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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, 1997
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 on
Title of Each Class Which Registered
- ---------------------------------------------- ----------------------------
Common, $1-2/3 par value (678,564,579 shares
outstanding as of February 28, 1998) New York Stock Exchange, Inc.
Class H Common, $0.10 par value (104,368,924
shares outstanding as of February 28, 1998) 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, 1998) New York Stock Exchange, Inc.
Preference, $0.10 par value, Series D
7.92% Depositary Shares, stated value
$25 per share, dividends cumulative
(3,014,654 depositary shares outstanding
as of February 28, 1998) New York Stock Exchange, Inc.
Preference, $0.10 par value, Series G
9.12% Depositary Shares, stated value
$25 per share, dividends cumulative
(5,015,410 depositary shares outstanding
as of February 28, 1998) New York Stock Exchange, Inc.
General Motors Capital Trust D 8.67% Trust
Originated Preferred Securities (sm) (TOPrS (sm)),
Series D (3,149,748 shares outstanding as of
February 28, 1998) New York Stock Exchange, Inc.
General Motors Capital Trust G 9.87% Trust
Originated Preferred Securities (sm) (TOPrS (sm)),
Series G (5,221,123 shares outstanding as of
February 28, 1998) 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 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 27, 1998) of General Motors
Corporation $1-2/3 par value and Class H common stocks held by nonaffiliates on
February 27, 1998 was approximately $46.6 billion and $4.3 billion,
respectively.
Documents incorporated by reference are as follows:
Part and Item Number of Form
Document 10-K into Which Incorporated
- -------- -----------------------------
General Motors Notice of Annual Meeting of Stockholders
and Proxy Statement for the Annual Meeting of Stockholders
to be held June 1, 1998 Part III, Items 10 through 13
- ------------------------
(sm) "Trust Originated Preferred Securities" and "TOPrS" are service trademarks
of Merrill Lynch & Co.
COVER PAGE
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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(s)
---- -------
Wholesale Sales II-45 and II-48
Employment and Payrolls II-64
Note 24 of Notes to Consolidated Financial Statements (Segment Reporting) II-36
While the major portion of GM's operations is derived from the automotive
industry, GM also has financing and insurance operations and produces products
and provides services in other industries. GM participates in the automotive
industry through the activities of its automotive business operating segments:
GM-North American Operations (GM-NAO); Delphi Automotive Systems (Delphi); and
GM International Operations (GMIO). GM-NAO designs, manufactures, and markets
vehicles primarily in North America under the following nameplates: Chevrolet,
Pontiac, GMC, Oldsmobile, Buick, Cadillac, and Saturn. Delphi is a diverse
supplier of automotive systems and components. Delphi offers products and
services in the areas of chassis, interior, lighting, electronics, power and
signal distribution, energy and engine management, steering, and thermal
systems. GMIO meets the demands of customers outside North America with
vehicles designed, manufactured, and marketed under the following nameplates:
Opel, Vauxhall, Holden, Isuzu, Saab, Chevrolet, GMC, and Cadillac. GM's
financing and insurance operations primarily relate to General Motors
Acceptance Corporation (GMAC). GMAC provides a broad range of financial
services, including consumer vehicle financing, full-service leasing and fleet
leasing, dealer financing, car and truck extended service contracts,
residential and commercial mortgage services, and vehicle and homeowners
insurance. GM's other operations relate to its Hughes Electronics Corporation
subsidiary (Hughes) and the design, manufacturing and marketing of locomotives
and heavy-duty transmissions.
On December 17, 1997, GM completed a series of related transactions
(Hughes Transactions) that were designed to address strategic challenges
facing the three principal businesses of Hughes and unlock stockholder value in
GM. The Hughes Transactions included the tax-free spin-off of the defense
electronics business of Hughes (Hughes Defense) to holders of $1-2/3 par value
and Class H common stocks, which was then followed immediately by the merger of
Hughes Defense with Raytheon Company (Raytheon). Concurrently, Delco
Electronics, the automotive electronics subsidiary of Hughes, was transferred
from Hughes to Delphi. Finally, Class H common stock was recapitalized into a
GM tracking stock, Class H common stock, that is linked to the
telecommunications and space businesses of Hughes.
Additional information regarding the Hughes Transactions is contained in
Note 22 to the GM consolidated financial statements.
Substantially all automotive-related products 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, 1997,
there were approximately 8,500 GM vehicle dealers in the United States, 900 in
Canada and Mexico, and 5,500 outlets overseas.
RAW MATERIALS AND SERVICES
GM 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 GM.
BACKLOG OF ORDERS
Shipments of GM automotive products are made as promptly as possible after
receipt of firm sales orders; therefore, no significant backlog of unfilled
orders accumulates. Hughes had a $10.3 billion and $6.8 billion backlog of
commercial contracts relating to its telecommunications and space businesses at
the end of 1997 and 1996, respectively.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
COMPETITIVE POSITION
GM's principal competitors in passenger cars and trucks in the United
States and Canada include Ford Motor Company, Chrysler Corporation, Toyota
Corporation, Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd., Mazda
Motor Corporation, Mitsubishi Motors Corporation, Fuji Heavy Industries, Ltd.
(Subaru), Volkswagen A.G., Hyundai Motor Company, Ltd., Daimler-Benz A.G.
