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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-143
GENERAL MOTORS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF DELAWARE 38-0572515
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 RENAISSANCE CENTER, DETROIT, MICHIGAN 48243-7301
3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202-3091
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (313) 556-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON, $1 2/3 PAR VALUE (743,213,618 SHARES OUTSTANDING AS
OF FEBRUARY 28, 1997)..................................... NEW YORK STOCK EXCHANGE, INC.
CLASS H COMMON, $0.10 PAR VALUE (100,831,170 SHARES
OUTSTANDING AS OF FEBRUARY 28, 1997....................... NEW YORK STOCK EXCHANGE, INC.
PREFERENCE, $0.10 PAR VALUE, SERIES B 9 1/8% DEPOSITARY
SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE
(20,020,586 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY
28, 1997)................................................. NEW YORK STOCK EXCHANGE, INC.
PREFERENCE, $0.10 PAR VALUE, SERIES D 7.92% DEPOSITARY
SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE
(6,069,909 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY
28, 1997)................................................. NEW YORK STOCK EXCHANGE, INC.
PREFERENCE, $0.10 PAR VALUE, SERIES G 9.12% DEPOSITARY
SHARES, STATED VALUE $25 PER SHARE, DIVIDENDS CUMULATIVE
(10,079,899 DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY
28, 1997)................................................. NEW YORK STOCK EXCHANGE, INC.
NOTE: THE $1 2/3 PAR VALUE COMMON STOCK OF THE REGISTRANT IS ALSO LISTED FOR
TRADING ON:
CHICAGO STOCK EXCHANGE, INC. ........................... CHICAGO, ILLINOIS
PACIFIC STOCK EXCHANGE, INC. ........................... SAN FRANCISCO, CALIFORNIA
PHILADELPHIA STOCK EXCHANGE, INC. ...................... PHILADELPHIA, PENNSYLVANIA
MONTREAL STOCK EXCHANGE................................. MONTREAL, QUEBEC, CANADA
TORONTO STOCK EXCHANGE.................................. TORONTO, ONTARIO, CANADA
BORSE FRANKFURT AM MAIN................................. FRANKFORT ON THE MAIN, GERMANY
BORSE DUSSELDORF........................................ DUSSELDORF, GERMANY
BOURSE DE BRUXELLES..................................... BRUSSELS, BELGIUM
COURTIERS EN VALEURS MOBILIERES......................... PARIS, FRANCE
THE LONDON STOCK EXCHANGE............................... LONDON, ENGLAND
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES X . NO ___ .
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ( )
THE AGGREGATE MARKET VALUE (BASED UPON THE AVERAGE OF THE HIGHEST AND
LOWEST SALES PRICES ON THE COMPOSITE TAPE ON FEBRUARY 28, 1997) OF GENERAL
MOTORS CORPORATION $1 2/3 PAR VALUE, CLASS H COMMON STOCKS HELD BY NONAFFILIATES
ON FEBRUARY 28, 1997 WAS APPROXIMATELY $42.7 BILLION AND $5.9 BILLION,
RESPECTIVELY.
DOCUMENTS INCORPORATED BY REFERENCE:
PART AND ITEM NUMBER OF FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
-------- ---------------------------------
GENERAL MOTORS NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO
BE HELD MAY 23, 1997...................................... PART III, ITEMS 10 THROUGH 13
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PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
THE CORPORATION
General Motors Corporation, incorporated in 1916 under the laws of the
State of Delaware, is hereinafter sometimes referred to as the "Registrant" or
the "Corporation" and, together with its subsidiaries, is hereinafter sometimes
referred to as "General Motors" or "GM."
ITEM 1. BUSINESS
GENERAL
The following information is incorporated herein by reference to the
indicated pages in Part II:
ITEM PAGE
- ---- ----
Wholesale Sales............................................. II-48 and 50
Employment and Payrolls..................................... II-68
Note 22 of Notes to Consolidated Financial Statements
(Segment Reporting)....................................... II-37
While the major portion of General Motors' operations is derived from the
automotive products industry segment, General Motors also has a financing and
insurance industry segment and produces products and provides services in other
industry segments. The automotive products segment consists of the design,
manufacture, assembly, and sale of automobiles, trucks and related parts and
accessories. The financing and insurance operations, primarily General Motors
Acceptance Corporation (GMAC), assist in the merchandising of General Motors'
products as well as other products. GMAC offers financial services and certain
types of insurance to dealers and customers. In addition, GMAC is engaged in
mortgage banking services. The other products segment consists of satellite
construction, ownership and operation, communications services, ground
equipment, direct-to-home satellite television entertainment services, missile
systems, command and control systems, torpedoes and sonar systems,
electro-optical systems, airborne radar and communication systems, military
training and simulation systems, air traffic control systems, information
systems, and guidance and control systems; as well as the design, development,
and manufacture of locomotives.
Substantially all of the products in the automotive segment are marketed
through retail dealers and through distributors and jobbers in the United
States, Canada, and Mexico, and through distributors and dealers overseas. At
December 31, 1996, there were approximately 8,300 General Motors vehicle dealers
in the United States, 1,000 in Canada and Mexico, and approximately 5,500
outlets overseas.
BACKLOG OF ORDERS
Shipments of General Motors' automotive products are made as promptly as
possible after receipt of firm sales orders; therefore, no significant backlog
of unfilled orders accumulates. Hughes Electronics Corporation had a $15.1
billion and $14.9 billion backlog of defense and commercial contracts at the end
of 1996 and 1995, respectively.
RAW MATERIALS AND SERVICES
General Motors purchases materials, parts, supplies, freight
transportation, energy, and other services from numerous unaffiliated firms.
Interruptions in production or delivery of these goods or services could
adversely affect General Motors.
COMPETITIVE POSITION
General Motors' principal competitors in passenger cars and trucks in the
United States and Canada include Ford Motor Company, Chrysler Corporation,
Toyota Corporation, Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd.,
Mazda Motor Corporation, Mitsubishi Motors Corporation, Fuji Heavy
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Industries, Ltd. (Subaru), Volkswagen A.G., Hyundai Motor Company, Ltd.,
Daimler-Benz A.G. (Mercedes), Bayerische Motoren Werke AG (BMW), and Volvo AB.
All but Volkswagen and Mercedes currently operate vehicle manufacturing
facilities in the United States or Canada, however, Mercedes currently has an
assembly plant under construction in the United States. Toyota and GM operate
the New United Motor Manufacturing, Inc. facility in Fremont, California as a
joint venture which currently builds passenger cars and light-duty trucks.
Wholesale unit sales of General Motors passenger cars and trucks during the
three years ended December 31, 1996 are summarized in Management's Discussion
and Analysis in Part II.
Total industry new motor vehicle (passenger cars, trucks, and buses)
registrations of domestic and foreign makes and General Motors' competitive
position during the three years ended December 31, 1996 were as follows:
1996(1) 1995 1994
------- ---- ----
(UNITS IN THOUSANDS)
Total industry registrations
In the United States............................... 15,586 15,219 15,257
In Canada and Mexico............................... 1,531 1,343 1,839
In other countries................................. 34,718 32,853 31,429
------ ------ ------
Total industry registrations -- all countries........ 51,835 49,415 48,525
====== ====== ======
1996(1) 1995 1994
------- ---- ----
(PERCENT OF TOTAL INDUSTRY)
General Motors' registrations
In the United States............................... 31% 32% 33%
In Canada and Mexico............................... 30 32 28
In other countries................................. 9 9 9
Total General Motors' registrations -- all
countries.......................................... 16 17 17
- -------------------------
(1) Preliminary
The above information on registrations of new cars, trucks, and buses was
obtained from outside sources and that pertaining to General Motors'
registrations includes units which are manufactured overseas by other companies
and which are imported and sold by General Motors and affiliates.
RESEARCH AND DEVELOPMENT
In 1996, General Motors spent $8.9 billion for research, manufacturing
engineering, product engineering, and development activities related primarily
to the development of new products or services or the improvement of existing
products or services, including activities related to vehicle emissions control,
improved fuel economy, and the safety of persons using General Motors products.
In addition, $1.6 billion was spent for customer-sponsored activities, the
majority of which were government related. Comparable data for 1995 were $8.2
billion for company-sponsored activities and $1.4 billion for customer-sponsored
activities and for 1994 were $6.9 billion for company-sponsored activities and
$1.5 billion for customer-sponsored activities, respectively.
ENVIRONMENTAL MATTERS
AUTOMOTIVE EMISSIONS CONTROL
Both the Federal and California governments currently impose stringent
emission control requirements on motor vehicles sold in their respective
jurisdictions. These requirements include pre-production testing of vehicles,
testing of vehicles after assembly, the imposition of emission defect and
performance warranties, and the obligation to recall and repair customer-owned
vehicles determined to be non-compliant with emissions requirements.
Both the U.S. Environmental Protection Agency (EPA) and the California Air
Resources Board (CARB) continue to place great emphasis on compliance testing of
customer-owned vehicles. Failure to comply with the emission standards or
defective emission control hardware discovered during such testing can
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lead to substantial cost for General Motors related to emissions recalls. New
CARB and Federal requirements will increase the time and mileage periods over
which manufacturers are responsible for a vehicle's emission performance.
Both the EPA and the CARB emission requirements will become even more
stringent in the future. A new tier of exhaust emission standards for cars and
light-duty trucks, the "Tier 1" standards began phasing in for California
vehicles in the 1993 model year and for Federal vehicles in the 1994 model year.
The phase-in of these "Tier 1" standards was completed in the 1997 model year.
In addition to the Tier 1 standards is the CARB Low Emission Vehicle (LEV)
Program that began with the 1994 model year and defines requirements through
model year 2003 and beyond. This program sets even more stringent exhaust
emission standards for cars and trucks sold in California. General Motors will
have to meet the LEV Program requirements by marketing a mix of vehicles
complying with the Tier 1 standards, Transitional Low Emission Vehicles (TLEVs),
Low Emission Vehicles (LEVs), Ultra-Low Emission Vehicles (ULEVs), or Zero
Emission Vehicles (ZEVs). From model years 2003 and later, 10% of cars and small
light-duty trucks (up to 3,750 lb Loaded Vehicle Weight) sold in California must
be ZEVs. Also, GM and six other major vehicle manufacturers signed Memorandum of
Agreements (MOAs) with CARB to provide for a more market driven-introduction of
ZEVs. The MOAs include provisions for an advanced battery ZEV demonstration
program of 3,750 vehicles in the 1998-2000 time frame, a National LEV program or
an alternative that provides equivalent emission benefits in California, the
capability to produce specified numbers of ZEVs as warranted by demand, and
continued research and development of advanced batteries.
