-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PilROV/6Lj34+/OYRhmQETXnzLUPKHMVRt3yv4Ge6dTUE9h2QE+4JDuQ40EI+EHi ZLo9++liSBC1M8SkTTEYmA== 0000040730-99-000049.txt : 19990518 0000040730-99-000049.hdr.sgml : 19990518 ACCESSION NUMBER: 0000040730-99-000049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MOTORS CORP CENTRAL INDEX KEY: 0000040730 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380572515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00143 FILM NUMBER: 99628238 BUSINESS ADDRESS: STREET 1: 100 RENAISSANCE CTR CITY: DETROIT STATE: MI ZIP: 48265-1000 BUSINESS PHONE: 3135565000 MAIL ADDRESS: STREET 1: 3044 W GRAND BOULEVARD CITY: DETROIT STATE: MI ZIP: 48202-3091 10-Q 1 MARCH 1999 10- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549-1004 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-143 GENERAL MOTORS CORPORATION (Exact name of registrant as specified in its charter) STATE OF DELAWARE 38-0572515 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Renaissance Center, Detroit, Michigan 48243-7301 3044 West Grand Boulevard, Detroit, Michigan 48202-3091 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (313) 556-5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . As of March 31, 1999, there were outstanding 648,389,984 shares of the issuer's $1-2/3 par value common stock and 106,534,001 shares of Class H $0.10 par value common stock. - 1 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES INDEX Page No. -------- Part I - Financial Information (Unaudited) Item 1. Financial Statements Consolidated Statements of Income for the Three Months Ended March 31, 1999 and 1998 3 Consolidated Balance Sheets as of March 31, 1999, December 31, 1998 and March 31, 1998 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 7 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Part II - Other Information (Unaudited) Item 1. Legal Proceedings 30 Item 6. Exhibits and Reports on Form 8-K 33 Signature 33 Exhibit 99 Hughes Electronics Corporation Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 34 Exhibit 27 Financial Data Schedule (for SEC information only) - 2 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, 1999 1998 ---- ---- (Dollars in Millions Except Per Share Amounts) GENERAL MOTORS CORPORATION AND SUBSIDIARIES Manufactured products sales and revenues $36,620 $34,893 Financing revenues 3,509 3,310 Other income (Note 10) 2,306 1,821 ------- ------- Total net sales and revenues 42,435 40,024 ------ ------ Cost of sales and other operating expenses, exclusive of items listed below 30,666 29,605 Selling, general and administrative expenses 3,822 3,510 Depreciation and amortization expense 2,724 2,707 Interest expense 1,845 1,570 Other expenses (Note 10) 438 549 -------- -------- Total costs and expenses 39,495 37,941 Income from continuing operations before income taxes and minority interests 2,940 2,083 Income tax expense 1,029 695 Minority interests (14) (10) Losses of nonconsolidated associates (77) (10) ------ ------- Income from continuing operations 1,820 1,368 Income from discontinued operations (Note 2) 242 236 ------ ------ Net income 2,062 1,604 Dividends on preference stocks (16) (16) ------- ------ Earnings on common stocks $2,046 $1,588 ===== ===== Basic earnings per share attributable to common stocks (Note 9) $1-2/3 par value common stock Continuing operations $2.73 $1.96 Discontinued operations 0.37 0.35 ---- ---- Earnings per share attributable to $1-2/3 par value $3.10 $2.31 ==== ==== Earnings per share attributable to Class H $0.20 $0.13 ==== ==== Diluted earnings per share attributable to common stocks (Note 9) $1-2/3 par value common stock Continuing operations $2.68 $1.93 Discontinued operations 0.36 0.34 ---- ---- Earnings per share attributable to $1-2/3 par value $3.04 $2.27 ==== ==== Earnings per share attributable to Class H $0.19 $0.13 ==== ====
Reference should be made to the notes to consolidated financial statements. - 3 - CONSOLIDATED STATEMENTS OF INCOME - Concluded (Unaudited)
Three Months Ended March 31, 1999 1998 ---- ---- (Dollars in Millions) AUTOMOTIVE, ELECTRONICS AND OTHER OPERATIONS Manufactured products sales and revenues $36,620 $34,893 Other income 903 677 -------- -------- Total net sales and revenues 37,523 35,570 ------ ------ Cost of sales and other operating expenses, exclusive of items listed below 30,666 29,605 Selling, general and administrative expenses 2,741 2,569 Depreciation and amortization expense 1,452 1,483 ------- ------- Total operating costs and expenses 34,859 33,657 Interest expense 194 195 Other expenses 58 190 Net expense (income) from transactions with Financing and Insurance Operations 94 (18) -------- ------- Income from continuing operations before income taxes and minority interests 2,318 1,546 Income tax expense 788 528 Minority interests (6) (4) Losses of nonconsolidated associates (77) (10) ------- ------ Income from continuing operations 1,447 1,004 Income from discontinued operations (Note 2) 242 236 ------ ----- Net income - Automotive, Electronics and Other Operations $1,689 $1,240 ===== ===== Three Months Ended March 31, 1999 1998 ---- ---- (Dollars in Millions) FINANCING AND INSURANCE OPERATIONS Financing revenues $3,509 $3,310 Insurance, mortgage and other income 1,403 1,144 ----- ----- Total revenues and other income 4,912 4,454 ----- ----- Interest expense 1,651 1,375 Depreciation and amortization expense 1,272 1,224 Operating and other expenses 1,081 941 Provisions for financing losses 119 101 Insurance losses and loss adjustment expenses 261 258 ------ ------ Total costs and expenses 4,384 3,899 Net (income) expense from transactions with Automotive, Electronics and Other Operations (94) 18 ----- ----- Income before income taxes 622 537 Income tax expense 241 167 Minority interests (8) (6) ----- ----- Net income - Financing and Insurance Operations $373 $364 === ===
The above supplemental consolidating information is explained in Note 1. Reference should be made to the notes to consolidated financial statements. . - 4 - CONSOLIDATED BALANCE SHEETS