(Mercedes), Bayerische Motoren Werke AG (BMW), and Volvo AB. All but
Volkswagen and Hyundai currently operate vehicle manufacturing facilities in
the United States or Canada. 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
GM passenger cars and trucks during the three years ended December 31, 1997 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 GM's competitive position
during the years ended December 31, 1997, 1996, and 1995, respectively, were as
follows:
1997(1) 1996 1995
---- ---- ----
(Units in Thousands)
Total industry registrations
In the United States 15,417 15,486 15,219
In Canada and Mexico 1,919 1,535 1,343
In other countries 36,125 34,789 32,853
------ ------ ------
Total industry registrations - all countries 53,461 51,810 49,415
====== ====== ======
1997(1) 1996 1995
---- ---- ----
(Percent of Total Industry)
GM's registrations
In the United States 31% 31% 32%
In Canada and Mexico 31 31 32
In other countries 9 9 9
Total GM's registrations - all countries 16 16 17
- --------------------
(1) Preliminary
The above information on registrations of new cars, trucks, and buses was
obtained from outside sources and that pertaining to GM's registrations
includes units which are manufactured overseas by other companies and which are
imported and sold by GM and affiliates.
RESEARCH AND DEVELOPMENT
In 1997, GM spent $8.2 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 GM products. In
addition, $1.5 billion was spent for customer-sponsored activities, the
majority of which were government related. Comparable data for 1996 were $8.9
billion for company-sponsored activities and $1.6 billion for
customer-sponsored activities and for 1995 were $8.2 billion for
company-sponsored activities and $1.4 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 lead to
substantial cost for GM 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.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive Emissions Control (concluded)
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. GM 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. California is now
considering additional reductions in vehicle emissions beginning with the 2004
model year.
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, has recommended the OTC jurisdictions to impose the California LEV
program requirements throughout the Northeast Ozone Transport Region (OTR).
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
(NLEV) program, which would require the phase-in of TLEVs and LEVs in the
northeast starting in 1999, and vehicles in all states outside California
meeting LEV standards on average starting in 2001. The EPA issued a final rule
which would implement the NLEV program as a voluntary alternative available to
automakers providing the OTC jurisdictions and the manufacturers formally
opt-in to the agreement. On March 2, 1998, the EPA declared that the NLEV
program was "in effect" for 1999 and later model years after all manufacturers
and all the Northeast states except New York, Massachusetts, Maine, and Vermont
opted to participate in the program.
In addition to the above-mentioned exhaust emission programs, enhanced
onboard diagnostic (OBD) devices, used to diagnose problems with emission
control systems, were 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 began
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, test procedures 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.
Also, the EPA, in accordance with the Clean Air Act Amendment of 1990, is
studying the need, cost, and feasibility of further tightening of vehicle
emission standards as early as the 2004 model year. The EPA adopted new
National Ambient Air Quality standards for ozone and particulates in 1997 which
are expected to enhance the need for additional emission reductions from both
mobile and industrial sources.
Industrial Environmental Control
GM is subject to various laws relating to the protection of the
environment including laws regulating air emissions, water discharge, waste
management, and environmental cleanup.
GM is in various stages of investigation or remediation for sites where
contamination has been alleged and has recorded a liability of $610 million at
December 31, 1997 and $646 million at December 31, 1996 for worldwide
environmental investigation and remediation as summarized below:
. GM has been identified as a potentially responsible party at
sites identified by the EPA and state regulatory agencies for
investigation and remediation 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 $186 million, which was recorded at December 31, 1997. This
compares to $209 million at December 31, 1996.
I-3
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Industrial Environmental Control (concluded)
. For closed or closing plants owned by the Corporation,
an estimated liability for environmental investigation and
remediation is typically recognized at the time of the closure
decision. Such liability, which is based on an environmental
assessment of the plant property, was estimated at $122 million at
December 31, 1997. This compares to $121 million at December 31,
1996.
. GM is involved in investigations and remediation activities at
additional locations worldwide with a foreseeable liability of
approximately $302 million, which was recorded at December 31,
1997. This compares to $316 million at December 31, 1996.
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 GM in the United States for industrial environmental
control facilities during the years ended December 31, 1997, 1996, and 1995,
respectively, were as follows (in millions): 1997-$108; 1996-$117; and
1995-$116. The Corporation currently estimates that future expenditures for
industrial environmental control facilities through 2001 will be (in millions):
1998-$118; 1999-$74; 2000 and 2001-$156. 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.
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 September 1,
1998.
GM is working with NHTSA and suppliers to introduce, during the 1998 model
year on all GM cars and light trucks, less aggressive air bags in order to
address concerns about inflation injuries, particularly to children and smaller
adult passengers who are not properly restrained. GM also will be making
available, starting in the 1998 model year, air bag on-off switches for those
customers who request them and also are eligible under the requirements of the
new NHTSA regulation allowing these devices.
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 continues its consumer information side impact
crash test program at an elevated impact speed for passenger cars, and possibly
adds certain light-duty trucks to the test program after September 1, 1998.
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 along with additional crash
testing procedures 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.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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 GM 1997
model year domestic passenger car fleet is projected to attain a Corporate
Average Fuel Economy (CAFE) of 28.2 miles per gallon (mpg) versus the standard
of 27.5 mpg. The CAFE estimate for 1998 model year passenger cars is projected
at 27.8 mpg versus the standard of 27.5 mpg.
Fuel economy standards for light-duty trucks became effective in 1979.
GM's light truck CAFE fleet average for the 1996 model year reached 20.9 mpg
versus a standard of 20.7 mpg. For the 1997 model year, GM's truck CAFE is
projected to be 20.2 mpg versus a standard of 20.7 mpg. GM's 1998 model year
truck CAFE is projected at 21.2 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.
It is expected that the Kyoto agreement on global warming will lead to
continued pressure to increase fuel economy levels.
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
Operating and geographic segment data for 1997, 1996, and 1995 are
summarized in Note 24 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 292
locations operating in 33 states and 145 cities in the United States. Of
these, 24 are engaged in the final assembly of GM cars and trucks; 35 are
service parts operations responsible for distribution or warehousing; 8 major
plants, offices, and research facilities relate to the operations of Hughes
Electronics Corporation; and the remainder are offices or involved primarily in
the testing of vehicles or the manufacture of automotive components and power
products. In addition, the Corporation has 20 locations in Canada and
assembly, manufacturing, distribution, or warehousing operations in 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, Australia, 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.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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, 1997, or subsequent thereto, but
before the filing of this report are summarized below.
