... $ 746.3 $ 580.0 $ 558.5 $ 681.3 $ 884.3
Cash and marketable securities....... $ 1,501.8 $ 1,008.7 $ 702.7 $ 348.3 $ 459.3
Working capital...................... $ 2,695.5 $ 2,165.2 $ 1,692.4 $ 1,548.8 $ 1,373.9
Total assets......................... $14,850.5 $14,117.1 $14,209.2 $12,930.8 $12,727.5
Long-term debt and capitalized
leases............................. $ 353.5 $ 416.8 $ 711.0 $ 147.1 $ 271.9
Return on equity*(3)................. 12.1% 11.3% (13.9)% 5.3% 7.2%
Income (Loss) before interest and
taxes as a percent of
capitalization(4).................. 19.0% 18.0% (2.3)% 8.1% 12.4%
Pre-tax return on total assets(5).... 10.6% 9.7% (1.8)% 5.2% 8.3%
-------------------------
* Includes favorable (unfavorable) cumulative effect of accounting changes of
($30.4) million in 1994, ($872.1) million in 1992, and $54.4 million in
1991.
(1) GM Class H cash dividends divided by available separate consolidated net
income for the prior year.
(2) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million, $101.6 million, $88.3 million,
and $182.6 million in 1994, 1993, 1992, 1991, and 1990, respectively.
(3) Net income (loss) divided by average stockholder's equity (General Motors'
equity in its wholly-owned subsidiary, GMHE). Holders of GM Class H common
stock have no direct rights in the equity or assets of GMHE, but rather have
rights in the equity and assets of GM (which includes 100% of the stock of
GMHE).
(4) Income (Loss) before interest and taxes divided by average stockholder's
equity plus average debt.
(5) Income (Loss) before income taxes divided by average total assets.
IV-69
GM HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING AND FINANCIAL REVIEW
The following discussion excludes the purchase accounting adjustments
related to General Motors' acquisition of Hughes (see Supplemental Data on page
IV-75).
RESULTS OF OPERATIONS
Revenues. GMHE reported revenues of $14,099.4 million in 1994, an increase
of 4.3% over 1993, and $13,517.5 million in 1993, an increase of 9.9% compared
with 1992 revenues of $12,297.1 million. The increase in revenues over the last
three years is largely the result of continued growth in the Automotive
Electronics segment, the ongoing success in the telecommunications and space
businesses, and defense electronics revenues generated by the missile business
acquired in August 1992. However, lower production rates and planned
terminations on several defense programs resulted in a decline of Defense
Electronics segment revenues in 1994. (Pro forma segment information is
presented on page IV-77).
Automotive Electronics. Revenues in the Automotive Electronics segment
continued to increase in 1994 to $5,267.5 million from $4,491.6 million in 1993,
a 17.3% increase, and from $3,985.8 million in 1992, a 12.7% increase in 1993.
The growth is primarily attributable to three factors: (1) an increase in GMHE-
supplied electronic content per GM North American-produced vehicle to $857 in
1994 from $782 and $760 in 1993 and 1992, respectively; (2) an increase in GM
North American vehicle production of 8% between 1994 and 1993 and 9% between
1993 and 1992; and (3) an increase in sales to international and non-GM
customers to $672 million in 1994 from $603 million and $484 million in 1993 and
1992, respectively.
Telecommunications and Space. Revenues in the Telecommunications and Space
segment were $2,528.7 million in 1994, a 16.1% increase over 1993 revenues of
$2,178.0 million. The increase resulted from higher cellular communications
equipment and private business network sales at Hughes Network Systems, Inc.
(HNS), additional Galaxy satellite transponder sales, increased satellite
construction sales, and the commencement of service by DIRECTV(R), GMHE's new
direct-to-home television service. Revenues for 1993 were 13.0% higher than 1992
revenues of $1,927.9 million. The 1993 increase in revenues reflects additional
sales of satellites to commercial customers and increased sales of fixed
wireless and cellular communications equipment and services internationally.