Mar. 31, Mar. 31 1999 Dec. 31, 1998 GENERAL MOTORS CORPORATION AND SUBSIDIARIES (Unaudited) 1998 (Unaudited) --------- -------- --------- ASSETS (Dollars in Millions) Automotive, Electronics and Other Operations Cash and cash equivalents $12,081 $9,728 $10,030 Marketable securities 1,137 402 2,386 ------- ------- ------- Total cash and marketable securities 13,218 10,130 12,416 Accounts and notes receivable (less allowances) 4,686 4,750 4,426 Inventories (less allowances) (Note 3) 11,566 10,437 11,149 Net assets of discontinued operations (Note 2) 3,191 77 219 Equipment on operating leases (less accumulated depreciation) 6,048 4,954 4,554 Deferred income taxes and other current assets 9,537 10,051 6,125 Net receivable from Financing and Insurance Operations - - 840 Total current assets 48,246 40,399 39,729 Equity in net assets of nonconsolidated associates 1,659 950 936 Property - net (Note 4) 31,636 32,222 29,903 Intangible assets - net 10,170 9,994 10,639 Deferred income taxes 15,410 14,967 18,172 Other assets 13,565 16,062 15,379 ------ ------ ------ Total Automotive, Electronics and Other Operations assets 120,686 114,594 114,758 Financing and Insurance Operations Cash and cash equivalents 502 146 483 Investments in securities 8,703 8,748 7,815 Finance receivables - net 73,839 70,436 62,748 Investment in leases and other receivables 32,707 32,798 30,935 Other assets 14,959 18,807 12,794 Net receivable from Automotive, Electronics and Other Operations 339 816 - ------ ------ ------ Total Financing and Insurance Operations assets 131,049 131,751 114,775 ------- ------- ------- Total assets $251,735 $246,345 $229,533 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Automotive, Electronics and Other Operations Accounts payable (principally trade) $16,162 $13,542 $12,721 Loans payable 869 1,204 1,276 Accrued expenses 33,210 30,548 31,424 Net payable to Financing and Insurance Operations 339 816 - ------ ------ ------- Total current liabilities 50,580 46,110 45,421 Long-term debt 7,011 7,118 5,796 Postretirement benefits other than pensions (Note 5) 34,416 33,503 34,027 Pensions 3,761 4,410 3,341 Other liabilities and deferred income taxes 17,768 17,807 17,805 ------ ------ ------ Total Automotive, Electronics and Other Operations liabilities 113,536 108,948 106,390 Financing and Insurance Operations Accounts payable 4,405 4,148 3,501 Debt 106,379 107,753 91,500 Deferred income taxes and other liabilities 9,954 9,661 9,520 Net payable to Automotive, Electronics and Other Operations - - 840 ------ ------ ------ Total Financing and Insurance Operations liabilities 120,738 121,562 105,361 Minority interests 580 563 678 General Motors - obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures of General Motor (Note 6) Series D 79 79 79 Series G 141 141 143 Stockholders' equity Preference stocks 1 1 1 $1-2/3 par value common stock (Note 7; issued, 649,568,145, 655,008,344 and 669,314,625 shares) 1,083 1,092 1,116 Class H common stock (issued, 106,641,918, 106,159,776 and 104,769,861 shares) 11 11 10 Capital surplus (principally additional paid-in capital) 13,276 12,661 13,786 Retained earnings 8,703 6,984 6,664 ------- ------- ------- Subtotal 23,074 20,749 21,577 Accumulated foreign currency translation adjustments (1,782 (1,089) (1,172) Net unrealized gains on securities 458 481 539 Minimum pension liability adjustment (5,089) (5,089) (4,062) Accumulated other comprehensive loss (6,413) (5,697) (4,695) ----- ----- ----- Total stockholders' equity 16,661 15,052 16,882 -------- -------- -------- Total liabilities and stockholders' equity $251,735 $246,345 $229,533 ======== ======== ========
Reference should be made to the notes to consolidated financial statements. - 5 - CONSOLIDATED BALANCE SHEETS - Concluded
Mar. 31, Mar. 31, 1999 Dec. 31, 1998 AUTOMOTIVE, ELECTRONICS AND OTHER OPERATIONS (Unaudited) 1998 (Unaudited) --------- ---- --------- (Dollars in Millions) ASSETS Cash and cash equivalents $12,081 $9,728 $10,030 Marketable securities 1,137 402 2,386 ------- -------- ------- Total cash and marketable securities 13,218 10,130 12,416 Accounts and notes receivable (less allowances) 4,686 4,750 4,426 Inventories (less allowances) (Note 3) 11,566 10,437 11,149 Net assets of discontinued operations (Note 2) 3,191 77 219 Equipment on operating leases (less accumulated depreciation) 6,048 4,954 4,554 Deferred income taxes and other current assets 9,537 10,051 6,125 Net receivable from Financing and Insurance Operations - - 840 ------- -------- ------- Total current assets 48,246 40,399 39,729 Equity in net assets of nonconsolidated associates 1,659 950 936 Property - net (Note 4) 31,636 32,222 29,903 Intangible assets - net 10,170 9,994 10,639 Deferred income taxes 15,410 14,967 18,172 Other assets 13,565 16,062 15,379 ------ ------ ------ Total Automotive, Electronics and Other Operations assets $120,686 $114,594 $114,758 ======== ======== ======== LIABILITIES AND GM INVESTMENT Accounts payable (principally trade) $16,162 $13,542 $12,721 Loans payable 869 1,204 1,276 Accrued expenses 33,210 30,548 31,424 Net payable to Financing and Insurance Operations 339 816 - ------ ------ ------ Total current liabilities 50,580 46,110 45,421 Long-term debt 7,011 7,118 5,796 Postretirement benefits other than pensions (Note 5) 34,416 33,503 34,027 Pensions 3,761 4,410 3,341 Other liabilities and deferred income taxes 17,768 17,807 17,805 Total Automotive, Electronics and Other Operations liabilities 113,536 108,948 106,390 Minority interests 520 511 636 GM investment in Automotive, Electronics and Other Operations 6,630 5,135 7,732 ----- ----- ----- Total Automotive, Electronics and Other Operations liabilities and GM investment $120,686 $114,594 $114,758 ======== ======== ======== Mar. 31, Mar. 31, 1999 Dec. 31, 1998 FINANCING AND INSURANCE OPERATIONS (Unaudited) 1998 (Unaudited) --------- ---- --------- (Dollars in Millions) ASSETS Cash and cash equivalents $502 $146 $483 Investments in securities 8,703 8,748 7,815 Finance receivables - net 73,839 70,436 62,748 Investment in leases and other receivables 32,707 32,798 30,935 Other assets 14,959 18,807 12,794 Net receivable from Automotive, Electronics and Other Operations 339 816 - ----- ----- ----- Total Financing and Insurance Operations assets $131,049 $131,751 $114,775 ======== ======== ======== LIABILITIES AND GM INVESTMENT Accounts payable $4,405 $4,148 $3,501 Debt 106,379 107,753 91,500 Deferred income taxes and other liabilities 9,954 9,661 9,520 Net payable to Automotive, Electronics and Other Operations - - 840 ----- ----- ----- Total Financing and Insurance Operations liabilities 120,738 121,562 105,361 Minority interests 60 52 42 GM investment in Financing and Insurance Operations 10,251 10,137 9,372 ------ ------ ----- Total Financing and Insurance Operations liabilities and GM investment $131,049 $131,751 $114,775 ======== ======== ========