The Clean Air Act permits states that have areas with air quality problems
to adopt the California car and truck emission standards in lieu of the Federal
requirements and six states have done so. In addition, the Ozone Transport
Commission (OTC), representing twelve Northeast states and the District of
Columbia, asked the EPA to require the OTC jurisdictions to impose the
California LEV program requirements throughout the Northeast Ozone Transport
Region (OTR). The EPA granted this request on January 24, 1995. This could mean
that vehicles designed for the California LEV program, including ZEVs, would
have to be offered for sale in that region of the country. As an alternative,
the auto industry has proposed a National LEV program, which would require the
phase-in of TLEVs and LEVs in the northeast starting in 1997, and vehicles in
all states outside California meeting LEV standards on average starting in 2001.
The EPA has proposed rulemaking which would implement the National LEV program
as a voluntary alternative available to automakers.
In addition to the above-mentioned exhaust emission programs, onboard
diagnostic (OBD) devices, far more complex than those currently used to diagnose
problems with emission control systems, are required both Federally and in
California effective with the 1996 model year. This new system has the potential
of increasing warranty costs and the chance for recall.
New evaporative emission control requirements for cars and trucks begin
phasing in with the 1995 model year in California and the 1996 model year
Federally. Systems will need to be further modified to accommodate Federal
onboard refueling vapor recovery (ORVR) control standards. ORVR phases in on
passenger cars in the 1998 through 2000 model years and on light-duty trucks in
the 2001 through 2006 model years.
Starting in the 2000 model year, today's test procedure for exhaust
emissions will become more complex with vehicles required to meet two additional
test requirements: 1) measuring exhaust emissions over a new test cycle with the
air conditioner operating; and 2) measuring exhaust emissions over a new high
speed (80 mph) and high load cycle. Both of these requirements have the
potential of adding hardware (and thus costs) to many vehicles.
INDUSTRIAL ENVIRONMENTAL CONTROL
General Motors is subject to various laws relating to the protection of the
environment, and is in various stages of investigation or remediation for sites
where contamination has been alleged. GM has recorded an
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accrued liability of $646 million at December 31, 1996 and $692 million at
December 31, 1995 for worldwide environmental cleanup as summarized below:
- - GM has been identified as a potentially responsible party at sites identified
by the EPA and state regulatory agencies for cleanup under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) and similar
state statutes. GM voluntarily and actively participates in cleanup activity
where such involvement is verified. The foreseeable total liability for 1997
and beyond for sites involving GM is estimated to be $209 million, which was
recorded at December 31, 1996. This compares to $227 million at December 31,
1995.
- - For closed or closing plants owned by the Corporation, an estimated liability
for environmental cleanup is typically recognized at the time the closure
decision is made for actions which are not specifically required by
regulations or government action but which serve to minimize future liability.
Such liability, which is based on an environmental assessment of the plant
property, is estimated at $121 million, which was recorded at December 31,
1996. This compares to $136 million at December 31, 1995.
- - GM is involved in investigations and cleanup activities at additional
locations worldwide with a foreseeable liability of approximately $316
million, which was recorded at December 31, 1996. This compares to $329
million at December 31, 1995.
The cost impact of the Clean Air Act Amendments under Title V are the
annual emission fees of approximately $9 million per year. Additionally, the
cost of obtaining Title V permits are approximately $5 million for 1996 and an
estimated $2 million for 1997, not including any internal labor costs.
Additional programs under the Clean Air Act, including Hazardous Air Pollutant
standards, and Compliance Assurance Monitoring requirements are estimated to
cost $500 to $700 million through the year 2003.
Expenditures by General Motors in the United States for industrial
environmental control facilities during the three years ended December 31, 1996
were (in millions): 1996-$117; 1995-$116; and 1994-$118. The Corporation
currently estimates that future expenditures for industrial environmental
control facilities through 2000 will be (in millions): 1997-$129; 1998-$106;
1999-$88; and 2000-$62. Specific environmental expenses are difficult to isolate
since expenditures may be made for more than one purpose, making precise
classification difficult.
VEHICULAR NOISE CONTROL
The Federal Truck Regulation preempts all state/local noise regulations for
trucks over 10,000 lb Gross Vehicle Weight Rating (GVWR). All jurisdictions
regulating noise levels of school buses which are built on medium-duty truck
chassis have adopted standards compatible with Federal regulations for
medium-duty trucks. The Federal Truck Regulations contain label and owner's
manual requirements.
Passenger cars and light-duty trucks are subject to state and local motor
vehicle noise regulations. The current standard for vehicles in these classes is
80 dB as measured at 50 feet. Future implementation of more stringent exhaust
emission regulations and more stringent fuel economy regulations will require an
assessment of increased costs of noise control.
SAFETY AFFAIRS AND REGULATIONS
Expenditures to maintain the operational safety, occupant protection, and
vehicle theft deterrence capability of new GM models continue. These
expenditures include amounts for the study of alternative approaches for meeting
the needs of all three areas.
A final rule allowing use of Daytime Running Lamps (DRL) as an option was
issued by the National Highway Traffic Safety Administration (NHTSA). As a
result, GM announced its intent to provide DRL starting in 1995 on selected
models. Daytime Running Lamps (DRL) are standard on all GM 1997 model year cars
and light trucks, with the exception of the Oldsmobile 'W' car (Cutlass
Supreme). The new Olds 'W' car (Intrigue) will be a 1998 model year vehicle
introduced mid-year 1997, and will be equipped with DRL.
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GM is meeting the government requirement for passive restraints by
installing driver and passenger supplemental inflatable restraints (air bags) on
all passenger cars and selected light trucks and vans. Driver air bags have been
approved for all remaining light trucks and vans during the 1997 and 1998 model
years, with a phase-in of dual front passenger air bags in these same vehicles
through the 1999 model year. This will meet the requirements of NHTSA's final
rule specifying that air bags be the only means used to meet the automatic
restraint requirements for passenger cars and light trucks and vans on a
phased-in basis beginning September 1, 1996 and culminating Sept. 1, 1998.
GM is working with NHTSA and suppliers to introduce less aggressive air
bags in order to address concerns about inflation injuries, particularly to
children and smaller adult passengers who are not properly restrained.
New dynamic side impact protection requirements similar to those for cars
will apply to certain light trucks and vans beginning September 1, 1998. Side
structure and interior trim designs of future models will continue to be
affected. Additional market pressure and future model design effects are likely
regarding side impact performance at higher crash speeds. This will result as
the federal government begins its consumer information side impact crash test
program at an elevated impact speed, starting with 1997 model passenger cars.
A new government requirement for vehicle interior impact protection was
proposed in 1993. The final rule, similar to the proposal, was promulgated in
August 1995. This rule will significantly affect upper body structure and
interior trim designs of future model passenger cars and light trucks and vans.
The phase-in for this rulemaking begins in the 1999 model year and will apply to
all these vehicles in the 2003 model year.
The NHTSA currently is considering the effects of fuel system crash
integrity requirements of the Federal Motor Vehicle Safety Standard 301. If any
of the considerations ultimately are adopted as final rules, some undetermined
redesign, cost, and weight increase could be expected for most of GM's vehicles.
See Item 3, Legal Proceedings, Other Matters.
With the passage of the Anti-Car Theft Act of 1992, implementation costs
affect approximately 22 passenger car assembly plants and 4 light-duty truck
plants. For the affected truck plants, the major expenditures were for new label
printer installations and additional stamping equipment.
AUTOMOTIVE FUEL ECONOMY
The Energy Policy and Conservation Act passed in 1975 provided for
production-weighted average fuel economy standards for passenger cars for 1978
and thereafter. Based on EPA combined city-highway test data, the General Motors
1996 model year domestic passenger car fleet is projected to attain a Corporate
Average Fuel Economy (CAFE) of 28.3 miles per gallon (mpg) versus the standard
of 27.5 mpg. The CAFE estimate for 1997 model year passenger cars is projected
at 28.1 mpg versus the standard of 27.5 mpg.
Fuel economy standards for light-duty trucks became effective in 1979.
General Motors' light truck CAFE fleet average for the 1995 model year reached
20.1 mpg versus the standard of 20.6 mpg. For the 1996 model year, GM's truck
CAFE is projected to be 20.7 mpg which is also the standard. GM's 1997 model
year truck CAFE is projected at 20.4 mpg versus a standard of 20.7 mpg.
Projected shortfalls to the standard are expected to be offset by credits from
future model years.
GM's ability to meet increased CAFE standards is contingent on various
future economic, consumer, legislative, and regulatory factors that GM cannot
control and cannot predict with certainty. If GM could not comply with any new
CAFE standards, GM could be subject to sizable civil penalties and could have to
close plants or severely restrict product offerings to remain in compliance.
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SEASONAL NATURE OF BUSINESS
In the automotive business, there are retail sales fluctuations of a
seasonal nature, so that production varies from month to month. In addition, the
changeover period related to the annual new model introduction has traditionally
occurred in the third quarter of each year. For this reason, third quarter
operating results are, in general, less favorable than those in the other three
quarters of the year, depending on the magnitude of the changeover needed to
commence production of new models incorporating, for example, design
modifications related to more fuel-efficient vehicle packaging, stricter
government standards for safety and emission controls, and consumer-oriented
improvements in performance, comfort, convenience, and style.
SEGMENT REPORTING DATA
Industry segment and geographic segment data for 1996, 1995, and 1994 are
summarized in Note 22 of Notes to Consolidated Financial Statements in Part II.
******
The Registrant makes no attempt herein to predict the future trend of its
business and earnings or the effect thereon of the results of changes in general
economic, industrial, regulatory, and international conditions.