Defense Electronics. Defense Electronics segment revenues were $5,590.7
million in 1994, an 8.5% decrease from 1993 revenues of $6,112.1 million. The
decline was principally due to the full year impact of lower production rates
and planned terminations on several defense programs. Revenues increased $565.1
million, or 10.2%, between 1993 and 1992. The increase is due largely to
revenues from a full year of operations of the missile business acquired in
1992, as well as increased effort on the Peace Shield air defense system for
Saudi Arabia.
Commercial Technologies. Revenues in the Commercial Technologies segment
were $712.5 million in 1994, a 3.2% decrease from 1993 revenues of $735.8
million. Revenues for 1993 were 12.0% lower than 1992 revenues of $836.4
million. The decreases are primarily a result of the divestiture of several
non-strategic business units partially offset by increased effort in the air
traffic control and information systems businesses.
Other Income. Included in revenues is other income of $37.1 million, $67.3
million, and $128.1 million for 1994, 1993, and 1992, respectively. The 1994
amount includes a $35.0 million pre-tax charge for the expected loss on
disposition of a subsidiary. The 1993 amount includes a gain of $89.7 million on
the sale of GMHE's 30% interest in Japan Communications Satellite Company, Inc.
(JCSAT) and a $55.0 million charge related to the sale of Hughes Rediffusion
Simulation Limited (Rediffusion) and related entities in December 1993. The 1992
amount includes proceeds of $35.0 million from settlement of a patent
infringement suit and a $28.0 million gain resulting from the formation of the
Hughes-JVC Technology joint venture.
IV-70
Operating Profit. Operating profit was $1,630.4 million in 1994, $1,460.1
million in 1993, and $1,042.8 million in 1992, excluding the special provision
for restructuring. Operating profit margins, on a comparable basis, were 11.6%,
10.9%, and 8.6% in 1994, 1993, and 1992, respectively. Beginning in the first
quarter of 1994, the operating profit margin calculation was changed to
operating profit divided by net sales rather than revenues, which include other
income. Prior year operating profit margins have been restated on a comparable
basis.
The improvement in both profitability and profit margins over this time
period was primarily the result of the continuing emphasis on cost reduction
efforts, most notably in the Automotive Electronics and Defense Electronics
segments, and the overall growth in revenues.
Automotive Electronics. Operating profit has steadily increased over the
last three years. In 1994, operating profit was $793.6 million compared with
$626.1 million in 1993 and $462.4 million in 1992. The increases are
attributable not only to the increased electronic content per vehicle and higher
vehicle volumes, but also to an aggressive cost reduction program at Delco
Electronics, which has yielded cost savings of 11% in 1994, 10% in 1993, and 9%
in 1992. The operating profit margin was 15.2%, 13.9%, and 11.6% in 1994, 1993,
and 1992, respectively. Operating profit margins beyond 1995 are not expected to
be maintained at the current level due to the potential for reduced auto
production volumes, increased pricing pressures, and GM's global sourcing
initiatives.
Telecommunications and Space. Operating profit for 1994 increased to $277.3
million, a 34.2% increase over the $206.7 million reported in 1993. The
improvement is a result of the sale of additional Galaxy satellite transponders
and increased HNS and satellite construction sales, partially offset by higher
DIRECTV operating expenses relating to the commencement of service. Excluding
the 1992 restructuring charge, 1993 operating profit declined 13.7% from 1992
operating profit of $239.5 million. The decrease was due to a reduction in
revenues from satellite transponder sales and an increase in DIRECTV related
costs, partially offset by the recognition of cost savings from satellite
construction activities in 1992. Operating profit margins were 10.8% in 1994,
10.0% in 1993, and 2.3% in 1992. The 1995 margin will be negatively impacted by
the increased operating expenses associated with the continued expansion of
DIRECTV. After 1995, the Telecommunications and Space segment's operating
margins are expected to increase as DIRECTV becomes profitable.