The above supplemental consolidating information is explained in Note 1. Reference should be made to the notes to consolidated financial statements. - 6 - CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1999 1998 -------- ------ (Dollars in Millions) GENERAL MOTORS CORPORATION AND SUBSIDIARIES Net cash provided by operating activities $15,094 $5,324 Cash flows from investing activities Expenditures for property (1,384) (1,996) Investments in other marketable securities - acquisitions (7,553) (5,545) Investments in other marketable securities - liquidations 6,344 7,141 Mortgage servicing rights - acquisitions (327) (153) Mortgage servicing rights - liquidations - 29 Finance receivables - acquisitions (42,969) (41,800) Finance receivables - liquidations 31,921 32,556 Proceeds from sales of finance receivables 7,375 5,143 Operating leases - acquisitions (5,898) (5,127) Operating leases - liquidations 3,129 3,462 Investments in companies, net of cash acquired (514) (211) Other (170) (711) ---- ---- Net cash used in investing activities (10,046) (7,212) ------ ----- Cash flows from financing activities Net (decrease) increase in loans payable (5,231) 2,019 Increase in long-term debt 7,970 6,428 Decrease in long-term debt (3,980) (4,143) Repurchases of common and preference stocks (979) (1,911) Proceeds from issuing common stocks 284 233 Cash dividends paid to stockholders (343) (357) ----- ----- Net cash (used in) provided by financing activities (2,279) 2,269 ----- ----- Effect of exchange rate changes on cash and cash equivalents (188) (85) ------- --------- Net cash provided by continuing operations 2,581 296 Net cash provided by (used in) discontinued operations 128 (56) ------- --------- Net increase in cash and cash equivalents 2,709 240 Cash and cash equivalents at beginning of the period 9,874 10,273 ----- ------ Cash and cash equivalents at end of the period $12,583 $10,513 ======= =======
Reference should be made to the notes to consolidated financial statements. - 7 - CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Concluded (Unaudited)
Three Months Ended March 31, 1999 1998 ----------------------- ------------------------ Automotive, Financing Automotive, Financing Electronics and Electronics and and Other Insurance and Other Insurance --------- --------- --------- --------- (Dollars in Millions) Net cash provided by operating activities $9,188 $5,906 $3,014 $2,310 Cash flows from investing activities Expenditures for property (1,345) (39) (1,967) (29) Investments in other marketable securities - acquisitions (1,813) (5,740) (2,007) (3,538) Investments in other marketable securities - liquidations 1,077 5,267 3,281 3,860 Mortgage servicing rights - acquisitions - (327) - (153) Mortgage servicing rights - liquidations - - - 29 Finance receivables - acquisitions - (42,969) - (41,800) Finance receivables - liquidations - 31,921 - 32,556 Proceeds from sales of finance receivables - 7,375 - 5,143 Operating leases - acquisitions (2,465) (3,433) (1,413) (3,714) Operating leases - liquidations 1,281 1,848 1,384 2,078 Investments in companies, net of cash acquired (514) - (211) - Net investing activity with Financing and Insurance Operations 75 - 75 - Other (1,162) 992 (236) (475) ------ --- ---- ---- Net cash used in investing activities (4,866) (5,105) (1,094) (6,043) ----- ----- ----- ------ Cash flows from financing activities Net (decrease) increase in loans payable (485) (4,746) 835 1,184 Increase in long-term debt 411 7,559 913 5,515 Decrease in long-term debt (320) (3,660) (635) (3,508) Net financing activity with Automotive, Electronics and Other Operations - (75) - (75) Repurchases of common and preference stocks (979) - (1,911) - Proceeds from issuing common stocks 284 - 233 - Cash dividends paid to stockholders (343) - (357) - ------ ------ ------ ------- Net cash (used in) provided by financing activities (1,432) (922) (922) 3,116 ------ ---- ---- ----- Effect of exchange rate changes on cash and cash equivalents (188) - (87) 2 Net transactions with Automotive/ Financing Operations (477) 477 (521) 521 ---- --- ---- --- Net cash provided by (used in) continuing operations 2,225 356 390 (94) Net cash provided by (used in) discontinued operations 128 - (56) - ----- --- ---- ----- Net increase (decrease) in cash and cash equivalents 2,353 356 334 (94) Cash and cash equivalents at beginning of the period 9,728 146 9,696 577 ----- --- ----- --- Cash and cash equivalents at end of the period $12,081 $502 $10,030 $483 ======= ==== ======= ====
The above supplemental consolidating information is explained in Note 1. Reference should be made to the notes to consolidated financial statements. . - 8 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Financial Statement Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. The consolidated financial statements include the accounts of General Motors Corporation (hereinafter referred to as the "Corporation") and domestic and foreign subsidiaries that are more than 50% owned, principally General Motors Acceptance Corporation and Subsidiaries (GMAC) and Hughes Electronics Corporation, ("Hughes") (collectively referred to as "General Motors" or "GM"). The financial data related to Delphi Automotive Systems Corporation (Delphi) is presented as discontinued operations for all periods presented. In the opinion of management, all adjustments (consisting of only normal recurring items), which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year. For further information, refer to the December 31, 1998 consolidated financial statements and notes thereto included in GM's Current Report on Form 8-K, dated April 12, 1999 and filed with the Securities and Exchange Commission on April 15, 1999. GM presents separate supplemental consolidating financial information for the following businesses: (1) Automotive, Electronics and Other Operations which consists of the design, manufacturing and marketing of cars, trucks, locomotives and heavy duty transmissions and related parts and accessories, as well as the operations of Hughes; and (2) Financing and Insurance Operations which consists primarily of GMAC, which 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. Transactions between businesses have been eliminated in the Corporation's consolidated statements of income. Certain amounts for 1998 were reclassified to conform with the 1999 classifications. Note 2. Discontinued Operations Delphi is a diverse supplier of automotive systems and components. Delphi offers products and services in the areas of electronics and mobile communication; safety, thermal and electrical architecture; and dynamics and propulsion. In February 1999, Delphi completed an initial public offering (IPO) of 100 million shares of its common stock, which represented 17.7% of its outstanding common shares. On April 12, 1999, the GM Board of Directors approved the complete separation of Delphi from GM by means of a tax-free spin-off in which 80.1 percent of the ownership of Delphi, 452.6 million shares of Delphi common stock now owned by GM, will be distributed on a pro-rata basis to owners of GM $1-2/3 par value common stock on May 28, 1999, based on a record date of May 25, 1999. In addition, since