ITEM 2. PROPERTIES
The Corporation, excluding General Motors Acceptance Corporation, has 309
locations operating in 36 states and 165 cities in the United States. Of these,
25 are engaged in the final assembly of GM cars and trucks; 30 are service parts
operations responsible for distribution or warehousing; 30 major plants,
offices, and research facilities relate to the operations of Hughes Electronics
Corporation; and the remainder are offices or involved primarily in the testing
of vehicles or the manufacture of automotive components and power products. In
addition, the Corporation has 18 locations in Canada and assembly,
manufacturing, distribution, or warehousing operations in 54 other countries,
including equity interests in associated companies which conduct assembly,
manufacturing, or distribution operations. The major facilities outside the
United States and Canada, which are principally vehicle manufacturing and
assembly operations, are located in Germany, the United Kingdom, Brazil, Mexico,
Austria, Belgium, and Spain.
Most facilities are owned by the Corporation or its subsidiaries. Leased
properties consist primarily of warehouses and administration, engineering, and
sales offices. The leases for warehouses generally provide for an initial period
of five years and contain renewal options. Leases for sales offices are
generally for shorter periods.
Properties of the Registrant and its subsidiaries include facilities which,
in the opinion of management, are suitable and adequate for the manufacture,
assembly, and distribution of their products.
Additional information regarding worldwide expenditures for plants and
equipment is presented under Management's Discussion and Analysis in Part II.
ITEM 3. LEGAL PROCEEDINGS
(a) Material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Corporation became, or was,
a party during the year ended December 31, 1996, or subsequent thereto, but
before the filing of this report are summarized below. Reference should also be
made to Note 18 to Consolidated Financial Statements in Part II.
ENVIRONMENTAL MATTERS
In November, 1996, the Wayne County Department of Health Air Pollution
Division ("Wayne County") informed General Motors that it was seeking fines in
excess of $100,000 in connection with allegations that intermittent emissions of
offensive odors have occurred since 1993 at GM's Oil Reclamation
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Facility at Clark Street in Detroit, Michigan. General Motors and Wayne County
are continuing discussions to resolve this matter.
* *
On March 1, 1993, the U.S. Environmental Protection Agency ("EPA") Region V
issued a civil administrative complaint alleging that stormwater from the
Chevrolet-Pontiac-GM of Canada Group's Pontiac Fiero plant in Pontiac, Michigan
exceeded the facility's National Pollutant Discharge System Permit from May 1989
through May 1992.
On March 26, 1993, the Region V office of the EPA issued a Civil
Administration Complaint against the Corporation alleging that 65 petroleum and
hazardous substance underground storage tanks (USTs), which it has operated at
its Technical Center in Warren, Michigan, have been in violation of certain of
the EPA UST regulations. The EPA has proposed a civil penalty of $267,447. Based
upon its current evaluation of this matter, General Motors believes that the
operations cited by the EPA's complaint have been and remain in substantial
compliance with applicable UST regulations. On June 28, 1996, an EPA
Administrative Law Judge ("ALJ") made a determination that General Motors is
liable for stormwater discharges from the closed Fiero assembly plant in
Pontiac, Michigan which exceed the 1988 permit limits for copper, lead and zinc.
The ALJ rejected General Motors' arguments that the permit (a) was void by Act
of Congress, (b) had expired in 1990, and (c) in any event, did not apply
because the source of the metals is not industrial operations but rather from
(1) ambient rainfall and (2) dissolving by acid rain of copper gutters, lead
solder and flashing, and galvanized roof decking. Ruling that copper, lead and
zinc are pollutants for which dischargers are strictly responsible regardless of
their source, the ALJ found General Motors liable for 92 permit exceedances.
General Motors came into compliance in 1992 by coating the metal on the roof.
The EPA sought the $125,000 maximum administrative penalty; the ALJ supervised
negotiations between the EPA and General Motors regarding the amount of the
penalty and recommended a penalty of $62,500. General Motors is appealing the
amount of the penalty and the determination of strict liability before the EPA
Board of Appeals.
* *
In March 1993, the Michigan Department of Natural Resources (MDNR) notified
the Corporation's Powertrain Division (PD) that MDNR was making a referral to
the Michigan Attorney General for resolution of allegations by MDNR that a PD
facility in Saginaw, Michigan had failed to conduct a timely environmental
investigation to MDNR's satisfaction of a landfill and certain other areas at
the facility's property, and that PD's on-site water recycling basins were
improperly discharging contaminants into the groundwater and the Saginaw River.
* *
On June 28, 1994, the Attorney General for the State of Michigan, on behalf
of the MDNR, filed a complaint in Circuit Court of the 30th Judicial Circuit in
Ingham County, Michigan alleging that several of GM's plants released
polychlorinated biphenyls (commonly referred to as "PCBs") into the Saginaw
River thereby causing damage to natural resources in the river and Saginaw Bay.
The State has not asserted that it is seeking fines or penalties and no amount
is specified in the complaint as damages, but the State is seeking reimbursement
of all its past and future response costs, including enforcement costs, and
natural resource damages relating to the Saginaw River and Bay. In this regard,
representatives of the State have indicated that the State will be seeking "tens
of millions of dollars" in damages as well as several million dollars in past
response costs. GM is currently in discussions with representatives of the
Michigan Attorney General and the MDNR regarding this matter.
GM has also been advised that the U.S. Department of Interior ("DOI") may
be conducting an investigation of these matters and any related damage to the
environment, and that DOI may pursue independent claims against GM, the City of
Saginaw and Bay City.
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* *
OTHER MATTERS
In October, 1994, as previously reported, a California jury awarded a total
of $89.5 million in damages against Hughes, including punitive damages of $40
million to each of two former Hughes employees, Lane (race
discrimination/retaliation) and Villalpando (retaliation), based on claims of
mistreatment and denials of promotions. The trial court granted Hughes' motion
to set aside the verdicts because of insufficient evidence. On January 6, 1997,
the Court of Appeal reversed the trial court's decision to set aside the
verdicts, reinstated the jury verdicts, but reduced the two $40 million punitive
damage awards to $5 million and $2.83 million, resulting in an aggregate
judgment of $17.33 million. Hughes has filed a petition for review by the
California Supreme Court, which was supported by various amicus briefs. Because
review by the California Supreme Court is in the discretion of that court, no
assurance can be given that the case will be accepted for review, or that if
accepted, the Supreme Court's decision will be favorable to Hughes.
* *
On April 26 and 27, 1996, two purported class actions, Keith McGill v.
General Motors Corporation and Richard Dolowich v. General Motors Corporation,
were filed against General Motors in the Supreme Court of the State of New York,
Counties of Bronx and Suffolk, alleging defective rear disc brake caliper pins
in the "GM W-Body car". These actions have been consolidated in the Supreme
Court of the State of New York, County of Bronx. The Dolowich suit is brought on
behalf of all persons and entities in the United States who currently own or
lease or previously owned or leased a 1988-1993 Buick Regal, Oldsmobile Cutlass
Supreme, Pontiac Grand Prix or Chevrolet Lumina. The McGill suit includes the
same model year vehicles, but is brought on behalf of persons and entities
residing in the State of New York who purchased or leased such vehicles and
still own them. Three additional purported nationwide class actions, brought on
behalf of current and previous owners of the same vehicles, have been filed in
Federal courts in New Jersey, Garcia v. General Motors, and Pennsylvania, Neff
v. General Motors and Marcel v. General Motors. Two additional purported class
actions involving the same vehicles were filed, one in the Superior Court of New
Jersey for Burlington County, Bishop v. General Motors Corporation and another
in the United States District Court for the Eastern District of Pennsylvania,
Cohen v. General Motors Corporation. Together, the complaints allege violation
of state consumer protection laws, fraud, negligent misrepresentation, and
breach of express and implied warranty, and seek unspecified amounts of economic
damages, punitive damages not less than $20 million, attorneys' fees and costs,
and injunctive relief. The Neff, Marcel and Cohen actions have been consolidated
in Pennsylvania State Court. The Garcia and Bishop actions have been
consolidated in New Jersey State Court. On November 11, 1996, the New Jersey
state court rendered a decision certifying a class of all past and present
owners of 1988 through 1993 model year Buick Regals, Chevrolet Luminas,
Oldsmobile Cutlass Supremes and Pontiac Grand Prix. The New Jersey Appellate
Division denied GM's motion for leave to appeal, but noted that the trial court
is required to monitor compliance with the requirements to maintain a class.
General Motors had requested the New Jersey Supreme Court to review the class
certification.
* *
Two suits, Stephen A. Solomon v. General Motors Corporation, et al. and TRV
Holding Company v. General Motors Corporation, et al., (collectively
"Solomon/TRV"), were filed in Delaware Chancery Court on May 13 and 18, 1994,
respectively. Such actions have been consolidated and a consolidated amended
complaint was filed on April 2, 1996. In addition, on May 10, 1996, a second
amended and supplemental consolidated complaint (the "Second Amended Complaint")
was filed by plaintiffs in this action. Another lawsuit, Ward et al., as
Trustees for the Eisenberg Children's Irrevocable Trust II v. General Motors
Corporation, et al. ("Ward"), was filed in Delaware Chancery Court on November
15, 1995. On May 17, 1996, Solomon/TRV and Ward (collectively,
"Solomon/TRV/Ward") were consolidated and the Second Amended Complaint was
adopted as the complaint for the consolidated action.