Defense Electronics. Operating profit increased 7.1% to $686.4 million in
1994 and 53.3% to $640.7 million in 1993, compared with $417.9 million,
excluding the restructuring charge, in 1992. The increases reflect the ongoing
efforts to reduce costs across GMHE's defense businesses and continued benefits
from the acquisition and consolidation of the missile business acquired in
August 1992. Future operating profits could be negatively impacted by further
reductions in the U.S. defense budget.
Commercial Technologies. Operating losses were $114.2 million in 1994
compared with an operating profit of $9.9 million in 1993. The operating loss is
attributable to three factors: (1) additional costs and revenue deferral at
Hughes-Avicom International, Inc. related to product development and initial
system service of in-flight entertainment systems; (2) air traffic control
contract costs for which the expected revenues are not yet recognizable for
financial reporting purposes, pending contract negotiations; and (3) development
costs on several new products. The 1993 improvement in operating profit from the
1992 operating loss of $54.9 million was primarily due to reduced operating
losses at Rediffusion, actions which began in 1992 to reduce costs, and
increased profits from the air traffic control and information systems
businesses.
Costs and Expenses. Selling, general, and administrative expenses were
$1,018.3 million in 1994, $929.1 million in 1993, and $1,036.2 million in 1992.
The $89.2 million increase in 1994 was primarily due to the commencement of
nationwide service by DIRECTV and increased international sales activities at
HNS. The decrease of $107.1 million in 1993 was primarily due to the cost
reductions resulting from restructuring activities which began in the second
half of 1992.
Interest expense decreased 54.5% in 1994 and 45.2% in 1993 primarily due to
an overall decrease in debt balances and an increase in the amount of
capitalized interest.
IV-71
The effective income tax rate was 34.7%, 38.3%, and 37.0% in 1994, 1993,
and 1992, respectively. The lower 1994 tax rate resulted from the recognition of
capital loss carryforward benefits. The Revenue Reconciliation Act of 1993 did
not have a material adverse effect on GMHE's 1994 or 1993 earnings and is not
expected to have a significant impact in future years.
Earnings. GMHE's 1994 earnings were $1,049.2 million, or $2.62 per share of
GM Class H common stock, compared with 1993 earnings of $921.6 million, or $2.30
per share, and a loss in 1992 of $921.6 million or ($2.29) per share. Earnings
in 1994 include the unfavorable effect of an accounting change for
postemployment benefits while 1992 included the restructuring charge and
accounting changes for postretirement benefits and revenue recognition described
below. Excluding these special items, GMHE earnings in 1994 and 1992 would have
been $1,079.6 million, or $2.70 per share, and $699.9 million, or $1.76 per
share, respectively.
Backlog. The 1994 year-end backlog of $13,210 million remained relatively
unchanged from the 1993 value of $13,399 million. Year-end 1993 backlog
decreased $623 million from the $14,022 million reported in 1992 primarily due
to the sale of Rediffusion. A portion of the backlog is subject to appropriation
decisions by the U.S. Government subsequent to award. In addition, GMHE's
contracts with the U.S. Government are subject to termination by the Government
either for its convenience or for default by GMHE. Sales to the U.S. Government
may be affected by changes in acquisition policies, budget considerations,
changing concepts in national defense, spending priorities, and other factors
that are outside GMHE's control.
Special Provision for Restructuring. GMHE took a special charge in June
1992 of $749.4 million (after-tax), or $1.87 per share, for the restructuring of
Hughes' operations. The special charge comprehended a reduction of Hughes'
worldwide employment, a major facilities consolidation, and a reevaluation of
certain business lines that no longer met Hughes' strategic objectives.
Restructuring costs of $228.3 million, $527.6 million, and $250.9 million were
charged against the reserve during 1994, 1993, and 1992, respectively. In
addition, in 1994 and 1993 the restructuring reserve was increased by $35.0
million and $78.0 million, respectively, primarily due to changes in the
estimated loss on disposition of two subsidiaries. The remaining liability of
$343.2 million relates primarily to reserves for excess leased facilities and
other site consolidation costs. Approximately $288.2 million of this total will
require future cash outflows. It is expected that these costs will be expended
predominantly over the next three years.