GM received a favorable ruling from the Internal Revenue Service on May 3, 1999, GM will contribute the other 2.2% of Delphi shares it owns, 12.4 million shares, to a Voluntary Employee Beneficiary Association (VEBA) trust to fund benefits to hourly retirees. The financial data related to GM's investment in Delphi prior to the approved May, 1999 spin-off is classified as discontinued operations for all periods presented. The financial data of Delphi reflect the historical results of operations and cash flows of the businesses that were considered part of the Delphi business segment of GM during each respective period; they do not reflect many significant changes that will occur in the operations and funding of Delphi as a result of the separation from GM and the IPO. The Delphi financial data classified as discontinued operations reflect the assets and liabilities transferred to Delphi in accordance with the terms of a master separation agreement to which Delphi and GM are parties (the "Separation Agreement"). Delphi and Delco Electronics Corporation ("Delco Electronics"), the electronics and mobile communication business that was transferred to Delphi in December 1997, were under the common control of GM during such periods; therefore, the Delphi financial data include amounts relating to Delco Electronics for all periods presented, although Delco Electronics was not integrated with Delphi until December 1997. Delphi net sales (including sales to GM) included in discontinued operations totaled $7.5 billion and $7.6 billion for the three months ended March 31, 1999 and 1998, respectively. Income from Delphi discontinued operations of $242 million and $236 million for the three months ended March 31, 1999 and 1998 is reported net of income tax expense of $174 million and $113 million, respectively. - 9 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Note 2. Discontinued Operations (concluded) The net assets of Delphi were as follows (in millions): March 31, Dec. 31, March 31, 1999 1998 1998 ---- ---- ---- Current assets $8,730 $6,405 $6,594 Property and equipment - net 4,907 4,965 4,696 Deferred income taxes and other assets 4,442 4,136 3,560 Current liabilities (4,518) (4,057) (3,498) Long-term debt (1,667) (3,141) (3,344) Other liabilities (8,543) (8,299) (7,881) Accumulated translation adjustments 172 68 92 Minority interest related to Delphi (332) - - ------ ---- ----- Net assets of discontinued operations $3,191 $77 $219 ===== == === As a result of the IPO of 17.7% of Delphi's outstanding common shares, GM recorded an increase to stockholders' equity of $1.2 billion in the first quarter of 1999. This amount reflects the IPO proceeds of $1.7 billion, less the cost of GM's investment in Delphi sold in the IPO and the costs of the IPO and establishing Delphi as an independent entity. GM's investment in Delphi was based on GM's investment balance at December 31, 1998 ($77 million), increased for the $1.5 billion net forgiveness of intercompany receivables and Delphi's net income for the period prior to the IPO. For financial reporting purposes, the complete separation of Delphi from GM will also be recorded as an equity transaction in the second quarter of 1999. It is estimated that the impact of the IPO and the subsequent complete separation of Delphi will result in a reduction to stockholders' equity of $1.7 billion to $1.9 billion. Note 3. Inventories Inventories included the following for Automotive, Electronics and Other Operations (in millions): March 31, Dec. 31, March 31, 1999 1998 1998 ---- ---- ---- Productive material, work in process, and supplie $6,180 $5,377 $5,689 Finished product, service parts, etc. 7,288 6,962 7,297 Total inventories at FIFO 13,468 12,339 12,986 Less LIFO allowance 1,902 1,902 1,837 ------ ------- ------- Total inventories (less allowances) $11,566 $10,437 $11,149 ====== ====== ====== Note 4. Property - Net Property - net included the following for Automotive, Electronics and Other Operations (in millions): March 31, Dec. 31, March 31, 1999 1998 1998 ---- ---- ---- Real estate, plants, and equipment 58,585 59,565 $56,213 Less accumulated depreciation (33,988) (34,641) (32,982) ------ ------ ------ Real estate, plants, and equipment - net 24,597 24,924 23,231 Special tools - net 7,039 7,298 6,672 ----- ------- ------- Total property - net $31,636 $32,222 $29,903 ====== ====== ====== Financing and Insurance Operations had net property of $365 million, $386 million, and $251 million recorded in other assets at March 31, 1999, December 31, 1998, and March 31, 1998, respectively. Note 5. Postretirement Benefits Other Than Pensions GM has disclosed in the consolidated financial statements certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as "accumulated postretirement benefit obligations," "liabilities," or "obligations." Notwithstanding the recording of such amounts and the use of these terms, GM does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of GM (other than pensions) represent legally enforceable liabilities of GM. - 10 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Note 6. Preferred Securities of Subsidiary Trusts General Motors - Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts In July 1997, the General Motors Capital Trust D (Series D Trust) issued approximately $79 million of its 8.67% Trust Originated Preferred Securitiessm (TOPrSsm) Series D, (Series D Preferred Securities), in a one-for-one exchange for 3,055,255 of the outstanding GM Series D 7.92% Depositary Shares, each representing one-fourth of a share of GM Series D Preference Stock, $0.10 par value per share. In addition, the General Motors Capital Trust G (Series G Trust) issued approximately $143 million of its 9.87% TOPrS, Series G (Series G Preferred Securities), in a one-for-one exchange for 5,064,489 of the outstanding GM Series G 9.12% Depositary Shares, each representing one-fourth of a share of GM Series G Preference Stock, $0.10 par value per share. Concurrently with the exchanges and the related purchases by GM from the Series D and Series G Trusts (Trusts) of the common securities of such Trusts, which represent approximately 3 percent of the total assets of such Trusts, GM issued to the wholly-owned Trusts, as the Series D Trust's sole assets its 8.67% Junior Subordinated Deferrable Interest Debentures, Series D, due July 1, 2012 and as the Series G Trust's sole assets, its 9.87% Junior Subordinated Deferrable Interest Debentures, Series G, due July 1, 2012 (the "Series D Debentures" and "Series G Debentures" or collectively the "Debentures"), having aggregate principal amounts equal to the aggregate stated liquidation amounts of the Series D and Series G Preferred Securities and