Solomon/TRV/Ward purports to be a class action brought on behalf of former
holders of Class E common stock, $0.10 par value per share (the "Class E Common
Stock"), of General Motors Corporation, a Delaware corporation ("General
Motors"), against certain present and former directors of General Motors, as
I-8
10
well as a double derivative action brought on behalf of EDS against certain
present and former directors of General Motors and certain former directors of
EDS (all of whom are also directors or officers of General Motors). EDS is named
in the complaint only as a nominal defendant with respect to the double
derivative action. The Second Amended Complaint alleges that defendants have
breached and are continuing to breach their fiduciary duties in connection with
their conduct with respect to EDS and the proposed split-off of EDS from General
Motors (the "Split-Off"). In particular, the complaint alleges that the process
of establishing terms for the Split-Off, including the consideration of
alternatives to such transaction and the negotiating process in connection
therewith, was unfairly dominated and controlled by General Motors and that the
resulting terms unfairly benefit General Motors and its continuing shareholders,
including the holders of common stock, $1 2/3 par value per share (the "$1 2/3
Common Stock"), and the Class H common stock, $0.10 par value per share (the
"Class H Common Stock"), of General Motors, to the detriment of EDS and the
former holders of Class E Common Stock. The complaint also alleges that the
Split-Off would unfairly effect a disposition of EDS because it would not
provide for a recapitalization of the Class E Common Stock into $1 2/3 Common
Stock at a 120% exchange ratio, as had been provided in the General Motors
Certificate of Incorporation upon a disposition by General Motors of
substantially all of the business of EDS. Furthermore, the complaint alleges
that the solicitation of consents by General Motors with respect to the proposed
Split-Off is wrongfully coercive and the solicitation statement being used in
connection therewith is materially deficient. The Second Amended Complaint seeks
monetary damages from the defendants, as well as an injunction against further
action in connection with the Split-Off. In addition, the complaint seeks an
order appointing independent representatives to act on behalf of and protect the
interests of EDS and the former holders of Class E Common Stock. The complaint
also seeks an order requiring the defendants to disseminate completely all
material information to the former holders of Class E Common Stock in connection
with the Split-Off.
On May 10, 1996, the plaintiffs in the consolidated action filed a motion
for expedited proceedings, including a request for a hearing on their
application for a preliminary injunction against further action in connection
with the Split-Off. As a result of such application, a hearing on the
plaintiffs' application for a preliminary injunction had been scheduled for May
30, 1996. On May 23, 1996, after limited discovery, the plaintiffs' counsel
informed the court that plaintiffs had concluded that adequate relief could be
afforded to the plaintiff class members after the Split-Off is consummated and
were withdrawing their application for expedited proceedings including a
preliminary injunction hearing. Thus, plaintiffs abandonded their pursuit of an
injunction to prevent consummation of the Split-Off. On June 7, 1996, having
received consent of a majority of the holders of each class of its common stock,
General Motors Split-Off EDS to former General Motors Class E stockholders. (See
Tabulation of consents at Item 4, page 36 of the Form 10-Q filed by General
Motors for the Quarter Ended June 30, 1996). Since the date of the Split-Off,
plaintiffs have not filed a further amended complaint.
* *
In September 1973, Hughes Aircraft Company ("HAC") filed suit against the
U.S. Government in the U.S. Court of Claims seeking reasonable and entire
compensation for the unauthorized manufacture or use by the United States of the
invention claims in a HAC patent (the "Williams Patent") covering "Velocity
Control and Orientation of a Spin Stabilized Body," principally satellites. In
late 1983, the United States Court of Appeals for the Federal Circuit (the U.S.
Court with appellate jurisdiction for patent cases) ruled that the Williams
Patent was valid and that the Government had infringed that patent. The
compensation which HAC is entitled to recover as a result of the Government's
infringement is now being determined by the U.S. Court of Claims, as well as
whether additional U.S. Government satellites also infringe.
The trial concluded in December 1988. HAC contended that its recovery
should be calculated in accordance with either of two methods for computing
delay compensation and introduced evidence to support an award of approximately
$4.8 billion or $1.5 billion depending upon the methods used. The Government
sought to demonstrate to the Court that any damages awarded to HAC in this case
should not exceed $20-30 million. In August 1993, the Court determined that
approximately $4 billion in satellite purchases infringed the patent. On June
17, 1994, the U.S. Court of Claims awarded Hughes damages of $114 million.
Because Hughes believed that the record supported a higher royalty rate, it
appealed that decision. The U.S.
I-9
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Government, contending that the award was too high, also appealed. On June 19,
1996, the Court of Appeals for the Federal Circuit affirmed the decision of the
Court of Claims which awarded Hughes $114 million in damages, together with
interest. The U.S. Government petitioned the Court of Appeals for the Federal
Circuit for a rehearing. That petition was denied in October of 1996. The U.S.
Government has filed a petition with the U.S. Supreme Court seeking certiorari.
In the opinion of management of Hughes, there is a reasonable possibility that
this matter could be resolved in the near term. While no amount has been
recorded in the financial statements of Hughes to reflect the $114 million
award, a resolution of this matter could result in a gain that would be material
to the earnings of General Motors attributable to Class H Common Stock.
* *
As previously reported, thirty-eight class actions have been filed in state
and Federal courts against the Corporation, claiming that 1973-1987 model
Chevrolet and GMC full-size pickup trucks are defective because their fuel tanks
are mounted below the cab and outside the frame rails. Twenty-four Federal court
class actions were transferred to the Federal court in Philadelphia,
Pennsylvania by the Judicial Panel on Multidistrict Litigation. In these
actions, plaintiffs claimed that the fuel tank locations make the vehicles
unreasonably susceptible to fuel-fed fires following side-impact collisions.
Plaintiffs alleged breach of contract and warranty, negligence, fraud and
negligent misrepresentation, as well as violation of various state consumer
protection laws. The lawsuits seek compensatory and punitive damages and
injunctions requiring notice to owners, repairs, retrofitting and "disgorgement"
of revenues.
An agreement for a nationwide settlement of the class actions pending in
federal and state courts received final court approval on December 19, 1996, by
a state court in Louisiana. The settlement, which is not expected to have a
material effect on the consolidated financial statements of General Motors,
provides for owners of 1973 to 1991 full-size pickup trucks and cab chassis with
outside-the-frame fuel tanks, as of July 3, 1996, to receive certificates for
$1,000 toward the purchase of any new General Motors passenger car or light
truck, except Saturns. The certificates can be used for the first 15 months at
$1,000 or transferred one time, whereupon the transferee would be able to use
the certificate for $500 ($250 if used with a General Motors rebate) toward the
purchase of an eligible vehicle until expiration of the 15-month period. After
the first 15 months, original recipients of the certificates may use them for an
additional 18 months at $500 or transfer them, whereupon the transferee would be
able to use the certificates for $250 towards the purchase of an eligible
vehicle. For fleets and governmental entities, after the first 15 months, the
certificates are reduced to $250 for an additional 35 months, but are not
transferable, except to other departments or agencies of the same governmental
entity.
The settlement also provides for $4.1 million to fund motor vehicle fire
safety research. Research funds will be used to benefit motor vehicle safety
generally, and research will not be done on the pickup trucks. The court ordered
General Motors to pay plaintiffs' attorneys' fees and costs totaling $27.875
million. Various appeals have been filed, including an appeal by General Motors
seeking to reduce the award of fees and costs to plaintiffs' attorneys.
Certificates will not be issued until appeals are concluded and the approval of
the settlement is final. General Motors cannot estimate the amount of time
required to resolve the various appeals.
There are also pending individual product liability claims and lawsuits
involving allegations of defects in the design of such vehicles resulting in
fuel-fed fires following side-impact collisions. GM intends to defend these
cases vigorously.
* *
On December 2, 1996, a purported class action, Alma Rose Rangel, et al. v.
General Motors Corporation, was filed in District Court, Webb County, Texas,
claiming that the Type III door latches used in approximately 40 million 1978 to
1986 model GM passenger cars and light trucks are defective. Plaintiffs allege
breaches of express and implied warranties, negligence and gross negligence and
seek compensatory and punitive damages and attorneys' fees. No determination has
been made that the case can proceed as a class action. GM has removed the case
to the United States District Court, Southern District of Texas, Laredo Division
and intends to oppose certification of a class and defend the case vigorously.
Separately, a petition to
I-10
12
open a defect investigation of the Type III door latches was denied by the
National Highway Safety Traffic Administration.
* *
Eight suits, denominated by plaintiffs as class actions, were filed in
Delaware Chancery Court, Jules Levine v. General Motors Corporation, et al., on
February 6, 1997; Steven Verkouteren v. General Motors Corporation, et al., on
February 6, 1997; Malcolm Rosenwald v. General Motors Corporation, et al., on
February 7, 1997; Richard Strauss v. General Motors Corporation, et al., on
February 7, 1997; Jeanette Whited, et al. v. General Motors Corporation, et al.,
on February 26, 1997; Andrew Carlucci, I.R.A. v. General Motors Corporation, et
al., on March 3, 1997; Dr. Joseph Mantel v. General Motors Corporation, et al.,
on March 5, 1997; and John P. McCarthy Profit Sharing Plan v. General Motors
Corporation, et al., on March 6, 1997. On March 19, 1997, a proposed Order of
Consolidation of all eight actions was forwarded to the Delaware Chancery Court
on behalf of counsel for all plaintiffs. Under the proposed order, the complaint
in the Whited suit would be adopted as the complaint in the consolidated action.
That complaint purports to be brought against General Motors and its directors
on behalf of Class H stockholders who either do not own any $1 2/3 common stock
or who own a larger percentage of outstanding Class H common stock than they own
of outstanding $1 2/3 common stock. The complaint alleges, essentially, that
defendants are breaching their contractual and fiduciary obligations to holders
of Class H common stock by structuring the spin-off of Hughes Electronics
Corporation's defense business and related transactions (see discussion of
Hughes Transactions at pp. II-58 and 59) to benefit General Motors and its
$1 2/3 common stockholders at the expense of General Motors Class H common
stockholders. It is further alleged, among other things, that Class H common
stockholders are being coerced to forfeit the current provisions of GM's
Certificate of Incorporation that would result under certain circumstances in a
recapitalization of Class H common stock at a 120 percent exchange rate in order
to receive the benefits of the transactions. It is also alleged that no
independent representative is separately representing the interests of Class H
common stockholders. Principally, the complaint seeks monetary damages, an order
enjoining the transactions, the implementation of procedural safeguards to
protect the interests of Class H stockholders, and the rescission of the
transactions if they are consummated. Plaintiffs have advised that they intend
to serve a Consolidated Amended Complaint as soon as practicable. GM believes
the suits are without merit and intends to defend them vigorously.
* *
Four separate putative class actions have been filed alleging defects in
vehicle paint. One has been dismissed. No determination has been made as to
whether any of the three pending cases may proceed as a class action.