Accounting Changes. GMHE adopted SFAS No. 112, Employers' Accounting for
Postemployment Benefits, effective January 1, 1994. This Statement requires
accrual of the costs of benefits provided to former or inactive employees after
employment, but before retirement. The cumulative effect of this accounting
change as of January 1, 1994 was $49.6 million, or $30.4 million after-tax
($0.08 per share of GM Class H common stock).
GMHE adopted SFAS No. 106 in January 1992. This Statement requires that the
cost of postretirement benefits other than pensions be recognized in the
financial statements during the period employees provide service to GMHE. GMHE's
previous practice was to recognize the cost of such postretirement benefits when
incurred (pay-as-you-go). The cumulative effect of this accounting change as of
January 1, 1992 was $1,366.6 million, or $832.1 million after-tax ($2.08 per
share of GM Class H common stock).
GMHE has disclosed in its financial statements certain amounts associated
with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, GMHE does not admit or otherwise acknowledge that
such amounts or existing postretirement benefit plans of GMHE (other than
pensions) represent enforceable liabilities of GMHE.
Hughes changed its revenue recognition policy for certain commercial
long-term contracts effective January 1, 1992 from the percentage-of-completion
method to the units-of-delivery method. The unfavorable effect of this change
was $40.0 million after-tax, or $0.10 per share of GM Class H common stock.
IV-72
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents. The Company's balance sheet strengthened further
in 1994 as cash and cash equivalent increased $493.1 million to $1,501.8 million
at December 31, 1994. Operating activities provided net cash of $1,376.8 million
in 1994 as GMHE achieved record earnings while aggressively managing working
capital. Additional cash of $200 million was generated by the collection of a
note receivable from General Motors. Cash was used to fund capital expenditures
for property and special tools and telecommunications and other equipment
(primarily related to DIRECTV) as well as to pay dividends to General Motors.
Cash and cash equivalents at December 31, 1993 amounted to $1,008.7
million, a $306.0 million increase from $702.7 million at December 31, 1992. The
increase was due to net cash provided by operating activities of $1,493.5
million, partially offset by net cash used in investing and financing
activities. Proceeds from the sale of investments and businesses, and from the
disposal of property, generated an additional $396.6 million of cash in 1993.
Cash was used primarily to fund capital expenditures, reduce outstanding debt,
and to pay dividends to General Motors.
Liquidity Measurement. As a measure of liquidity, the current ratio (ratio
of current assets to current liabilities) was 1.76 at December 31, 1994, 1.61 at
December 31, 1993, and 1.44 at December 31, 1992. These increases were due to
the build-up of cash balances described above.
Property and Equipment. Property, net of accumulated depreciation,
decreased $22.6 million in 1994 while telecommunications and other equipment,
net of accumulated depreciation, increased $304.1 million primarily due to
expenditures related to DIRECTV.
Expenditures for property and equipment were $490.5 million in 1994
compared with $448.9 million and $456.9 million in 1993 and 1992, respectively.
Management anticipates that capital expenditures in 1995 will increase
approximately $80 million over 1994 and will be financed primarily from cash
provided by operating activities.
Telecommunications and other equipment expenditures were $255.8 million in
1994 compared with $131.1 million and $101.6 million in 1993 and 1992,
respectively. Management anticipates that telecommunications and other equipment
expenditures in 1995 will increase approximately $50 million over 1994 and will
be financed primarily from cash provided by operating activities.
Automotive Electronics. Capital expenditures increased to $171.9 million in
1994, compared with $149.2 million in 1993, a decrease of $116.9 million from
1992. The increase in capital spending in 1994 reflects expenditures for
technology upgrades at certain facilities. The decrease in capital spending in
1993 reflected the completion of several projects to upgrade and expand
facilities and a decrease in expenditures related to model changes.
Telecommunications and Space. Capital expenditures, including expenditures
related to telecommunications and other equipment increased to $395.0 million
from $264.9 million in 1993 and $174.4 million in 1992, primarily reflecting
continuing investment in satellite equipment associated with DIRECTV.