the related common securities, respectively ($79 million with respect to the Series D Debentures and $131 million with respect to the Series G Debentures). The Series D Debentures are redeemable, in whole or in part, at GM's option on or after August 1, 1999, at a redemption price equal to 100% of the outstanding principal amount of the Series D Debentures plus accrued and unpaid interest, or, under certain circumstances, prior to August 1, 1999, at a redemption price equal to 105% of the outstanding principal of the Series D Debentures from the Series D expiration date through July 31, 1998, declining ratably on each August 1 thereafter to 100% on August 1, 1999, plus accrued and unpaid interest. The Series D Preferred Securities will be redeemed upon the maturity or earlier redemption of the Series D Debentures. The Series G Debentures are redeemable, in whole or in part, at GM's option on or after January 1, 2001, at a redemption price equal to 100% of the outstanding principal amount of the Series G Debentures plus accrued and unpaid interest, or, under certain circumstances, prior to January 1, 2001, at a redemption price equal to 114% of the outstanding principal of the Series G Debentures from the Series G expiration date through December 31, 1997, declining ratably on each January 1 thereafter to 100% on January 1, 2001, plus accrued and unpaid interest. The Series G Preferred Securities will be redeemed upon the maturity or earlier redemption of the Series G Debentures. GM has guaranteed the payment in full to the holders of the Series D and Series G Preferred Securities (collectively the "Preferred Securities") of all distributions and other payments on the Preferred Securities to the extent not paid by the Trusts only if and to the extent that the Trusts have assets therefore, GM has made payments of interest or principal on the related Debentures. These guarantees, when taken together with GM's obligations under the Preferred Securities Guarantees, the Debentures, and the Indentures relating thereto and the obligations under the Declaration of Trust of the Trusts, including the obligations to pay certain costs and expenses of the Trusts, constitute full and unconditional guarantees by GM of each Trust's obligations under its Preferred Securities. - --------------------------- sm "Trust Originated Preferred Securities" and "TOPrS" are service trademarks of Merrill Lynch & Co. Note 7. Common Stock Repurchases During the three months ended March 31, 1999, GM used $480 million to acquire approximately 5 million shares of $1-2/3 par value common stock under the Corporation's $4 billion stock repurchase program announced in February 1998. GM also used approximately $499 million to repurchase shares of $1-2/3 par value common stock for certain employee benefit plans during the three months ended March 31, 1999. - 11 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Note 8. Comprehensive Income GM's total comprehensive income was as follows (in millions): Three Months Ended March 31, 1999 1998 ---- ---- Net income $2,062 $1,604 Other comprehensive loss: Foreign currency translation adjustments (693) (1) (362) Unrealized (losses) gains on securities (23) 35 ---- ---- Other comprehensive loss (716) (327) ---- ----- Total comprehensive income $1,346 $1,277 ===== ===== (1)Includes approximately $450 million of translation adjustments associated with the devaluation of the Brazilian Real in the first quarter of 1999. Note 9. Earnings Per Share Attributable to Common Stocks Earnings per share attributable to each class of GM common stock was determined based on the attribution of earnings to each such class of common stock for the period divided by the weighted-average number of common shares for each such class outstanding during the period. Diluted earnings per share attributable to each class of GM common stock considers the impact of potential common shares, unless the inclusion of the potential common shares would have an antidilutive effect. The attribution of earnings to each class of common stock was as follows (in millions): Three Months Ended March 31, 1999 1998 ---- ---- Earnings attributable to common stocks $1-2/3 par value Continuing operations $1,783 $1,338 Discontinued operations 242 236 ------ ------ Earnings attributable to $1-2/3 par value $2,025 $1,574 Earnings attributable to Class H $21 $14 Earnings attributable to $1-2/3 par value common stock for the period represent the earnings attributable to all GM common stocks for the period, reduced by the ASCNI of Hughes for the respective period. Earnings attributable to Class H common stock for the three months ended March 31, 1999 and 1998 represent the ASCNI of Hughes, excluding the effects of purchase accounting adjustments arising at the time of the Corporation's acquisition of Hughes Aircraft Company (HAC) which remains after the spin-off of Hughes Defense, calculated for such period and multiplied by a fraction, the numerator of which was a number equal to the weighted-average number of shares of Class H common stock outstanding during the quarter (106 million) in 1999 and (104 million) in 1998, and the denominator of which was 400 million in 1999 and 1998. The denominator used in determining the ASCNI of Hughes may be adjusted from time-to-time as deemed appropriate by the GM Board of Directors (GM Board) to reflect subdivisions or combinations of the Class H common stock and to reflect certain transfers of capital to or from Hughes, the contribution of shares of capital stock of GM to or for the benefit of Hughes employees and the retirement of GM Class H common stock purchased by Hughes. The GM Board's discretion to make such adjustments is limited by criteria set forth in the Corporation's Restated Certificate of Incorporation. Prior to January 1, 1999, the assumed exercise of stock options had no effect on Class H common stock earnings per share, because to the extent that shares of Class H common stock deemed to be outstanding would increase, such increased shares would also increase the numerator of the fraction used to determine Available Separate Consolidated Net Income (ASCNI). Effective January 1, 1999, shares of Class H common stock delivered by GM in connection with the award of such shares to and the exercise of stock options by employees of Hughes will increase the denominator of the fraction referred to above. As a result, the earnings per share attributable to Class H common stock will be calculable on both a basic and dilutive basis. - 12 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 9. Earnings Per Share Attributable to Common Stocks (concluded) The reconciliation of the amounts used in the basic and diluted earnings per share computations for income from continuing operations was as follows (in millions except per share amounts):