As previously reported, on March 24, 1995, a purported nationwide class
action, Christian Amedee and Louis Fuxan v. General Motors Corporation, et al.,
was filed in the Civil District Court for the Parish of New Orleans, State of
Louisiana, alleging the paint or paint application process used by GM at several
unspecified North American assembly plants was defective due to the omission of
a surface layer primer, allegedly causing the paint to prematurely delaminate,
deteriorate, and peel. Plaintiffs seek unspecified compensatory damages,
equitable relief, interest, costs and attorneys' fees. On May 3, 1995, another
purported class action, Barney Kizzire v. General Motors Corporation and Bynum
Oldsmobile-Pontiac-Cadillac-GMC, Inc., was filed in the Circuit Court for
Fayette County, Alabama, on behalf of a proposed class of Alabama residents who
purchased 1989 GMC pickup trucks alleging that the paint was defective. That
case was subsequently removed to federal court and the named plaintiff's claims
were all dismissed with prejudice on November 27, 1996. On July 12, 1996, the
Corporation was served with a putative class action filed in the Circuit Court
of Greene County, Alabama, Robert J. Reining, et al. v. General Motors
Corporation. The complaint alleges that the paint systems used in the 1985
through 1995 model years are defective or potentially defective because GM
switched to "water-based primers" which could result in various problems with
vehicle finish, and seeks compensatory damages, disgorgement of profits,
exemplary damages, costs and a determination that GM is financially responsible
for the costs of repair or replacement.
On January 29, 1997, the Corporation was served with a putative class
action, Karpowicz v. General Motors Corporation, filed in the Circuit Court of
the Sixteenth Judicial Circuit in Kane County, Illinois. This
I-11
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case, purportedly brought on behalf of Illinois purchasers of new vehicles which
experienced peeling paint, alleges that GM broke a promise to repair paint
conditions for six years from the date of purchase and failed to implement fair
and uniform corrective measures. The complaint seeks unspecified compensatory
damages, statutory damages and penalties; an injunction halting the practices
alleged; and attorneys' fees, litigation expenses and costs.
* *
As previously reported, several actions seeking compensatory and punitive
damages in unspecified amounts were filed against Hughes by plaintiffs alleging
that they suffered injuries as a result of the migration into the Tucson,
Arizona water supply of alleged toxic substances that were disposed of at a
facility owned by the United States Government which Hughes operates under a
contract with the U.S. Air Force. These actions included a putative class action
filed in Arizona State Court, Cordova v. Hughes Aircraft Company, an individual
action filed on behalf of approximately 800 plaintiffs in Federal District Court
in Arizona, Yslava v. Hughes Aircraft Company, and a class action filed in
Federal District Court in Arizona, Lanier v. Hughes Aircraft Company. Other
governmental and private entities are known to have also been sources of
substances which may have migrated into the Tucson water supply. Hughes believes
that it has strong defense to the claims asserted against it and that it may
have claims for contribution against the other entities. In July, 1996, the
Cordova court denied plaintiffs' motion for class certification and,
subsequently, an amended complaint in intervention on behalf of more than 400
plaintiffs asserting individual claims was filed.
* *
On January 23, 1997, in the matter of Jacobson, et al v. Hughes Aircraft
Co. et al, the U.S. Court of Appeals for the 9th Circuit reversed and remanded a
decision of the U.S. District Court in Los Angeles in which the District court
had dismissed the plaintiff's complaint without leave to amend, for failure to
state a claim. The complaint in that action, filed in January, 1992, by five
retired employees of Hughes as a putative class action to obtain increased
retirement benefits, alleged that the Hughes Non-Bargaining Retirement Plan had
been constructively terminated and split into two separate plans by virtue of
action by Hughes in 1991 in which it amended the Plan in order to implement a
non-contributory benefit formula for newly hired employees. The complaint
alleges that an effect of the amendment is that assets of the Plan have been
used improperly. On February 20, 1997, Hughes filed a request for rehearing
seeking to reinstate the decisions of the District court, all of which was
supported by friend of the court briefs by the Pension Benefit Guaranty
Corporation, Raytheon, various industry groups, and Hughes retirees and
employees associations. Hughes strongly believes that it should prevail in this
action and that ultimately it will do so. If the rehearing is not granted by the
U.S. Court of Appeals Hughes will seek certiorari from the U.S. Supreme Court.
On February 10, 1997, citing the January 16, 1997 announcement by General
Motors, Hughes Electronics and Raytheon of the planned spin-off of Hughes
Aircraft Company from General Motors, and the planned merger of Hughes Aircraft
Company with Raytheon Company, plaintiffs filed a motion with the U.S. Court of
Appeals for the 9th Circuit seeking to enjoin Hughes and the Plan from
transferring assets, control, or administration of the Plan to any other
employer, or from terminating or amending the Plan. Hughes believes there is no
basis for the injunctions sought by Plaintiffs. Hughes and the Plaintiffs have
filed briefs with the Court of Appeals relating to Plaintiffs motion to enjoin,
and await a decision of the Court. Hughes is vigorously contesting the motion.
* *
(b) Previously reported legal proceedings which have been terminated,
either during the quarter ended December 31, 1996, or subsequent thereto, but
before the filing of this report are summarized below:
In connection with a matter that was reported as terminated in the GM Form
10-Q for the period ended June 30, 1996, specifically, approval by the United
States District Court for the District of Columbia, on April 30, 1996 of a
consent decree previously signed by the U.S. Environmental Protection Agency
("EPA"), the U.S. Department of Justice, and General Motors to resolve
allegations that GM violated the Clean Air Act and EPA emissions regulations
with regard to 470,000 1991-1995 model Cadillacs having 4.9 liter engines.
I-12
14
GM has entered into a related agreement with the California Air Resources Board
("CARB") under which General Motors will pay $600,000 to the California Air
Pollution Control Board, $500,000 to the University of Southern California to
fund studies on the effects of air pollution on children's health and provide a
number of electric vehicles and advanced electric vehicle batteries to CARB to
resolve potential allegations that CARB was considering asserting against
General Motors regarding non-compliance of the aforementioned Cadillac 4.9 liter
engines under various vehicle emission standards and vehicle certification
procedures required by California statutes and regulations.
* *
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the three months ended December 31, 1996.
* * *
I-13
15
PART II
GENERAL MOTORS CORPORATION
AND SUBSIDIARIES
CROSS REFERENCE SHEET
10-K ITEM PAGE (AND CAPTION) IN PART II
--------- -----------------------------
5. Market for Registrant's Common Equity and
Related Stockholder Matters
(a) Market information.................... II-42 -- Selected Quarterly Data
(b) Approximate number of holders of
common stocks......................... II-43 -- Selected Quarterly Data
(c) Dividends
(1) History.......................... II-42 -- Selected Quarterly Data
(2) Policy........................... II-35 -- Dividends on Common Stocks
6. Selected Financial Data..................... II-45 -- Selected Financial Data
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ II-48 -- Management's Discussion and Analysis
8. Financial Statements and Supplementary
Data........................................ II-2 -- Responsibilities for Consolidated
Financial Statements
II-3 -- Independent Auditors' Report
II-4 -- Consolidated Statements of Income for the
Years Ended December 31, 1996, 1995, and
1994
II-5 -- Consolidated Balance Sheets, December 31,
1996 and 1995
II-6 -- Consolidated Statements of Cash Flows for
the Years Ended December 31, 1996, 1995,
and 1994
II-7 -- Notes to Consolidated Financial Statements
II-42 -- Selected Quarterly Data
9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................ None
II-1
16
RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of General Motors
Corporation and subsidiaries were prepared by management, which is responsible
for their integrity and objectivity. The statements have been prepared in
conformity with generally accepted accounting principles and, as such, include
amounts based on judgments of management. Financial information elsewhere in
this Annual Report is consistent with that in the consolidated financial
statements.
Management is further responsible for maintaining a system of internal
accounting controls that is designed to provide reasonable assurance that the
books and records reflect the transactions of the companies and that its
established policies and procedures are carefully followed. From a stockholder's
point of view, perhaps the most important feature in the system of controls is
that it is continually reviewed for its effectiveness and is augmented by
written policies and guidelines, the careful selection and training of qualified
personnel, and a strong program of internal audit.
Deloitte & Touche LLP, an independent auditing firm, is engaged to audit
the consolidated financial statements of General Motors Corporation and
subsidiaries and issue reports thereon. The audit is conducted in accordance
with generally accepted auditing standards that comprehend the consideration of
internal accounting controls and tests of transactions to the extent necessary
to form an independent opinion on the financial statements prepared by
management. The Independent Auditors' Report appears on the next page.
The Board of Directors, through the Audit Committee (composed entirely of
non-employee Directors), is responsible for assuring that management fulfills
its responsibilities in the preparation of the consolidated financial
statements. The Committee selects the independent auditors annually in advance
of the Annual Meeting of Stockholders and submits the selection for ratification
at the Meeting. In addition, the Committee reviews the scope of the audits and
the accounting principles being applied in financial reporting. The independent
auditors, representatives of management, and the internal auditors meet
regularly (separately and jointly) with the Committee to review the activities
of each, to ensure that each is properly discharging its responsibilities, and
to assess the effectiveness of the system of internal accounting controls. It is
management's conclusion that the system of internal accounting controls at
December 31, 1996 provides reasonable assurance that the books and records
reflect the transactions of the companies and that its established policies and
procedures are complied with. To ensure complete independence, Deloitte & Touche
LLP has full and free access to meet with the Committee, without management
representatives present, to discuss the results of the audit, the adequacy of
internal accounting controls, and the quality of the financial reporting.
/s/ JOHN F. SMITH, JR. /s/ J. MICHAEL LOSH
- ------------------------------------- ---------------------------
JOHN F. SMITH, JR. J. MICHAEL LOSH
Chairman, Chief Executive Officer, Chief Financial Officer
and President
II-2
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INDEPENDENT AUDITORS' REPORT
General Motors Corporation,
its Directors, and Stockholders:
We have audited the Consolidated Balance Sheets of General Motors
Corporation and subsidiaries as of December 31, 1996 and 1995 and the related
Consolidated Statements of Income and Cash Flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed at Item 14. These financial statements and the
financial statement schedule are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of General Motors Corporation and subsidiaries
at December 31, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, effective January 1,
1995 the Corporation changed its method of accounting for sales to daily rental
car companies. Also, as discussed in Notes 1 and 4 to the financial statements,
respectively, effective January 1, 1994 the Corporation changed its methods of
accounting for postemployment benefits and certain investments in debt and
equity securities.