Defense Electronics. Capital expenditures in the Defense Electronics
segment for 1994, 1993, and 1992 were $152.5 million, $132.9 million, and $99.4
million, respectively. The increases in 1994 and 1993 are due to expenditures
related to the consolidation of facilities in an effort to increase the
operational efficiencies of manufacturing and engineering activities.
Commercial Technologies. Capital expenditures were $26.9 million, $33.0
million, and $18.6 million in 1994, 1993, and 1992, respectively. The increase
in 1993 related to facilities and equipment for the EOSDIS program.
Long-Term Debt and Capitalized Leases. Long-term debt and capitalized
leases was $353.5 million at December 31, 1994, a decrease of $63.3 million from
$416.8 million at December 31, 1993 reflecting scheduled principal payments.
Long-term debt and capitalized leases decreased $294.2 million in 1993, from
$711.0 million at December 31, 1992 partially due to the prepayment of GM debt
arising from the missile business acquisition and repayment of certain Japanese
yen debt related to JCSAT. The ratio of long-term
IV-73
debt and capitalized leases to the total of such debt and pro forma
stockholder's equity decreased to 6.6% in 1994 from 9.0% in 1993, and 16.6% in
1992.
Other Balance Sheet Items. In evaluating both its pension and retiree
medical liabilities, GMHE recognized the impact of the recent increase in
long-term interest rates by increasing the discount rate used in determining the
actuarial present values of the projected benefit obligations. In 1994, the
weighted average discount rate for Hughes' pension obligations increased from
7.5% to 8.75% and the weighted average discount rate for GMHE's other
postretirement benefits increased from 6.99% to 8.57%.
Acquisitions and Divestitures. In December 1994, GMHE announced that it had
reached an agreement with CAE Inc. of Toronto, Canada to acquire substantially
all of the assets of its U.S. subsidiary, CAE-Link Corporation, for $155 million
in cash. CAE-Link is an established supplier of simulation, training, and
technical services, primarily to the U.S. military and NASA. The transaction
closed on February 24, 1995.
On December 31, 1993, GMHE completed the sale of Rediffusion and related
entities comprising the majority of its commercial aircraft simulation and
training equipment business to Thomson-CSF. The sale resulted in a $55.0 million
pre-tax charge against earnings, and included Rediffusion's core flight
simulation businesses and its U.S. airline marketing support organization.
On August 21, 1992, GMHE acquired substantially all the assets and business
of General Dynamic's Air Defense Systems Division, the Unmanned Strike Systems
business unit, and the Convair Division (together, the GD Missile Business).
This acquisition provided GMHE with the opportunity to expand its current
military programs portfolio, its customer base, and expand its share of the
market for missiles and missile systems. The GD Missile Business was acquired in
exchange for 21,508,563 shares of GM Class H common stock and cash with an
aggregate value of $450.0 million. GMHE purchased the GM Class H common stock
from GM in August 1992, principally in exchange for a series of notes.
Dividend Policy. As discussed in Note 7 to the Consolidated Financial
Statements, it is GM's current policy to pay aggregate annual cash dividends on
the GM Class H common stock approximately equal to 35% of the Available Separate
Consolidated Net Income of GMHE for the prior year. In February 1995, the Board
of Directors of GM increased the quarterly dividend on GM Class H common stock
from $0.20 per share to $0.23 per share.
Security Ratings. GMHE's security ratings are tied to the security ratings
of General Motors.
In February 1993, Standard & Poor's Corporation (S&P) lowered GMHE's
long-term debt rating from A- to BBB+. The BBB+ rating for senior debt is eighth
highest within the 10 investment grade ratings available from S&P for long-term
debt and is based on a determination of adequate capacity to pay interest and
repay principal. At the same time, S&P lowered GMHE's commercial paper rating
from A-1 to A-2, third highest within the four investment grade ratings
available from S&P for commercial paper, indicating strong capacity for timely
payment determined by significant safety characteristics.