ENVIRONMENTAL MATTERS
In March 1993, the Michigan Department of Environmental Quality (MDEQ)
notified the Corporation's Powertrain Group (GMPTG) that MDEQ was making a
referral to the Michigan Attorney General for resolution of allegations by MDEQ
that a GMPTG Malleable Iron facility in Saginaw, Michigan had failed to conduct
a timely environmental investigation to MDEQ's satisfaction of a landfill and
certain other areas at the facility's property, and that the facility's on-site
water recycling basins were improperly discharging contaminants into the
groundwater and the Saginaw River. The Corporation has reached a settlement of
this matter whereby it will pay a civil penalty of $200,000 and contribute
$200,000 toward environmental projects in the Saginaw, Michigan area. The
Corporation has entered into a consent judgment which documents the settlement
and it is anticipated that it will be lodged within 90 days.
* * *
On June 28, 1994, the Attorney General for the State of Michigan, on
behalf of the Michigan Department of Natural Resources (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.
* * *
In August, 1997, the Delaware Department of Natural Resources &
Environmental Control (DDNREC) issued a Notice of Administrative Penalty
Assessment to the GM Wilmington Assembly Plant seeking civil penalties in
excess of $100,000 for alleged violations of the Delaware volatile organic
compound rules. GM filed a request for hearing, and is pursuing discussions
with DDNREC to resolve the matter.
* * *
In December, 1997 the Ohio Environmental Protection Agency (OEPA) and the
Ohio Attorney General proposed to settle alleged violations by the GM
Powertrain Group Defiance Foundry of certain Ohio air pollution rules for a
civil penalty in excess of $100,000. The primary violations alleged by OEPA
are that the Defiance Foundry failed to timely perform a stack test on certain
equipment, failed to comply with an air permit variance granted to the foundry,
did not comply with the "Prevention of Significant Deterioration" regulations
in connection with the installation of certain equipment, and exceeded certain
air emission limits set forth in a number of permits. GM is pursuing
settlement discussions with OEPA and the Ohio Attorney General.
* * *
The Illinois Environmental Protection Agency (IEPA) and U.S. Environmental
Protection Agency (EPA) assert that portions of a facility maintained by the
Electro-Motive Division of GM (EMD) at LaGrange, Illinois, for the purpose of
providing reliability and durability engine testing is required to secure
permits under Title I of the Clean Air Act. EMD has long considered the
facility to be exempt from the permitting and other requirements of Title I of
the Clean Air Act. Without conceding this point, and in the interest of
expeditiously resolving this matter, EMD has obtained a "Prevention of
Significant Deterioration" permit for these units. The IEPA has referred this
matter to the Illinois Attorney General's office, and a judicial consent order
is being finalized. A penalty of between $100,000 and $150,000 and a
supplemental environmental project with a value of approximately $200,000 is
anticipated.
* * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ENVIRONMENTAL MATTERS (CONCLUDED)
In August, 1996, the California Air Resources Board (CARB) ordered General
Motors to recall about 11,500 1992 MY "S" Trucks. (These trucks are known by
their emissions engine family designator as N3G4.3TBXEB2.) The CARB claims
that these trucks exceeded the applicable new motor vehicle emissions standard
for oxides of nitrogen (Nox). In addition to the ordered recall, the CARB
threatened civil penalties of up to $57 million. General Motors believes that
it has valid defenses to all CARB's claims and has requested an administrative
review of the penalties and ordered recall. General Motors' defenses include
the failure of CARB's outside contractor test laboratory to comply with the
Federal Test Procedure used to identify non-compliant engine families. The
administrative case is in the discovery stage, and a hearing is not likely
until sometime in 1999.
* * *
OTHER MATTERS
U.S. Government contracts held by the Corporation and its subsidiaries are
subject to termination by the U.S. Government either for its convenience or for
default by the contractor. The costs recovered for terminations for
convenience do not always fully reimburse the contractor, and the profit or fee
received by the contractor may be lower than that which it had expected for the
portion of the contract performed. In cases of termination for default, normal
contract remedies generally apply. In addition, the U.S. Government has broad
discretion to suspend or debar a contractor from engaging in new government
business, including discretion as to the period of suspension and activities
affected. A contractor may be debarred based on a conviction or civil judgment
involving certain offenses, including fraud in connection with obtaining or
performing a public contract, or subcontract thereunder, and may be suspended
if indicted for such an offense or if there is other adequate evidence that
such an offense has been committed. Like other government contractors, GM and
its subsidiaries are subject to civil audits and criminal investigations
relating to their contracting activity.
* * *
Hughes has maintained a suit against the U.S. Government since September
1973 regarding the Government's infringement and use of a Hughes patent (the
"Williams Patent") covering "Velocity Control and Orientation of a Spin
Stabilized Body," principally satellites. On 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. Government, contending that the award was too high, also appealed. On
June 19, 1996, the Court of Appeals for the Federal Circuit (CAFC) affirmed the
decision of the Court of Claims which awarded Hughes $114 million in damages,
together with interest. The U.S. Government petitioned the CAFC for a
rehearing. That petition was denied in October 1996. The U.S. Government then
filed a petition with the U.S. Supreme Court seeking certiorari. On April 21,
1997, the U.S. Supreme Court, citing a recent decision it had rendered in
Warner-Jenkinson v. Hilton Davis, remanded Hughes' suit over the Williams
Patent back to the CAFC in order to have the CAFC determine whether the ruling
in the Williams Patent matter was consistent with the U.S. Supreme Court's
decision in the Warner-Jenkinson case. The previous liability decision of the
Court of Claims in the Williams Patent matter, and its $114 million damage
award to Hughes, currently remain in effect pending reconsideration of the case
by the CAFC. Hughes is unable to estimate the duration of this reconsideration
process. While no amount has been recorded in the financial statements of
Hughes to reflect the $114 million award or the interest accumulating thereon,
a resolution of this matter could result in a gain that would be material to
the earnings of GM attributable to Class H common stock.