/s/ DELOITTE & TOUCHE LLP
- --------------------------------------
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 28, 1997
II-3
18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
Net sales and revenues (Note 1)
Manufactured products....................................... $145,341 $143,666 $134,760
Financial services.......................................... 12,674 11,664 9,419
Other income (Note 3)....................................... 6,054 4,942 4,320
-------- -------- --------
Total net sales and revenues.......................... 164,069 160,272 148,499
-------- -------- --------
Costs and expenses
Cost of sales and other operating charges, exclusive of
items listed below........................................ 123,922 121,300 113,585
Selling, general and administrative expenses................ 14,580 12,550 11,319
Depreciation and amortization expenses (Note 1)............. 11,840 11,213 9,645
Interest expense (Note 11).................................. 5,695 5,182 5,392
Plant closings reserve adjustments (Note 17)................ (727) -- --
Other deductions (Note 3)................................... 2,083 1,678 1,460
-------- -------- --------
Total costs and expenses.............................. 157,393 151,923 141,401
-------- -------- --------
Income from continuing operations before income taxes....... 6,676 8,349 7,098
Income taxes (Note 7)....................................... 1,723 2,316 2,232
-------- -------- --------
Income from continuing operations before cumulative effect
of accounting changes..................................... 4,953 6,033 4,866
Income from discontinued operations (Note 2)................ 10 900 793
Cumulative effect of accounting changes (Note 1)............ -- (52) (758)
-------- -------- --------
Net Income............................................ 4,963 6,881 4,901
Preference shares tender offer premium (Note 19)............ -- 153 --
Dividends on preference stocks (Note 19).................... 81 211 321
-------- -------- --------
Earnings on common stocks............................. $ 4,882 $ 6,517 $ 4,580
======== ======== ========
Earnings attributable to common stocks (Note 20)
$1 2/3 par value from continuing operations before
cumulative effect of accounting changes................. $ 4,589 $ 5,404 $ 4,296
Income (loss) from discontinued operations (Note 2)....... (5) 105 349
Cumulative effect of accounting changes (Note 1).......... -- (52) (751)
-------- -------- --------
Net earnings attributable to $1 2/3 par value......... $ 4,584 $ 5,457 $ 3,894
======== ======== ========
Income from discontinued operations attributable to Class
E (Note 2).............................................. $ 15 $ 795 $ 444
======== ======== ========
Class H before cumulative effect of accounting change..... $ 283 $ 265 $ 249
Cumulative effect of accounting change (Note 1)........... -- -- (7)
-------- -------- --------
Net earnings attributable to Class H.................. $ 283 $ 265 $ 242
======== ======== ========
Average number of shares of common stocks outstanding (in
millions)
$1 2/3 par value.......................................... 756 750 741
Class E (Notes 2 and 20).................................. 470 405 260
Class H................................................... 98 96 92
Earnings per share attributable to common stocks (Note 20)
$1 2/3 par value from continuing operations before
cumulative effect of accounting changes................. $6.07 $7.14 $5.74
Income (loss) from discontinued operations (Note 2)....... (0.01) 0.14 0.46
Cumulative effect of accounting changes (Note 1).......... -- (0.07) (1.05)
-------- -------- --------
Net earnings attributable to $1 2/3 par value......... $6.06 $7.21 $5.15
======== ======== ========
Income from discontinued operations attributable to Class
E (Note 2).............................................. $0.04 $1.96 $1.71
======== ======== ========
Class H before cumulative effect of accounting change..... $2.88 $2.77 $2.70
Cumulative effect of accounting change (Note 1)........... -- -- (0.08)
-------- -------- --------
Net earnings attributable to Class H.................. $2.88 $2.77 $2.62
======== ======== ========
Reference should be made to the notes to consolidated financial statements.
II-4
19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
1996 1995
---- ----
(DOLLARS IN MILLIONS)
ASSETS
Cash and cash equivalents................................... $ 14,063 $ 10,495
Other marketable securities................................. 8,199 5,523
-------- --------
Total cash and marketable securities (Notes 1 and 4)... 22,262 16,018
Finance receivables -- net (Note 5)......................... 57,550 59,806
Accounts and notes receivable (less allowances)............. 6,557 6,979
Inventories (less allowances) (Note 6)...................... 11,898 11,348
Net assets of discontinued operations (Note 2).............. -- 5,055
Contracts in process (less advances and progress payments of
$1,010 and $1,327) (Note 1)............................... 2,507 2,469
Deferred income taxes (Note 7).............................. 19,510 19,720
Equipment on operating leases (less accumulated depreciation
of $7,661 and $7,225) (Note 8)............................ 30,112 27,702
Property (Note 1)
Real estate, plants, and equipment (Note 9)............... 69,770 67,415
Less accumulated depreciation............................. (41,298) (41,017)
-------- --------
Net real estate, plants, and equipment................. 28,472 26,398
Special tools -- net...................................... 9,032 8,171
-------- --------
Total property......................................... 37,504 34,569
Intangible assets -- net (Notes 1 and 10)................... 12,691 10,273
Other assets................................................ 21,551 19,724
-------- --------
Total assets........................................... $222,142 $213,663
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable (principally trade)........................ $ 14,221 $ 12,685
Notes and loans payable (Note 11)........................... 85,300 81,222
Deferred income taxes (Note 7).............................. 3,207 3,108
Postretirement benefits other than pensions (Note 14)....... 43,190 41,596
Pensions (Note 16).......................................... 7,599 6,691
Other liabilities and deferred credits (Note 15)............ 45,207 45,015
-------- --------
Total liabilities...................................... 198,724 190,317
Stockholders' equity (Notes 19 and 20)
Preference stocks........................................... 1 1
Common stocks
$1 2/3 par value (issued, 756,619,625 and 753,008,273
shares)................................................ 1,261 1,255
Class E (Note 2; issued, 442,812,166 shares in 1995)...... -- 44
Class H (Note 23; issued, 100,075,000 and 97,152,014
shares)................................................ 10 10
Capital surplus (principally additional paid-in capital).... 19,189 18,871
Retained earnings........................................... 6,137 7,185
-------- --------
Subtotal............................................... 26,598 27,366
Minimum pension liability adjustment (Note 16).............. (3,490) (4,736)
Accumulated foreign currency translation adjustments........ (113) 223
Net unrealized gains on investments in certain debt and
equity securities (Note 4)................................ 423 493
-------- --------
Total stockholders' equity............................. 23,418 23,346
-------- --------
Total liabilities and stockholders' equity............. $222,142 $213,663
======== ========
Reference should be made to the notes to consolidated financial statements.
II-5
20
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
Cash flows from operating activities
Income from continuing operations before cumulative effect
of accounting changes................................... $ 4,953 $ 6,033 $ 4,866
Adjustments to reconcile income from continuing operations
before cumulative effect of accounting changes to net
cash provided by operating activities
Depreciation and amortization expenses................ 11,840 11,213 9,645
Provision for ongoing postretirement benefits other
than pensions, net of cash payments................ 1,575 1,684 2,253
Pension expense, net of cash contributions............ 801 (2,932) (5,018)
Plant closings reserve adjustments.................... (727) -- --
Pre-tax loss (gain) on sale of business units......... 253 116 (18)
Originations and purchases of mortgage loans.......... (19,455) (12,086) (10,136)
Proceeds on sales of mortgage loans................... 18,157 11,613 10,719
Provision for financing losses........................ 669 449 177
Change in other operating assets and liabilities
Accounts receivable................................ (178) (331) (1,991)
Inventories........................................ (757) (1,214) (1,656)
Accounts payable................................... 1,530 980 1,267
Deferred taxes and income taxes payable............ (562) 1,892 968
Other liabilities.................................. 227 31 2,573
Other................................................. 394 (899) (2,523)
--------- --------- ---------
Net cash provided by operating activities................... 18,720 16,549 11,126
--------- --------- ---------
Cash flows from investing activities
Expenditures for property................................. (9,949) (8,786) (6,023)
Special inter-company payment from EDS (Note 2)........... 500 -- --
Investments in other marketable securities --
acquisitions............................................ (27,431) (17,794) (14,236)
Investments in other marketable securities --
liquidations............................................ 24,966 17,254 13,583
Finance receivables -- acquisitions....................... (155,477) (163,033) (156,580)
Finance receivables -- liquidations....................... 120,253 134,265 136,151
Proceeds from sales of finance receivables................ 36,657 25,389 20,248
Operating leases -- acquisitions.......................... (18,494) (15,125) (14,938)
Operating leases -- liquidations.......................... 10,507 6,268 4,698
Other..................................................... 778 (495) 888
--------- --------- ---------
Net cash used in investing activities....................... (17,690) (22,057) (16,209)
--------- --------- ---------
Cash flows from financing activities
Net increase in loans payable............................. 660 6,227 3,900
Increase in long-term debt................................ 15,933 11,242 12,351
Decrease in long-term debt................................ (12,810) (9,580) (14,111)
Proceeds from the sale of minority interest in
DIRECTV(R).............................................. 138 -- --
Repurchases of common and preference stocks............... (251) (1,681) --
Proceeds from issuing common stocks....................... 480 453 1,017
Cash dividends paid to stockholders....................... (1,530) (1,328) (1,112)
--------- --------- ---------
Net cash provided by financing activities................... 2,620 5,333 2,045
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (185) 146 (14)
--------- --------- ---------
Net cash provided by (used in) continuing operations........ 3,465 (29) (3,052)
Net cash provided by (used in) discontinued operations...... 103 193 (24)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 3,568 164 (3,076)
Cash and cash equivalents at beginning of the year.......... 10,495 10,331 13,407
--------- --------- ---------
Cash and cash equivalents at end of the year................ $ 14,063 $ 10,495 $ 10,331
========= ========= =========
Reference should be made to the notes to consolidated financial statements.