In November 1992, Moody's Investors Service, Inc. (Moody's) lowered its
rating of GMHE senior debt to Baa1 from A-2, eighth highest within the 10
investment grade ratings available from Moody's for long-term debt, reflecting
adequate protection of present interest payments and principal. Concurrently,
Moody's also lowered GMHE's commercial paper rating from Prime-1, the highest of
three investment grade ratings available from Moody's for commercial paper, to
Prime-2, indicating a strong ability for repayment based on sound earnings
trends and coverage ratios, appropriate capitalization characteristics, and
adequate maintenance of alternative liquidity.
Debt ratings by the various rating agencies reflect each agency's opinion
of the ability of issuers to repay debt obligations punctually. Lower ratings
generally result in higher borrowing costs. A security rating is not a
recommendation to buy, sell, or hold securities and may be subject to revision
or withdrawal at any time by the assigning organization. Each rating should be
evaluated independently of any other rating.
IV-74
GM Class H Common Stock Subject to Repurchase
On February 15, 1995, GM and the Howard Hughes Medical Institute entered
into an agreement under which GM will assist the Institute in a registered
public offering of approximately 15 million shares of GM Class H common stock.
The 1995 put and call rights described in Note 1 to the Consolidated Financial
Statements expired unexercised. The Institute will have a new put right with an
exercise date on the earlier of the conclusion of the offering or June 30, 1995.
GM will receive any net proceeds of the offering in excess of $37.50 per share.
SUPPLEMENTAL DATA
The Consolidated Financial Statements reflect the application of purchase
accounting adjustments as described in Note 1 to the Consolidated Financial
Statements. However, as provided in GM's Certificate of Incorporation, the
earnings attributable to GM Class H common stock for purposes of determining the
amount available for the payment of dividends on GM Class H common stock
specifically excludes such adjustments. More specifically, amortization of
purchase accounting adjustments associated with GM's purchase of Hughes was
$123.8 million in 1994, 1993, and 1992. Such amounts were excluded from the
earnings available for the payment of dividends on GM Class H common stock and
were charged against the earnings available for the payment of dividends on GM's
$1 2/3 par value stock. Unamortized purchase accounting adjustments associated
with GM's purchase of Hughes were $3,005.3 million, $3,129.1 million, and
$3,252.9 million in 1994, 1993, and 1992, respectively.
In order to provide additional analytical data to the users of GMHE's
financial information, supplemental data in the form of unaudited summary pro
forma financial data are provided. Consistent with the basis on which earnings
of GMHE available for the payment of dividends on GM Class H common stock is
determined, the pro forma data exclude the General Motors' purchase accounting
adjustments related to the acquisition of Hughes. Included in the supplemental
data are certain financial ratios which provide measures of financial returns
excluding the impact of purchase accounting adjustments. The pro forma data are
not presented as a measure of GM's total return on its investment in GMHE.
IV-75
SUMMARY PRO FORMA FINANCIAL DATA*
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
Total Revenues.............................................. $14,099.4 $13,517.5 $12,297.1
Total Costs and Expenses.................................... 12,447.0 12,023.3 12,423.8(1)
--------- --------- ---------
Income (Loss) before Income Taxes........................... 1,652.4 1,494.2 (126.7)
Income taxes (credit)....................................... 572.8 572.6 (77.2)
--------- --------- ---------
Income (Loss) before cumulative effect of accounting
changes................................................... 1,079.6 921.6 (49.5)
Cumulative effect of accounting changes..................... (30.4) -- (872.1)
--------- --------- ---------
Earnings (Loss) Used for Computation of Available Separate
Consolidated Net Income (Loss)............................ $ 1,049.2 $ 921.6 $ (921.6)
========= ========= =========
Earnings (Loss) Attributable to General Motors Class H
Common Stock on a Per Share Basis
Before cumulative effect of accounting changes......... $ 2.70 $ 2.30 $ (0.11)
Cumulative effect of accounting changes................ (0.08) -- (2.18)
--------- --------- ---------
Net earnings (loss) attributable to General Motors
Class H Common Stock................................. $ 2.62 $ 2.30 $ (2.29)
========= ========= =========
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
[Enlarge/Download Table]
DECEMBER 31,
----------------------
1994 1993
--------- ---------
(DOLLARS IN MILLIONS)
ASSETS
Total Current Assets................................................... $ 6,243.6 $ 5,714.3
Property -- Net........................................................ 2,611.8 2,634.4
Telecommunications and Other Equipment -- Net.......................... 1,071.7 767.6
Intangible Assets, Investments, and Other Assets....................... 1,918.1 1,871.7
--------- ---------
Total Assets........................................................... $11,845.2 $10,988.0
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Total Current Liabilities.............................................. $ 3,548.1 $ 3,549.1
Long-Term Debt and Capitalized Leases.................................. 353.5 416.8
Postretirement Benefits Other Than Pensions, Other Liabilities,
Deferred Income Taxes, and Deferred Credits.......................... 2,973.1 2,823.1
Total Stockholder's Equity(2).......................................... 4,970.5 4,199.0
--------- ---------
Total Liabilities and Stockholder's Equity(2).......................... $11,845.2 $10,988.0
========= =========
-------------------------
(1) Includes a special provision for restructuring of $1,237.0 million.