* * *
In October, 1994, as previously reported, a California jury awarded a
total of $89.5 million in damages against Hughes, which include $9.5 million of
actual damages and 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 and 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' petition for review by the California Supreme Court was granted in
November, 1997. Hughes filed its opening brief in January, 1998, but no
decision is expected earlier than late 1998.
* * *
I-7
9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
OTHER MATTERS (CONTINUED)
In January, 1992, five retired employees of Hughes filed Jacobson, et al
v. Hughes Aircraft Co. et al, in the U.S. District Court in Arizona,
subsequently transferred to Los Angeles, as a putative class action to obtain
increased retirement benefits from excess assets in the Hughes Non-Bargaining
Retirement Plan (the "Plan"). The complaint alleges that the 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 certain participants and newly hired
employees. The complaint further alleges that an effect of another Plan
amendment is that assets of the Plan have been used improperly to provide an
early retirement program for certain participants. On January 23, 1997, 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.
In February 1998, Hughes filed a petition for writ of certiorari in the
United States Supreme Court seeking that court's review of the Ninth Circuit
decision. Because certiorari is in the discretion of the Supreme Court, no
assurance can be given that the case will be accepted for review. Hughes
anticipates that in the second quarter of 1998 the Supreme Court will issue its
decision to grant or deny certiorari.
* * *
On or about October 25, 1996, an action was commenced by Comsat
Corporation against PanAmSat, News Corporation Limited (News Corp.) and Grupo
Television, S.A., in the United States District Court for the Central District
of California. The Complaint alleges that News Corp. wrongfully terminated an
agreement with Comsat for the lease of transponders on an Intelsat satellite
over the term of a five-year lease, breached certain alleged promises related
to such agreement, and breached its alleged obligations under a tariff filed by
Comsat with the Federal Communications Commission (FCC). As to PanAmSat, the
complaint alleges that PanAmSat, alone and in conspiracy with Televisa,
intentionally interfered with the alleged agreement and with Comsat's economic
relationship with News Corp. Comsat had previously filed a similar action in
the United States District Court for the District of Maryland. By order dated
October 10, 1996, the Maryland District Court dismissed without prejudice the
complaint in that action on the ground that the court lacked personal
jurisdiction over all of the defendants. The complaint in the present action
seeks actual and consequential damages, and punitive or exemplary damages in an
amount to be determined at trial. PanAmSat believes this action is without
merit. It intends to vigorously contest this matter although there can be no
assurance that PanAmSat will prevail. If PanAmSat were not to prevail, the
amounts involved could be material to PanAmSat.
* * *
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, challenging GM's split-off of Electronic Data Systems Corporation
(EDS). 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 against certain present and former directors of
General Motors, as 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
I-8
10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
OTHER MATTERS (CONTINUED)
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 was consummated and
were withdrawing their application for expedited proceedings including a
preliminary injunction hearing. Thus, plaintiffs abandoned 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).
On December 1, 1997, plaintiffs served a Third Amended and Supplemental
Consolidated Complaint which makes essentially the same allegations as the
Second Amended Complaint. The complaint seeks monetary damages, including
recissory damages, and an accounting for any special benefits obtained by
defendants. On December 11, 1997, defendants filed a motion to dismiss the
complaint.
* * *
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.
* * *
The following nine lawsuits were filed in the Delaware Court of Chancery
during the first quarter of 1997: 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; John P. McCarthy Profit Sharing
Plan v. General Motors Corporation, et al., on March 6, 1997; and Patinkin v.
General Motors Corporation, et al., on
I-9
11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
OTHER MATTERS (CONTINUED)
March 31, 1997. Each suit was denominated as a class action and was
purportedly brought on behalf of specified holders of GM Class H common stock
against the defendants, General Motors and its directors. The complaints made
essentially the same allegations, namely, that the defendants have breached
and are continuing to breach their fiduciary and alleged contractual duties to
specified holders of GM Class H common stock in connection with the Hughes
transactions. All of these lawsuits have been consolidated under the caption,
In Re General Motors Class H Shareholders Litigation.
Following a hearing on November 24, 1997, the Delaware Court of Chancery
denied plaintiffs' request for expedited discovery and for the scheduling of a
hearing on a motion for a preliminary injunction. On December 17, 1997, having
received consent of a majority of the holders of each class of its common
stock, the Hughes transactions were consummated. (See Tabulation of consents at
Item 4, page I-13 of the Form 10-K filed by General Motors for the Year Ended
December 31, 1997).
On December 1, 1997, plaintiffs filed a Second Consolidated Amended
Complaint which asserts three claims against General Motors and its directors.
The first claim alleges that General Motors is breaching contractual
obligations to GM Class H common stockholders by effecting a disposition of the
defense electronics business of Hughes Electronics without providing for a
recapitalization of the GM Class H common stock into $1-2/3 common stock at a
120% exchange ratio, as currently provided for under certain circumstances in
the GM Certificate of Incorporation. Plaintiffs contend that any amendment of
the GM Certificate of Incorporation as part of the Hughes transactions would be
invalid because stockholders are being coerced into approving such a change.