$1-2/3 Par Value Common Stock Class H Common Stock ----------------------------- -------------------- Per Share Per Share Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ Three Months Ended March 31, 1999 Income from continuing operations $1,799 $21 Less:Dividends on preference stocks 16 - ---- ---- Basic EPS Income from continuing operations available to common stockholders 1,783 654 $2.73 21 106 $0.20 ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options (1) 13 1 6 --- -- --- --- Diluted EPS Adjusted income from continuing operations available to common stockholders $1,782 667 $2.68 $22 112 $0.19 ===== === ==== == === ==== Three Months Ended March 31, 1998 Income from continuing operations $1,354 $14 Less:Dividends on preference stocks 16 - ----- --- Basic EPS Income from continuing operations available to common stockholders 1,338 682 $1.96 14 104 $0.13 ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 11 - 5 ------ ----- --- ---- Diluted EPS Adjusted income from continuing operations available to common stockholders $1,338 693 $1.93 $14 109 $0.13 ====== === ===== === === =====
- 13 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Note 10. Other Income and Other Expenses Other income and other expenses consisted of the following (in millions): Three Months Ended March 31, 1999 1998 ---- ---- Other income Interest income $544 $576 Insurance premiums 340 369 Rental car lease revenue 448 337 Mortgage operations investment income and servicing fees 684 444 Other 290 95 ------- ------- Total other income $2,306 $1,821 ===== ===== Other expenses Provision for financing losses $119 $101 Insurance losses and loss adjustment expenses 261 257 Other 58 191 ---- --- Total other expenses $438 $549 === === - 14 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued (Unaudited) Note 11. Segment Reporting GM's reportable operating segments within its Automotive, Electronics and Other Operations business consist of General Motors Automotive (GMA), which is comprised of four regions: GM North America (GMNA), GM Europe (GME), GM Asia/Pacific (GMAP), and GM Latin America/Africa/Mid-East (GMLAAM), Hughes, and Other. GM's reportable operating segments within its Financing and Insurance Operations business consist of GMAC and Other. Selected information regarding GM's reportable operating segments and regions are as follows:
Elimin- Total Other Total GMNA GME GMLAAM GMAP ations GMA Hughes Other Automotive GMAC Financing Financing ---- --- ------ ---- ------ --- ------ ----- ----------- ---- --------- --------- (in millions) For the Three Months Ended March 31, 1999 Manufactured products sales & revenues: External customers $26,816 $6,066 $967 $583 $ - $34,432 $1,443 $745 $36,620 $ - $ - $ - Intersegment 502 68 55 37 (662) - 9 (9) - - - - -------- ------ ------ ---- --- ------- ------ ---- ------ ----- ---- ---- Total manufactured products 27,318 6,134 1,022 620 (662) 34,432 1,452 736 36,620 - - - Financing revenues - - - - - - - - - 3,277 232 3,509 Other income 750 143 11 27 - 931 183 (211) 903 1,550 (147) 1,403 -------- ------ ------ ---- --- ------- ------ ---- ------ ----- ---- ---- Total net sales and revenues $28,068 $6,277 $1,033 $647 $(662)$35,363 $1,635 $525 $37,523 $4,827 $85 $4,912 ====== ===== ===== === === ====== ===== === ====== ===== == ===== Interest income (a) $195 $102 $16 $3 $- $316 $14 $(160) $170 $413 $(39) $374 Interest expense $306 $77 $15 $4 $- $402 $7 $(215) $194 $1,513 $138 $1,651 Net income (loss)(b)(c) $1,408 $174 $(25) $(60) $13 $1,510 $78 $101 $1,689 $392 $(19) $373 Segment assets (d) $71,825$17,869 $4,173 $1,259 $(870)$94,256 $12,990 $13,440 $120,686$131,648 $(599)$131,049 For the Three Months Ended March 31, 1998 Manufactured products sales & revenues: External customers $25,085 $5,212 $1,995 $728 $- $33,020 $1,285 $588 $34,893 $ - $ - $ - Intersegment 804 185 29 - (1,018) - 6 (6) - - - - -------- ------ ------ ---- --- ------- ------ ---- ------ ----- ---- ---- Total manufactured products 25,889 5,397 2,024 728 (1,018) 33,020 1,291 582 34,893 - - - Financing revenues - - - - - - - - - 3,107 203 3,310 Other income 538 136 64 26 - 764 48 (135) 677 1,213 (69) 1,144 -------- ------ ------ ---- --- ------- ------ ---- ------ ----- ---- ---- Total net sales and revenues $26,427 $5,533 $2,088 $754$(1,018)$33,784 $1,339 $447 $35,570 $4,320 $134 $4,454 ====== ===== ===== === ===== ====== ===== === ====== ===== === ===== Interest income (a) $117 $136 $28 $1 $- $282 $38 $(124) $196 $351 $29 $380 Interest expense $149 $104 $26 $2 $- $281 $3 $(89) $195 $1,384 $(9) $1,375 Net income (loss) (b) (c) $841 $99 $53 $6 $(7) $992 $54 $194 $1,240 $349 15 $364 Segment assets (d) $68,661$16,976 $5,809 $1,554 $(633)$92,367 $12,461 $9,930 $114,758$114,700 $75 $114,775
(a) Interest income is included in other income. (b)The amount for Other includes income from discontinued operations of $242 million and $236 million for the three months ended March 31, 1999 and 1998, respectively. (c)The amount reported for Hughes excludes amortization of GM purchase accounting adjustments of approximately $5 million for both 1999 and 1998, related to GM's acquisition of Hughes Aircraft Company. Such amortization was allocated to GM's Other segment which is consistent with the basis upon which the segments are evaluated. (d)The amount reported for Hughes excludes the unamortized GM purchase accounting adjustments of approximately $421 million and $442 million, for 1999 and 1998, respectively, related to GM's acquisition of Hughes Aircraft Company. These adjustments were allocated to GM's Other segment which is consistent with the basis upon which the segments are evaluated. - 15 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 12. Contingent Matters In connection with the 1997 spin-off of the defense electronics business of Hughes' predecessor and the subsequent merger of that business with Raytheon Company, the terms of the merger agreement provided a process for resolving disputes that might arise in connection with post-closing financial adjustments that were also called for by the terms of the merger agreement. Such financial adjustments might require a cash payment from Raytheon to Hughes or vice versa. A dispute currently exists regarding the post-closing adjustments which Hughes and Raytheon have proposed to one another and related issues regarding the adequacy of disclosures made by Hughes to Raytheon in the period prior to consummation of the merger. In an attempt to resolve the dispute, Hughes gave notice to Raytheon to commence an arbitration process pursuant to the procedures under the merger agreement. Raytheon responded