(2) General Motors' equity in its wholly-owned subsidiary, GMHE. Holders of GM
Class H common stock have no direct rights in the equity or assets of GMHE,
but rather have rights in the equity and assets of GM (which includes 100%
of the stock of GMHE).
* The summary is unaudited and excludes GM purchase accounting adjustments
related to the acquisition of Hughes.
IV-76
SUMMARY PRO FORMA FINANCIAL DATA*
PRO FORMA SELECTED SEGMENT DATA
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
AUTOMOTIVE ELECTRONICS
Revenues................................................ $5,267.5 $4,491.6 $3,985.8
Revenues as a percentage of GMHE Revenues............... 37.4% 33.2% 32.4%
Net Sales............................................... $5,216.5 $4,488.9 $3,977.2
Operating Profit(1)..................................... $ 793.6 $ 626.1 $ 462.4
Operating Profit Margin(2).............................. 15.2% 13.9% 11.6%
Identifiable Assets at Year End......................... $3,466.4 $2,840.5 $2,471.8
Depreciation and Amortization........................... $ 143.4 $ 153.2 $ 124.1
Capital Expenditures.................................... $ 171.9 $ 149.2 $ 266.1
TELECOMMUNICATIONS AND SPACE
Revenues................................................ $2,528.7 $2,178.0 $1,927.9
Revenues as a percentage of GMHE Revenues............... 17.9% 16.1% 15.7%
Net Sales............................................... $2,565.1 $2,075.0 $1,918.4
Restructuring Charge.................................... $ -- $ -- $ 195.3
Operating Profit(1)..................................... $ 277.3 $ 206.7 $ 44.2
Operating Profit Margin(2).............................. 10.8% 10.0% 2.3%
Identifiable Assets at Year End......................... $3,212.2 $2,525.4 $2,561.1
Depreciation and Amortization........................... $ 133.7 $ 108.0 $ 118.0
Capital Expenditures(3)................................. $ 395.0 $ 264.9 $ 174.4
DEFENSE ELECTRONICS
Revenues................................................ $5,590.7 $6,112.1 $5,547.0
Revenues as a percentage of GMHE Revenues............... 39.6% 45.2% 45.1%
Net Sales............................................... $5,569.1 $6,085.0 $5,498.0
Restructuring Charge.................................... $ -- $ -- $ 911.8
Operating Profit (Loss)(1).............................. $ 686.4 $ 640.7 $ (493.9)
Operating Profit (Loss) Margin(2)....................... 12.3% 10.5% (9.0)%
Identifiable Assets at Year End......................... $4,314.3 $4,788.1 $4,581.7
Depreciation and Amortization........................... $ 158.1 $ 195.4 $ 204.6
Capital Expenditures.................................... $ 152.5 $ 132.9 $ 99.4
COMMERCIAL TECHNOLOGIES
Revenues................................................ $ 712.5 $ 735.8 $ 836.4
Revenues as a percentage of GMHE Revenues............... 5.1% 5.5% 6.8%
Net Sales............................................... $ 711.6 $ 801.3 $ 775.4
Restructuring Charge.................................... $ -- $ -- $ 129.9
Operating Profit (Loss)(1).............................. $ (114.2) $ 9.9 $ (184.8)
Operating Profit (Loss) Margin(2)....................... (16.0)% 1.2% (23.8)%
Identifiable Assets at Year End......................... $ 720.8 $ 697.6 $1,234.6
Depreciation and Amortization........................... $ 35.0 $ 46.9 $ 40.4
Capital Expenditures.................................... $ 26.9 $ 33.0 $ 18.6
CORPORATE
Operating Loss(1)....................................... $ (12.7) $ (23.3) $ (22.1)
Identifiable Assets at Year End......................... $ 131.5 $ 136.4 $ 107.1
-------------------------
Certain amounts for 1993 and 1992 have been reclassified to conform with
1994 classifications.