Plaintiffs' second claim alleges that GM's directors have breached their
fiduciary duties (1) by failing to act in an informed manner and (2) by failing
to act independently to protect the interests of both classes of GM common
stockholders. In particular, this claim alleges that no processes were
employed to ensure that the interests of GM Class H common stockholders were
adequately represented in connection with the various aspects of the Hughes
transactions. Plaintiffs' third claim is that GM's directors have breached
their duty of candor by using false and misleading solicitation materials to
obtain approval of the Hughes transactions. This claim alleges, among other
things, that the Solicitation Statement fails to disclose the consideration
that GM Class H common stockholders would have received in the event the Hughes
transactions triggered the provision in the GM Certificate of Incorporation for
nondiscretionary recapitalization of GM Class H common stock into GM $1-2/3
common stock at a 120% exchange ratio; misstates that there is substantial
uncertainty regarding application of this provision to the Hughes transactions;
and misleadingly portrays the Hughes transactions as being fair to GM Class H
common stockholders. The complaint alleges that GM Class H common stockholders
would be irreparably damaged if the Hughes transactions were to be consummated
as structured because they would lose their alleged right to receive a 20%
premium in the event of a disposition of Hughes Aircraft. Plaintiffs sought,
among other things, an injunction against the consummation of the Hughes
transactions, an order requiring defendants to implement certain procedures
designed to protect the interests of GM Class H common stockholders, or, in the
event the transaction closes (it has now closed), rescission and/or
compensatory damages against the defendants.
On December 17, 1997, defendants filed a motion to dismiss the complaint.
* * *
Thirty-nine class actions have been filed in state, federal, and Canadian
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.
I-10
12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
OTHER MATTERS (CONTINUED)
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 open a defect
investigation of the Type III door latches was denied by the National Highway
Safety Traffic Administration.
* * *
Eleven purported class actions alleging that certain antilock braking
systems on 1989 to 1996 light-duty GM trucks are defective were consolidated by
the Judicial Panel on Multidistrict Litigation for coordinated pretrial
proceedings as In Re General Motors Anti-Lock Brake Products Liability
Litigation, USDC, Eastern District of Missouri, Eastern Division. On June 11,
1997, GM's motion to dismiss the consolidated complaint was granted.
Plaintiffs have appealed to the federal court of appeals for the Eighth
Circuit.
* * *
Three class actions have recently been filed against General Motors, as
well as a number of other vehicle manufacturers and dealers, claiming that the
front seat air bags installed in 1993 to 1997 model vehicles are defective:
Eloisa Rodriguez, et al. v. General Motors Corporation, Ford Motor Company,
Chrysler Corporation, Volvo of North America, Inc., Armadillo Motor Company,
Inc., and Wickstrom Chevrolet Co., Inc., filed on April 11, 1997, in the
District Court of Maverick County, Texas; Ellen Smith, et al. v. General Motors
Corporation, Ford Motor Company, Chrysler Motors Corporation, Sylacauga Auto
Plex, et al., filed on April 25, 1997, in Circuit Court of Coosa County,
Alabama: and Frederick Lewis, et al. v. Volvo of North America, Inc., General
Motors Corporation, Ford Motor Corporation, Chrysler Motors Corporation, and
Spinato Chrysler Plymouth, Inc. dba Bergeron Volvo filed in Civil District
Court of the Parish of Orleans, Louisiana. In essence, the complaints allege
the bags are defective because, when deployed, they are likely to injure
small-statured adults and children. The Texas and Louisiana matters purport to
be statewide classes, while the Alabama state court entered an order
conditionally certifying a nationwide class but made no determination that
plaintiffs have met the requirements for maintaining the case as a class
action. GM has the right to challenge the order and will oppose the class
action status of the case. The complaints generally seek compensatory damages,
the cost of repair or replacement of the allegedly defective air bags, and
plaintiffs' attorney fees. Two of the matters, those in Louisiana and Texas,
have been removed to federal court, and are consolidated for pre-trial
proceedings in the federal court in New Orleans. After removal, the Alabama
matter was remanded by the federal court back to Alabama state court. The
defendants have filed motions for change of venue and dismissal of the
complaint in the Alabama matter which are under submission to the court.
Motions to dismiss the Texas and Louisiana matters will be filed pursuant to a
schedule established by the court later this spring. GM intends to vigorously
defend these actions.
* * *
I-11
13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
OTHER MATTERS (CONTINUED)
Four separate putative class actions have been filed alleging defects in
the paint applied by GM on various vehicles which it distributed. Two of those
cases have been dismissed. No determination has been made as to whether either
of the two pending cases may proceed as a class action.
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 alleged 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. On September 11, 1997, the Court dismissed the case without
prejudice at the request of the plaintiffs. 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 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.
Subsequently, the Court dismissed each of plaintiff's claims except for an
allegation that paint conditions are covered under GM's six-year corrosion
warranty. The complaint seeks unspecified compensatory damages, statutory
damages, and penalties; an injunction halting the practices alleged; and
attorneys' fees, litigation expenses, and costs.
* * *
(b) Previously reported legal proceedings which have been terminated,
either during the quarter ended December 31, 1997, or subsequent thereto, but
before the filing of this report are summarized below:
On March 1, 1993, the U.S. 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 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. On December 24, 1997, the U.S. EPA Appeal
Board affirmed the ALJ's ruling awarding a $62,500 penalty. The Appeal Board
ruled that GM should have challenged its permit within 60 days of issuance and
is now barred from challenging its intent or effect. GM is appealing the
ruling to the U.S. Court of Appeals for the D.C. Circuit, but will no longer
report on this matter in its SEC filings because the penalty has been
established at a level below the threshold for reporting under Regulation S-K.