by filing an action in Delaware Chancery Court which seeks to enjoin the arbitration as premature. That litigation is now inactive and Raytheon and Hughes are now proceeding with the dispute resolution process. It is possible that the ultimate resolution of the post-closing financial adjustment and of related disclosure issues may result in Hughes making a payment to Raytheon that would be material to Hughes. However, the amount of any payment that either party might be required to make to the other cannot be determined at this time. Hughes intends to vigorously pursue resolution of the disputes through the arbitration processes, opposing the adjustments proposed by Raytheon, and seeking the payment from Raytheon that it has proposed. On April 28, 1999, Hughes acquired PRIMESTAR's medium-power direct-to-home business (See Note 13 below). In a related transaction, Hughes also agreed on January 22, 1999 to acquire the high-power satellite assets and direct-broadcast satellite orbital frequencies of Tempo Satellite, a wholly owned subsidiary of TCI Satellite Entertainment, Inc. The transactions will be accounted for using the purchase method of accounting. The purchase price for the Tempo Satellite assets consists of $500 million in cash. Of this purchase price, $150 million was paid on March 10, 1999 for a satellite that has not yet been launched. The remaining $350 million is for an in-orbit satellite and related satellite orbital frequencies. Such amount is payable upon Federal Communications Commission approval of the transfer of the 11 frequencies, which is expected in mid-1999. There can be no assurance that the Federal Communications Commission will approve this transfer or that this portion of the Tempo transaction will be consummated. On February 24, 1999, the Department of Commerce notified Hughes that it intended to deny a U.S. government export license Hughes was required to obtain in connection with a contract with Asia-Pacific Mobile Telecommunications Satellite Pte. Ltd. ("APMT") for the provision of a satellite-based mobile telecommunications system. As a result, APMT and Hughes terminated the contract on April 9, 1999, resulting in a pre-tax charge to Hughes' earnings of $92 million in the first quarter of 1999. Hughes had maintained a suit against the U.S. government since September 1973 regarding the U.S. government's infringement and use of a Hughes patent covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites (the "Williams Patent"). In April 1998, the U.S. Court of Appeals for the Federal Circuit reaffirmed earlier decisions in the Williams Patent case including the award of $114 million in damages, plus interest. In March 1999, Hughes received and recognized as income a $155 million payment from the U.S. government as a final disposition of the suit. GM is subject to potential liability under government regulations and various claims and legal actions which are pending or may be asserted against them. Some of the pending actions purport to be class actions. The aggregate ultimate liability of GM under these government regulations and under these claims and actions, was not determinable at December 31, 1998. After discussion with counsel, it is the opinion of management that such liability is not expected to have a material adverse effect on the Corporation's consolidated financial statements. Note 13. Subsequent Events On April 5, 1999, GM redeemed, at face value, its Series B 9-1/8% Preference Stock. The approximately 20 million outstanding depositary shares had a face value of approximately $500 million. On April 28, 1999, Hughes acquired PRIMESTAR's medium-power direct-to-home business. This transaction will be accounted for using the purchase method of accounting. The purchase price for the direct-to-home business consisted of $1.1 billion in cash and 4,871,448 shares of GM Class H common stock, for a total purchase price of $1.3 billion, based on the average market price of $47.87 per share of Class H common stock at the time the acquisition agreement was signed. * * * * * * - 16 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the consolidated financial statements and notes thereto along with the MD&A included in GM's Current Reports on Form 8-K, dated April 12, 1999 and filed with the Securities and Exchange Commission on April 15, 1999 and April 21, 1999, respectively, Hughes Electronics Corporation (Hughes) financial statements and MD&A for the period ended December 31, 1998, included as Exhibit 99 to GM's 1998 Annual Report on Form 10-K, the General Motors Acceptance Corporation (GMAC) Annual Report on Form 10-K for the period ended December 31, 1998, the Hughes financial statements and MD&A for the period ended March 31, 1999, included as Exhibit 99 to this GM Quarterly Report on Form 10-Q for the period ended March 31, 1999, and the GMAC Quarterly Report on Form 10-Q for the period ended March 31, 1999, filed with the Securities and Exchange Commission. All earnings per share amounts included in the MD&A are reported as basic. GM presents separate supplemental consolidating financial information for the following businesses: Automotive, Electronics and Other Operations and Financing and Insurance Operations. GM's reportable operating segments within its Automotive, Electronics and Other Operations business consist of: . General Motors Automotive (GMA), is comprised of four regions: GM North America (GMNA), GM Europe (GME), GM Asia/Pacific (GMAP), and GM Latin America/Africa/Mid-East (GMLAAM). GMNA designs, manufactures, and markets vehicles primarily in North America under the following nameplates: Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, and Saturn. GME, GMAP and GMLAAM meet 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. . Hughes includes activities relating to designing, manufacturing, and marketing advanced technology electronic systems, products, and services for the satellite & wireless communications industries. . The Other segment includes the design, manufacturing and marketing of locomotives and heavy-duty transmissions and the elimination of intersegment transactions. GM's reportable operating segments within its Financing and Insurance Operations business consist of GMAC and Other. 