II-6
21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of General
Motors Corporation (hereinafter referred to as the Corporation) and domestic and
foreign subsidiaries that are more than 50% owned (Note 2), principally General
Motors Acceptance Corporation and Subsidiaries (GMAC) and Hughes Electronics
Corporation and Subsidiaries (Hughes) (collectively referred to as General
Motors or GM). General Motors' share of earnings or losses of associates, in
which at least 20% of the voting securities is owned, is included in the
consolidated operating results using the equity method of accounting (Note 3).
GM encourages reference to the GMAC Annual Report on Form 10-K for the period
ended December 31, 1996, filed with the Securities and Exchange Commission, and
the Hughes consolidated financial statements included as Exhibit 99 to the GM
Annual Report on Form 10-K for the period ended December 31, 1996.
Certain amounts for 1995 and 1994 have been reclassified to conform with
the 1996 classifications.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Due to the inherent
uncertainty involved in making estimates, actual results reported in future
periods may be based upon amounts that differ from those estimates.
REVENUE RECOGNITION
Sales are generally recorded when products are shipped or when services are
rendered to independent dealers or other third parties. Provisions for normal
dealer sales incentives, returns and allowances, and GM Card rebates are made at
the time of vehicle sale. Costs related to special sales incentive programs are
recognized as reductions to sales when determinable.
The Emerging Issues Task Force (EITF) of the Financial Accounting Standards
Board reached a consensus in November 1995 on Issue No. 95-1, Revenue
Recognition on Sales with a Guaranteed Minimum Resale Value, and concluded that
a manufacturer must account for the sale of equipment as an operating lease if
it guarantees the resale value of the equipment to the purchaser. The
Corporation modified its revenue recognition policy on sales to daily rental car
companies, effective January 1, 1995, to conform to the consensus. Adoption of
this consensus resulted in an unfavorable cumulative effect of $52 million
after-tax, or $0.07 per share, attributable to $1 2/3 par value common stock.
Sales under long-term contracts, primarily in the defense business, are
generally recorded using the percentage-of-completion (cost-to-cost) method of
accounting. Sales under certain long-term commercial contracts are recorded
using the units-of-delivery method. Profits expected to be realized on contracts
are based on estimates of total sales value and costs at completion. These
estimates are reviewed and revised periodically throughout the lives of the
contracts and adjustments to profits resulting from such revisions are recorded
in the accounting period in which the revisions are made. Estimated losses on
contracts are recorded in the period in which they are identified.
Income on finance receivables in which the face amount includes the finance
charge (principally retail financing) is recorded over the terms of the
receivables using the interest method. Interest on finance receivables in which
the face amount represents the principal (including retail, wholesale, leasing
and lease financing, and term loans to dealers) is recorded using the simple
interest method. Certain loan origination costs are deferred and amortized to
financing revenue over the lives of the related loans using the interest method.
II-7
22
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONCLUDED)
Income from operating lease assets is recognized as scheduled payments
become due. Certain operating lease origination costs are deferred and amortized
to financing revenue over the lives of the related operating leases using the
straight-line method.
Insurance premiums are earned on a basis related to coverage provided over
the terms of the policies. Commission costs and premium taxes incurred in
acquiring new business are deferred and amortized over the terms of the related
policies on the same basis as premiums are earned. The liability for losses
represents estimates from reported losses and also includes a provision for
unreported losses, based on past experience, net of the estimated salvage and
subrogation recoverable.
PRODUCT-RELATED EXPENSES
Advertising and sales promotion, research and development, and other
product-related costs are charged to expense as incurred; provisions for
estimated expenses related to product warranty are made at the time the products
are sold. Advertising expense amounted to $3.4 billion in 1996, $3.1 billion in
1995, and $2.8 billion in 1994. Research and development expense was $8.9
billion in 1996, $8.2 billion in 1995, and $6.9 billion in 1994.
DEPRECIATION AND AMORTIZATION
Depreciation is provided based on estimated useful lives of groups of
property generally using accelerated methods, which accumulate depreciation of
approximately two-thirds of the depreciable cost during the first half of the
estimated useful lives.
Leasehold improvements are amortized over the period of the lease or the
life of the property, whichever is shorter, with the amortization applied
directly to the asset account. Depreciation on capitalized leases with a term of
five years or less is provided using the straight-line method; leases with a
term in excess of five years are depreciated using the foregoing accelerated
methods.
Depreciation of vehicles and other equipment on operating leases or in
General Motors' use is provided generally on a straight-line basis. The
difference between the net book value and the proceeds of sale or salvage on
items disposed of is accounted for as a charge against or credit to the
provision for depreciation.
Expenditures for special tools are amortized over their estimated useful
lives, primarily using the units of production method. Amortization is applied
directly to the asset account. Replacement of special tools for reasons other
than changes in products is charged directly to cost of sales.
Depreciation and amortization expenses were as follows (in millions):
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
Depreciation................................................ $ 8,825 $ 7,746 $6,547
Amortization of special tools............................... 2,856 3,212 2,901
Amortization of intangible assets (Note 10)................. 159 255 197
------- ------- ------
Total..................................................... $11,840 $11,213 $9,645
======= ======= ======
II-8
23
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Exchange and translation (losses) gains on an after-tax basis included in
consolidated net income in 1996, 1995, and 1994 amounted to $(380) million,
$(381) million, and $207 million, respectively.
CASH AND CASH EQUIVALENTS
Cash equivalents are defined as short-term, highly liquid investments with
original maturities of 90 days or less.
Cash paid for interest and income taxes was as follows (in millions):
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
---- ---- ----
Interest.................................................... $5,792 $5,927 $5,056
Income taxes................................................ $2,338 $ 447 $1,510
With respect to noncash transactions, approximately 3 million Series C
Preference shares were converted into 45 million Class E shares in 1996 (Notes 2
and 19) and 173 million shares of Class E common stock were contributed to the
U.S. pension plans in 1995 (Notes 2 and 16). Also, General Motors entered into
capital lease agreements totaling $132 million, $267 million, and $25 million,
in 1996, 1995, and 1994, respectively.
ALLOWANCE FOR FINANCING LOSSES
An allowance for financing losses is generally established during the
period in which receivables are acquired and is maintained in amounts considered
by management to be appropriate in relation to receivables outstanding. Losses
arising from the sale of repossessed collateral are charged to the allowance for
financing losses. Where repossession has not been effected, losses are charged
off as soon as it is determined that the collateral cannot be repossessed,
generally not more than 150 days after default.
REPOSSESSED PROPERTY AND IMPAIRED LOANS
Losses arising from repossession of the collateral supporting doubtful
accounts and property supporting defaulted operating leases are recognized upon
repossession. Repossessed assets are recorded at the lower of historical cost or
estimated realizable value in other assets and the related adjustments to the
valuation allowance are included in operating expense.
Nonretail finance receivables are reduced to the estimated fair value of
collateral when determined to be impaired or uncollectible.
CONTRACTS IN PROCESS
Contracts in process are stated at costs incurred plus estimated profit,
less amounts billed to customers and advances and progress payments applied.
Engineering, tooling, manufacturing, and applicable overhead costs, including
administrative, research and development, and selling expenses are charged to
costs and expenses when incurred. Contracts in process also include estimates
relating to claims, requests for equitable adjustments and amounts withheld
pending negotiation or settlement with customers. Under certain contracts with
the U.S. Government, progress payments are received based on costs incurred on
the respective contracts. Title to the inventories related to such contracts
(included in contracts in process) vests with the U.S. Government.
II-9
24
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF LONG-LIVED ASSETS
Effective January 1, 1996, General Motors adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. In accordance with this
standard, General Motors periodically evaluates the carrying value of long-lived
assets to be held and used, including goodwill and other intangible assets, when
events and circumstances warrant such a review. The carrying value of a
long-lived asset is considered impaired when the anticipated undiscounted cash
flow from such asset is separately identifiable and is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved. Losses on long-lived assets to be
disposed of are determined in a similar manner, except that fair market values
are reduced for the cost to dispose. The adoption of this new accounting
standard did not have a material effect on General Motors' consolidated
operating results or financial position.
DERIVATIVE INSTRUMENTS
General Motors is party to a variety of foreign exchange, interest rate,
and commodity forward contracts and options entered into in connection with the
management of its exposure to fluctuations in foreign exchange rates, interest
rates, and certain commodities prices. These financial exposures are managed in
accordance with corporate policies and procedures.
Foreign exchange forward and option contracts are accounted for as hedges
to the extent they are designated, and are effective as, hedges of firm foreign
currency commitments. Additionally, certain foreign exchange option contracts
receive hedge accounting treatment to the extent such contracts hedge certain
anticipated foreign currency transactions. Other such foreign exchange contracts
and options are marked to market on a current basis.
Interest rate swaps that are designated, and effective as, hedges of
underlying debt obligations are not marked to market, but are used to adjust
interest expense recognized over the lives of the underlying debt agreements.
Gains and losses from terminated contracts are deferred and amortized over the
remaining period of the original contract. Open interest rate swaps are reviewed
regularly to ensure that they remain effective as hedges of interest rate
exposure. Written options (including swaptions, interest rate caps and collars,
and swaps with embedded options) and other swaps that do not qualify for hedge
accounting are marked to market on a current basis.
General Motors also enters into commodity forward and option contracts.
Since General Motors has the discretion to settle these transactions either in
cash or by taking physical delivery, these contracts are not considered
financial instruments for accounting purposes. Commodity forward contracts and
options are accounted for as hedges to the extent they are designated, and are
effective as, hedges of firm or anticipated commodity purchase contracts. Other
commodity forward contracts and options are marked to market on a current basis.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, General Motors adopted SFAS No. 112, Employers'
Accounting for Postemployment Benefits. SFAS No. 112 requires accrual of the
costs of benefits provided to former or inactive employees after employment, but
before retirement. The unfavorable cumulative effect of adopting SFAS No. 112,
determined on a discounted basis, was $1.2 billion ($758 million after-tax), or
$751 million ($1.05 per share) attributable to $1 2/3 par value common stock and
$7 million ($0.08 per share) attributable to
II-10
25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
POSTEMPLOYMENT BENEFITS (CONCLUDED)
GM Class H common stock. The noncash charge was primarily related to General
Motors' extended-disability benefit program in the U.S., which under SFAS No.