* * * * * *
I-12
14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ACTIONS BY WRITTEN CONSENT OF GENERAL MOTORS STOCKHOLDERS
A Solicitation Statement/Prospectus of General Motors (GM), dated November
10, 1997, was distributed to holders of $1-2/3 par value and Class H common
stocks in order to obtain their written consent to the proposed "Hughes
Transactions" relating to the three principal businesses of GM's Hughes
Electronics subsidiary (Hughes). The proposed Hughes Transactions consisted of
the following:
- The spin-off of the Hughes defense electronics business (Hughes Defense),
approximately 58.7% to Class H common stockholders and approximately
41.3% to $1-2/3 par value common stockholders (estimated based on stock
prices as of November 7, 1997). Immediately after the spin-off, this
business would merge with Raytheon Company.
- The transfer of the automotive electronics business (Delco) from Hughes
to GM. As a result, the approximate 25.6% tracking stock interest in
this business held by Class H common stockholders would in effect be
allocated to $1-2/3 par value common stockholders.
- The recapitalization of Class H common stock into a new tracking stock
interest of approximately 25.6% in the telecommunications and space
businesses of Hughes. This business would also be provided with a
substantial amount of new capital funding.
The $1-2/3 par value and Class H common stockholders gave their consent to
the Hughes Transactions. Action in respect of the Hughes Transactions was
taken by GM on December 17, 1997. The responses of GM stockholders to the
consent solicitation are tabulated below.
PROPOSAL FOR THE HUGHES TRANSACTIONS
Consent Withhold Abstain Total
------- -------- ------- -----
CLASS OF STOCK (Final tabulation as of December 17, 1997)
$1-2/3 par value common stock,
voting as a separate class:
Shares 433,712,572 3,002,064 4,710,876 441,425,512
Percent of Outstanding 61.3% 0.4% 0.7% 62.4%
Percent of Voting 98.2% 0.7% 1.1% 100.0%
Class H common stock,
voting as a separate class:
Shares 74,350,326 3,641,974 4,217,592 82,209,892
Percent of Outstanding 72.4% 3.6% 4.1% 80.1%
Percent of Voting 90.5% 4.4% 5.1% 100.0%
Combined $1-2/3 par value and
Class H common stocks, voting
together as a single class:
Votes 470,887,736 4,823,050 6,819,672 482,530,458
Percent of Outstanding 62.1% 0.6% 0.9% 63.6%
Percent of Voting 97.6% 1.0% 1.4% 100.0%
* * * * * *
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-40 - Selected Quarterly Data
(b) Approximate number of holders of
common stocks II-40 - Selected Quarterly Data
(c) Dividends
(1) History II-40 - Selected Quarterly Data
(2) Policy II-32 - Dividends on Common Stocks
6. Selected Financial Data II-44 - Selected Financial Data
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations II-45 - 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,
1997, 1996, and 1995
II-5 - Consolidated Balance Sheets,
December 31, 1997 and 1996
II-6 - Consolidated Statements of Cash Flows
for the Years Ended December 31,
1997, 1996, and 1995
II-7 - Consolidated Statements of Stockholders'
Equity for the Years Ended December 31,
1997, 1996, and 1995
II-8 - Notes to Consolidated Financial Statements
II-40 - 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.
Management is further responsible for maintaining internal control
designed to provide reasonable assurance that the books and records reflect the
transactions of the companies and that established policies and procedures are
carefully followed. From a stockholder's point of view, perhaps the most
important feature in internal control is that it is continually reviewed for
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 control 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 Audit 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 Audit 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 Audit
Committee to review the activities of each, to ensure that each is properly
discharging its responsibilities, and to assess the effectiveness of internal
control. It is management's conclusion that internal control at December 31,
1997 provides reasonable assurance that the books and records reflect the
transactions of the companies and that established policies and procedures are
complied with. To ensure complete independence, Deloitte & Touche LLP has full
and free access to meet with the Audit Committee, without management
representatives present, to discuss the results of the audit, the adequacy of
internal control, and the quality of 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
17
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, 1997 and 1996 and the related
Consolidated Statements of Income, Cash Flows, and Stockholders' Equity for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997 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.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 26, 1998
II-3
18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-------------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions Except Per Share Amounts)
NET SALES AND REVENUES (Note 1)
Manufactured products $153,683 $145,341 $143,666
Financial services 12,762 12,674 11,664
Other income (Note 23) 11,729 5,998 4,924
-------- -------- --------
TOTAL NET SALES AND REVENUES 178,174 164,013 160,254
-------- -------- --------
COSTS AND EXPENSES
Cost of sales and other operating charges,
exclusive of items listed below 130,028 123,195 121,300
Selling, general and administrative expenses 16,192 14,580 12,550
Depreciation and amortization expenses (Notes 1 and 2) 16,616 11,840 11,213
Interest expense (Note 10) 6,113 5,695 5,182
Other deductions (Note 23) 1,511 2,083 1,678
-------- -------- --------
TOTAL COSTS AND EXPENSES 170,460 157,393 151,923
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTERESTS 7,714 6,620 8,331
Income taxes (Note 6) 1,069 1,723 2,316
Minority interests 53 56 18
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 6,698 4,953 6,033
Income from discontinued operations (Note 1) - 10 900
Cumulative effect of accounting change (Note 1) - - (52)
-------- -------- --------
NET INCOME 6,698 4,963 6,881
Premium on exchange of/tender offer for
preference stocks (Notes 17 and 18) 26 - 153
Dividends on preference stocks (Note 18) 72 81 211
-------- -------- --------
EARNINGS ON COMMON STOCKS $6,600 $4,882 $6,517
======== ======== ========
BASIC EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS (NOTE 19)
$1-2/3 par value common stock
Continuing operations $8.70 $6.07 $7.21
Discontinued operations - (0.01) 0.14
Cumulative effect of accounting change - - (0.07)
-------- -------- --------
Earnings per share attributable to $1-2/3 par value $8.70 $6.06 $7.28
======== ======== ========
Income from discontinued operations attributable to Class E $ - $0.04 $1.96
-------- -------- --------
Earnings per share attributable to Class H (prior to its
recapitalization on December 17, 1997) (Note 22) $3.17 $2.88 $2.77
-------- -------- --------
Earnings per share attributable to Class H (subsequent to
its recapitalization on December 17, 1997) (Note 22) $0.02 $ - $ -
-------- -------- --------
DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO COMMON STOCKS (NOTE 19)
$1-2/3 par value common stock
Continuing operations $8.62 $ 6.03 $7.14
Discontinued operations - (0.01) 0.14
Cumulative effect of accounting change - - (0.07)
-------- -------- --------
Earnings per share attributable to $1-2/3 par value $8.62 $6.02 $7.21
======== ======== ========
Income from discontinued operations attributable to Class E $ - $0.04 $1.96
-------- -------- --------
Earnings per share attributable to Class H (prior to its
recapitalization on December 17, 1997) (Note 22) $3.17 $2.88 $2.77
-------- -------- --------
Earnings per share attributable to Class H (subsequent to
its recapitalization on December 17, 1997) (Note 22) $0.02 $ - $ -
-------- -------- --------
Reference should be made to the notes to consolidated financial statements.