* The summary is unaudited and excludes GM purchase accounting adjustments
related to the acquisition of Hughes.
(1) Net Sales less Total Costs and Expenses other than Interest Expense.
(2) Operating Profit (Loss) as a percentage of Net Sales.
(3) Includes expenditures related to telecommunications and other equipment
amounting to $255.8 million, $131.1 million, and $101.6 million,
respectively.
IV-77
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SUMMARY PRO FORMA FINANCIAL DATA*
PRO FORMA SELECTED FINANCIAL DATA
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Operating profit (loss)....................... $1,630 $1,460 $ (194) $ 800 $1,157
Income (Loss) before income taxes and
cumulative effect of accounting changes..... $1,652 $1,494 $ (127) $ 795 $1,187
Earnings (Loss) used for computation of
available separate consolidated net income
(loss)**.................................... $1,049 $ 922 $ (922) $ 559 $ 726
Average number of GM Class H dividend base
shares(1)................................... 399.9 399.9 399.9 399.9 399.7
Stockholder's equity**........................ $4,971 $4,199 $3,562 $4,841 $4,598
Dividends per share of GM Class H common
stock....................................... $ 0.80 $ 0.72 $ 0.72 $ 0.72 $ 0.72
Working capital............................... $2,696 $2,165 $1,692 $1,549 $1,374
Operating profit (loss) as a percent of net
sales....................................... 11.6% 10.9% (1.6)% 7.0% 10.0%
Pre-tax income (loss) as a percent of
revenues.................................... 11.7% 11.1% (1.0)% 6.9% 10.1%
Net income (loss) as a percent of
revenues**.................................. 7.4% 6.8% (7.5)% 4.8% 6.2%
Return on equity**(2)......................... 22.9% 23.7% (21.9)% 11.9% 16.4%
Income (Loss) before interest and taxes as a
percent of capitalization(3)................ 32.9% 33.1% (1.3)% 15.3% 23.3%
Pre-tax return on total assets(4)............. 14.5% 13.6% (1.2)% 8.5% 13.4%
-------------------------
* The summary is unaudited and excludes GM purchase accounting adjustments
related to the acquisition of Hughes.
** Includes favorable (unfavorable) cumulative effect of accounting changes of
$(30.4) million in 1994, $(872.1) million in 1992, and $54.4 million in
1991.
(1) Class H dividend base shares is used in calculating earnings attributable to
GM Class H common stock on a per share basis. This is not the same as the
average number of GM Class H shares outstanding, which was 92.1 million for
1994.
(2) Earnings (Loss) used for computation of available separate consolidated net
income (loss) divided by average stockholder's equity (General Motors'
equity in its wholly-owned subsidiary, GMHE). Holders of GM Class H common
stock have no direct rights in the equity or assets of GMHE, but rather have
rights in the equity and assets of GM (which includes 100% of the stock of
GMHE).
(3) Income (Loss) before interest and taxes divided by average stockholder's
equity plus average total debt.
(4) Income (Loss) before income taxes divided by average total assets.
* * * * * * *
IV-78
Dates Referenced Herein and Documents Incorporated by Reference
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