112, is accrued on a service-driven basis.
ENVIRONMENTAL LIABILITIES
General Motors recognizes environmental liabilities when a loss is probable
and can be reasonably estimated. Such liabilities are generally not subject to
insurance coverage. The cost of each environmental liability is estimated by
engineering, financial, and legal specialists within General Motors based on
current law. Such estimates are based primarily upon the estimated cost of
investigation and remediation required and the likelihood that other potentially
responsible parties (PRPs) will be able to fulfill their commitments at the
sites where General Motors may be jointly and severally liable. At sites being
addressed under the U.S. Comprehensive Environmental Response, Compensation and
Liability Act or similar state laws (the Superfund Sites), General Motors
typically recognizes a loss once it has been named as a PRP and has determined
that some loss is probable and estimable. The Superfund Sites are primarily
multi-PRP sites not owned or operated by General Motors. For General Motors'
operating plants, an estimated liability is typically recognized either upon
completion of an environmental assessment or when General Motors proposes an
agreement with the appropriate regulatory agency to take action at a site. For
closed or closing plants owned by General Motors and properties being sold, an
estimated liability is typically recognized at the time the closure decision is
made or sale is recorded and is based on an environmental assessment of the
plant property.
General Motors' estimates for environmental obligations are dependent
primarily on the nature and extent of historical information and physical data
relating to a contaminated site, the complexity of the site, uncertainty as to
what remedy and technology will be required, the outcome of discussions with
regulatory agencies and other PRPs at multi-party sites, the number and
financial viability of other PRPs, and the timing of expenditures; accordingly,
such estimates could change materially as General Motors periodically evaluates
and revises such estimates based on expenditures against established reserves
and the availability of additional information.
STOCK INCENTIVE PLANS
Effective January 1, 1996, General Motors adopted SFAS No. 123, Accounting
for Stock-Based Compensation, and as permitted by this standard, will continue
to apply the recognition and measurement principles of Accounting Principles
Board (APB) Opinion No. 25 to its stock options and other stock-based employee
compensation awards. General Motors has determined that the differences between
SFAS No. 123 and APB Opinion No. 25, when applied to its options and awards, are
not significant in relation to reported net income and earnings per share.
LABOR FORCE
General Motors, on a worldwide basis, has a concentration of its labor
supply in employees working under union collective bargaining agreements, which
represent approximately 86% of its hourly workforce and 8% of its salaried
workforce. Of these represented employees, approximately 86% of hourly and 37%
of salaried employees are working under agreements that will expire in 1999.
Although new national collective bargaining agreements were completed with the
United Auto Workers and Canadian Auto Workers during 1996, several local union
agreements have expired and currently are under negotiation. Certain of General
Motors suppliers also have represented work forces. Work stoppages by
represented employees could disrupt the assembly of vehicles.
II-11
26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2. EDS SPLIT-OFF
On June 7, 1996 General Motors split-off Electronic Data Systems
Corporation (EDS) to General Motors Class E stockholders on a tax-free basis for
U.S. federal income tax purposes. Under the terms of the split-off, each share
of General Motors former Class E common stock was exchanged for one share of EDS
common stock. In addition, General Motors and EDS entered into a new 10-year
agreement, under which EDS will continue to be General Motors' principal
provider of information technology services and EDS made a special inter-company
payment of $500 million to General Motors.
The financial data related to EDS prior to the June 7, 1996 split-off from
General Motors are classified as discontinued operations. The financial results
of EDS, including assets and liabilities, subsequent to the split-off are not
included in General Motors' consolidated financial statements.
EDS systems and other contracts revenues from outside customers included in
income from discontinued operations totaled $4.3 billion, $8.5 billion, and $6.4
billion for the years ended December 31, 1996, 1995, and 1994, respectively.
Income from discontinued operations of $10 million, $900 million, and $793
million for the years ended December 31, 1996, 1995, and 1994, is reported net
of income tax expense of $14 million, $528 million, and $462 million,
respectively.
Prior to the split-off, General Motors approved certain EDS actions to
maintain and improve operating efficiencies and accelerate its move to
"user-centered" computing. As a result, income from discontinued operations for
1996 includes a one-time charge of $328 million after-taxes related to these
actions.
Income from discontinued operations for 1996 also includes split-off
expenses attributable to $1 2/3 par value common stock of $15 million
after-taxes or $0.02 per share of $1 2/3 par value common stock. Income from
discontinued operations for 1995 and 1994 includes $39 million, $0.05 per share
of $1 2/3 par value common stock, and $29 million, $0.04 per share of $1 2/3 par
value common stock, respectively, of expense associated with purchase accounting
adjustments made at the time of General Motors' purchase of EDS.
The net assets of EDS were as follows (in millions):
DECEMBER 31,
1995
------------
Current assets.............................................. $ 4,382
Property and equipment -- net............................... 3,319
Operating and other assets.................................. 3,208
Current liabilities......................................... (3,261)
Deferred income taxes....................................... (740)
Notes payable............................................... (1,853)
-------
Net assets of discontinued operations.................. $ 5,055
=======
General Motors no longer owns the outstanding shares of EDS and,
accordingly, General Motors' consolidated balance sheet reflects decreased
stockholders' equity and liabilities as well as decreased assets. The split-off
resulted in an overall reduction in General Motors' consolidated net worth of
$4.5 billion at June 7, 1996, including the effect of the $500 million special
inter-company payment from EDS.
II-12
27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3. OTHER INCOME AND OTHER DEDUCTIONS
Other income and other deductions included the following (in millions):
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
Other income
Nonfinancing interest..................................... $1,679 $1,586 $1,389
Insurance premiums........................................ 947 867 874
Claims, commissions, and grants........................... 670 604 467
Equity in net earnings of associates...................... 129 281 232
Income from sales of receivables programs................. 625 744 690
Mortgage servicing and processing fees.................... 489 375 209
Gain on sale of interest in DIRECTV(R)(1)................. 120 -- --
Gain on sale of Avis, Inc. preferred stock(2)............. 105 -- --
Other..................................................... 1,290 485 459
------ ------ ------
Total other income..................................... $6,054 $4,942 $4,320
====== ====== ======
Other deductions
Insurance losses and loss adjustment expenses............. $ 622 $ 621 $ 750
Provision for financing losses............................ 669 449 177
Loss on sale of facilities(3)............................. 253 -- --
Loss on sale of NCRS' net assets(4)....................... -- 148 --
Other..................................................... 539 460 533
------ ------ ------
Total other deductions................................. $2,083 $1,678 $1,460
====== ====== ======
- -------------------------
(1) During 1996, the sale of a 2.5% interest in DIRECTV to AT&T resulted in a
gain of $120 million ($72 million after-tax or $0.07 per share of $1 2/3 par
value common stock and $0.18 per share of Class H common stock).
(2) The sale of GM's preferred stock interest in Avis, Inc. resulted in a gain
of $105 million ($65 million after taxes or $0.09 per share of $1 2/3 par
value common stock).
(3) In 1996, GM-NAO/Delphi sold four Delphi component facilities and GM-NAO's
Oshawa die-management business, which resulted in a pre-tax loss of $253
million ($157 million after-tax or $0.21 per share of $1 2/3 par value
common stock).
(4) The Corporation sold National Car Rental System's (NCRS) net assets, which
resulted in $163 million of net income or $0.22 per share of $1 2/3 par
value common stock. The 1995 net income reflects $310 million of tax
benefits related to the restructuring for NCRS in 1992. The tax benefits
were not previously recorded due to the uncertainty of ultimate realization.
NOTE 4. MARKETABLE AND OTHER SECURITIES
Effective January 1, 1994, General Motors adopted SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities, which resulted in a $241
million after-tax increase in stockholders' equity. Under SFAS No. 115, debt and
equity securities with readily determinable fair values are classified as
trading, available-for-sale or held-to-maturity.
Marketable securities held by General Motors are classified as
available-for-sale, except for certain mortgage related securities of GMAC,
which were classified as trading securities. The aggregate excess of fair value
over cost, net of related income taxes, for available-for-sale securities is
included as a separate
II-13
28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4. MARKETABLE AND OTHER SECURITIES (CONCLUDED)
component of stockholders' equity. The excess of fair value over cost for
trading securities is included in income on a current basis. General Motors
determines cost on the specific identification basis.
Investments in marketable securities were as follows (in millions):
December 31, 1996
-----------------------------------------
Fair Unrealized Unrealized
Cost Value Gains Losses
Type of Security ---- ----- ---------- ----------
Bonds, notes, and other securities
United States government and governmental agencies and
authorities........................................ $1,702 $1,705 $ 5 $ (2)
States, municipalities, and political subdivisions.... 1,573 1,648 85 (10)
Mortgage-backed securities............................ 62 64 2 --
Other................................................. 3,410 3,441 40 (9)
------ ------ ---- ----
Total debt securities available for sale................ 6,747 6,858 132 (21)
Mortgage-backed securities held for trading
purposes........................................... 697 697 -- --
------ ------ ---- ----
Total debt securities................................... 7,444 7,555 132 (21)
Equity securities....................................... 384 799 430 (15)
------ ------ ---- ----
Total investment in securities..................... $7,828 $8,354 $562 $(36)
====== ====== ==== ====
December 31, 1995
-----------------------------------------
Fair Unrealized Unrealized
Cost Value Gains Losses
Type of Security ---- ----- ---------- ----------
Bonds, notes, and other securities
United States government and governmental agencies and
authorities........................................ $ 529 $ 541 $ 12 $ --
States, municipalities, and political subdivisions.... 1,721 1,825 113 (9)
Mortgage-backed securities............................ 77 79 3 (1)
Other................................................. 1,990 2,043 54 (1)
------ ------ ---- ----
Total debt securities available for sale................ 4,317 4,488 182 (11)
Mortgage-backed securities held for trading
purposes........................................... 485 485 -- --
------ ------ ---- ----
Total debt securities................................... 4,802 4,973 182 (11)
Equity securities....................................... 336 752 428 (12)
------ ------ ---- ----
Total investment in securities..................... $5,138 $5,725 $610 $(23)
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Debt securities totaling $1.8 billion mature within one yea