II-4
19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
ASSETS 1997 1996
----------- -----------
(Dollars in Millions)
Cash and cash equivalents $11,262 $14,063
Other marketable securities 11,722 8,199
-------- --------
Total cash and marketable securities (Notes 1 and 3) 22,984 22,262
Finance receivables - net (Note 4) 58,870 57,550
Accounts and notes receivable (less allowances) 7,493 6,557
Inventories (less allowances) (Note 5) 12,102 11,898
Deferred income taxes (Note 6) 22,478 19,510
Equipment on operating leases (less accumulated depreciation) (Note 7) 33,302 30,112
Property - net (Note 8) 34,567 37,504
Intangible assets - net (Notes 1 and 9) 11,469 12,691
Other assets 25,623 24,058
-------- --------
TOTAL ASSETS $228,888 $222,142
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable (principally trade) $15,782 $14,221
Notes and loans payable (Note 10) 93,027 85,300
Deferred income taxes (Note 6) 2,923 3,196
Postretirement benefits other than pensions (Note 13) 41,168 43,190
Pensions (Note 14) 7,043 7,581
Accrued expenses and other liabilities (Note 15) 50,490 45,144
-------- --------
TOTAL LIABILITIES 210,433 198,632
-------- --------
Minority interests 727 92
General Motors - obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely
junior subordinated debentures of General Motors (Note 17)
Series D 79 -
Series G 143 -
STOCKHOLDERS' EQUITY (Notes 18 and 20)
Preference stocks 1 1
Common stocks
$1-2/3 par value (issued, 693,456,394 and 756,619,625 shares) 1,156 1,261
Class H (Note 22, issued, 100,075,000 shares) - 10
Class H (Note 22, issued, 103,885,803 shares) 10 -
Capital surplus (principally additional paid-in capital) 15,369 19,189
Retained earnings 5,416 6,137
-------- --------
Subtotal 21,952 26,598
Accumulated foreign currency translation adjustments (888) (113)
Net unrealized gains on securities 504 423
Minimum pension liability adjustment (4,062) (3,490)
-------- --------
Accumulated other comprehensive loss (4,446) (3,180)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 17,506 23,418
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $228,888 $222,142
========= ========
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,
----------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations before cumulative
effect of accounting change $6,698 $4,953 $6,033
Adjustments to reconcile income from continuing
operations before cumulative effect of accounting
change to net cash provided by operating activities
Depreciation and amortization expenses 16,616 11,840 11,213
Gain on Hughes Defense spin-off (Note 22) (4,269) - -
Postretirement benefits other than pensions,
net of payments and VEBA contribution (1,425) 1,575 1,684
Pensions expense, net of contributions 240 801 (2,932)
Originations and purchases of mortgage loans (30,878) (19,455) (12,086)
Proceeds on sales of mortgage loans 28,543 18,157 11,613
Originations and purchases of mortgage securities (2,516) (970) (515)
Proceeds on sales of mortgage securities 1,449 758 533
Change in other investments and miscellaneous
assets (1,269) (713) (510)
Change in other operating assets and liabilities
(Note 1) 2,237 184 751
Other 1,028 1,379 765
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,454 18,509 16,549
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property (10,320) (9,949) (8,786)
Investments in other marketable securities - acquisitions (30,897) (27,431) (17,794)
Investments in other marketable securities - liquidations 29,279 24,966 17,254
Finance receivables - acquisitions (163,614) (155,477) (163,033)
Finance receivables - liquidations 129,577 120,253 134,265
Proceeds from sales of finance receivables 31,191 36,657 25,389
Operating leases - acquisitions (21,073) (18,494) (15,125)
Operating leases - liquidations 12,467 10,507 6,268
Proceeds from borrowings of Hughes Defense prior to
the Hughes Defense spin-off (Note 22) 4,006 - -
Investments in companies, net of cash acquired (2,296) (167) (381)
Special inter-company payment from EDS (Note 1) - 500 -
Other 723 1,292 (114)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (20,957) (17,343) (22,057)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in loans payable 5,069 662 6,227
Increase in long-term debt 14,971 15,933 11,242
Decrease in long-term debt (12,454) (12,810) (9,580)
Repurchases of common and preference stocks (4,365) (251) (1,681)
Proceeds from issuing common stocks 614 480 453
Cash dividends paid to stockholders (1,620) (1,530) (1,328)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,215 2,484 5,333
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents (513) (185) 146
-------- -------- --------
NET CASH (USED IN) PROVIDED BY CONTINUING OPERATIONS (2,801) 3,465 (29)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS - 103 193
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (2,801) 3,568 164
Cash and cash equivalents at beginning of the year 14,063 10,495 10,331
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $11,262 $14,063 $10,495
======== ======== =========
Reference should be made to the notes to consolidated financial statements.
II-6
21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
ACCUMULATED
TOTAL OTHER TOTAL
CAPITAL CAPITAL COMPREHENSIVE RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS INCOME EARNINGS INCOME (LOSS) EQUITY
------- -------- ------------- -------- ------------- -------------
BALANCE AT JANUARY 1, 1995 $1,294 $13,149 $ 1,785 $(3,404) $12,824
Shares reacquired (17) (1,511) - - (1,528)
Shares issued 31 6,785 - - 6,816
Reclassification of shares formerly
subject to repurchase 2 448 - - 450
Comprehensive income:
Net income - - $ 6,881 6,881 - 6,881
---------
Other comprehensive income (loss):
Foreign currency translation adjustments - - 323 - - -
Unrealized gains on securities - - 249 - - -
Minimum pension liability adjustment - - (1,188) - - -
---------
Other comprehensive loss - - (616) - (616) (616)
---------
Comprehensive income - - $ 6,265 - - -
=========
Cash dividends - - (1,328) - (1,328)
Redemption price of preference stock in excess
of stated value - - (153) - (153)
------ ------- ------- --------- --------
BALANCE AT DECEMBER 31, 1995 1,310 18,871 7,185 (4,020) 23,346
Shares reacquired (8) (243) - - (251)
Shares issued 14 519 - - 533
Series C conversion 5 (7) - - (2)
EDS split-off (49) 49 (4,481) - (4,481)
Comprehensive income:
Net income - - $ 4,963 4,963 - 4,963
---------
Other comprehensive income (loss):
Foreign currency translation adjustments - - (336) - - -
Unrealized losses on securities - - (70) - - -
Minimum pension liability adjustment - - 1,246 - - -
---------
Other comprehensive income - - 840 - 840 840
---------
Comprehensive income - - $ 5,803 - - -
=========
Cash dividends - - (1,530) - (1,530)
------ ------- ------- --------- --------
BALANCE AT DECEMBER 31, 1996 1,272 19,189 6,137 (3,180) 23,418
Shares reacquired (122) (4,243) - - (4,365)
Shares issued 17 619 - - 636
Preference stock exchange - (196) (26) - (222)
Hughes Defense spin-off - - (5,773) - (5,773)
Comprehensive income:
Net income - - $ 6,698 6,698 - 6,698
---------
Other comprehensive income (loss):
Foreign currency translation adjustments - - (775) - - -
Unrealized gains on securities - - 81 - - -
Minimum pension liability adjustment (572) -
---------
Other comprehensive loss - - (1,266) - (1,266) (1,266)
---------
Comprehensive income $ 5,432 - - -
=========
Cash dividends - - (1,620) - (1,620)
------ ------- ------- --------- --------
BALANCE AT DECEMBER 31, 1997 $1,167 $15,369 $ 5,416 $(4,446) $17,506
====== ======= ======= ========= ========
Reference should be made to the notes to consolidated financial statements.
II-7
22
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, principally General
Motors Acceptance Corporation and Subsidiaries (GMAC) and Hughes Electronics
Corporation and Subsidiaries, prior to the December 17, 1997 restructuring of
the company (hereinafter referred to as "former Hughes") and subsequent to the
December 17, 1997 restructuring of the company (hereinafter referred to as
"Hughes") (Note 22) (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. GM encourages
reference to the GMAC Annual Report on Form 10-K for the period ended December
31, 1997, 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, 1997.
Certain amounts for 1996 and 1995 have been reclassified to conform with
the 1997 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.
To conform to the consensus reached by the Emerging Issues Task Force of
the Financial Accounting Standards Board on Issue No. 95-1, Revenue Recognition
on Sales with a Guaranteed Minimum Resale Value, the Corporation modified its
revenue recognition policy on sales to daily rental car companies, effective
January 1, 1995, which resulted in an unfavorable cumulative effect of $52
million after-tax or $0.07 per share of $1-2/3 par value common stock.
Financing revenue is recorded over the terms of the receivables using the
interest method. Certain loan origination costs are deferred and amortized to
financing revenue over the lives of the related loans using the interest
method.
Income from operating lease assets is recognized on a straight-line basis
over the scheduled lease term. 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, premium taxes, and other costs 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 and loss expenses 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 was $4.1 billion in 1997, $3.4 billion
in 1996, and $3.1 billion in 1995. Research and development expense was $8.2
billion in 1997, $8.9 billion in 1996, and $8.2 billion in 1995.
Depreciation and Amortization
Depreciation is provided based on the 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 terms
of five years or less is provided using the straight-line method; leases with
terms in excess of five years are depreciated using the foregoing accelerated
methods.
II-8
23
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and Amortization (concluded)
Depreciation of vehicles and other equipment on operating leases or in
GM's 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,
--------------------------
1997 1996 1995
------ ------ ------
Depreciation (Note 2) $10,702 $ 8,825 $ 7,746
Amortization of special tools (Note 2) 5,674 2,856 3,212
Amortization of intangible assets (Note 9) 240 159 255
------ ------ ------
Total $16,616 $11,840 $11,213
====== ====== ======
Foreign Currency Translation
Foreign currency exchange transaction and translation losses on an
after-tax basis included in consolidated net income in 1997, 1996, and 1995,
pursuant to Statement of Financial Accounting Standards (SFAS) No. 52, Foreign
Currency Translation, amounted to $429 million, $380 million, and $381 million,
respectively.
Discontinued Operations