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. The Financing and Insurance Operations' Other segment includes financing entities operating in Canada, Germany and Brazil. The disaggregated financial results for GMA have been prepared using a management approach, which is consistent with the basis and manner in which GM management internally disaggregates financial information for the purposes of assisting in making internal operating decisions. In this regard, certain common expenses were allocated among regions less precisely than would be required for standalone financial information prepared in accordance with generally accepted accounting principles (GAAP) and certain expenses (primarily certain U.S. taxes related to non-U.S. operations) were included in the Automotive, Electronics and Other Operations' Other segment. The financial results represent the historical information used by management for internal decision making purposes; therefore, other data prepared to represent the way in which the business will operate in the future, or data prepared on a GAAP basis, may be materially different. - 17 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS In the first quarter of 1999, GM's consolidated income from continuing operations totaled $1.8 billion or $2.73 per share of $1-2/3 par value common stock, which represents an increase of $452 million compared with $1.4 billion or $1.96 per share of $1-2/3 par value common stock in the first quarter of 1998. On April 12, 1999, the GM Board of Directors approved the complete separation of Delphi from GM by means of a tax-free spin-off and, accordingly, the financial results related to Delphi for all periods presented are reported as discontinued operations. GM's net income for the first quarter of 1999, including the income from discontinued operations totaled $2.1 billion or $3.10 per share of $1-2/3 par value common stock compared with $1.6 billion or $2.31 per share of $1-2/3 par value common stock in the first quarter of 1998. Additional information regarding the spin-off of Delphi is contained in Note 2 to the GM consolidated financial statements. Automotive, Electronics and Other Operations Highlights of financial performance by GM's Automotive, Electronics and Other Operations business were as follows for the three months ended March 31, (in millions): 1999 1998 ---- ---- Manufactured products sales and revenues GMA $34,432 $33,020 Hughes 1,452 1,291 Other 736 582 -------- -------- Manufactured products sales and revenues $36,620 $34,893 Net income (loss) GMA $1,510 $992 Hughes 78 54 Other (141) (42) ------ ------ Income from continuing operations 1,447 1,004 Discontinued operations 242 236 ------ ------ Net income $1,689 $1,240 ===== ===== - 18- GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMA Financial Highlights Three Months Ended March 31, 1999 1998 ---- ---- (Dollars in Millions) GMNA Manufactured products sales and revenues $27,318 $25,889 Pre-tax income 2,097 1,224 Income tax expense 665 386 Earnings of nonconsolidated associates and minority interests (24) 3 ------ ----- GMNA income $1,408 $841 ===== === GME Manufactured products sales and revenues $6,134 $5,397 ----- ----- Pre-tax income 281 203 Income tax expense 105 91 Earnings of nonconsolidated associates and minority interests (2) (13) ----- --- GME income $174 $99 === == GMLAAM Manufactured products sales and revenues $1,022 $2,024 ----- ----- Pre-tax (loss) income (58) 16 Income tax benefit (36) (19) Earnings of nonconsolidated associates and minority interests (3) 18 ---- -- GMLAAM (loss) income $(25) $53 ==== == GMAP Manufactured products sales and revenues $620 $728 --- --- Pre-tax loss (25) (8) Income tax benefit (6) - Earnings of nonconsolidated associates and minority interests (41) 14 --- -- GMAP (loss) income $(60) $6 === = GMA (1) Manufactured products sales and revenues $34,432 $33,020 Pre-tax income 2,315 1,422 Income tax expense 735 452 Earnings of nonconsolidated associates and minority interests (70) 22 ------- ----- GMA income $1,510 $992 ===== === (1) GMA's results include eliminations of transactions among GMNA, GME, GMLAAM, and GMAP. - 19 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Vehicle Unit Deliveries of Cars and Trucks - GMA Three Months Ended March 31, 1999 1998 ------------------------ ------------------------ GM as GM as a % of a % of Industry GM Industry Industry GM Industry -------- -- -------- -------- -- -------- (Units in Thousands) GMNA United States Cars 2,019 628 31.1% 1,873 571 30.5% Trucks 2,011 533 26.5% 1,750 523 29.9% ----- --- ----- --- Total United States 4,030 1,161 28.8% 3,623 1,094 30.2% Canada and Mexico 463 144 31.1% 450 129 28.7% --- --- --- --- Total GMNA 4,493 1,305 29.0% 4,073 1,223 30.0% GME 5,282 509 9.6% 5,020 492 9.8% GMLAAM 800 125 15.6% 1,070 173 16.1% GMAP 3,065 98 3.2% 2,993 124 4.2% ----- -- ----- --- Total Worldwide 13,640 2,037 14.9% 13,156 2,012 15.3% ====== ===== ====== ===== Three Months Ended March 31, ----------------------- 1999 1998 --------- --------- (Units in Thousands) Wholesale Sales GMNA Cars 780 662 Trucks 714 675 --- --- Total GMNA 1,494 1,337 ----- ----- GME Cars 433 384 Trucks 37 37 -- -- Total GME 470 421 --- --- GMLAAM Cars 75 108 Trucks 47 70 -- -- Total GMLAAM 122 178 --- --- GMAP Cars 38 46 Trucks 54 69 -- -- Total GMAP 92 115 -- --- Total Worldwide 2,178 2,051 ===== ===== - 20 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMA Financial Review GMA reported income of $1.5 billion for the 1999 first quarter compared with income of $992 million for the prior year quarter. The increase in income from the prior year quarter was primarily due to higher wholesale sales volume, continued improvement in the profitability of new vehicles, and lower material and engineering costs. These factors also contributed to the strong improvement in GMA's net margin to 4.4% for the first quarter of 1999 from 3.0% for the first quarter of 1998. Manufactured products sales and revenues for GMA in the first quarter of 1999 were $34.4 billion compared with $33.0 billion in the first quarter of 1998. The increase in manufactured products sales and revenues from the prior year quarter was primarily due to a 127,000 unit increase in wholesale sales volumes. Pre-tax income for the first quarter of 1999 was $2.3 billion compared with $1.4 billion for the first quarter of 1998. The increase in pre-tax income from the prior year quarter was primarily due to higher wholesale sales volumes, continued improvement in the profitability of new vehicles, and lower material and engineering costs. GMA's worldwide vehicle deliveries were 2,037,000 for the first quarter of 1999, which represented a market share of 14.9% compared with 2,012,000 for the first quarter of 1998, which represented a market share of 15.3%. GMNA's market share for the first quarter of 1999 was 29.0% compared with 30.0% for the first quarter of 1998. GMNA reported income of $1.4 billion for the 1999 first quarter compared with $841 million for the prior year quarter. The improvement in GMNA's 1999 first quarter income was primarily due to higher wholesale sales volumes, continued improvement in the cost and profitability of new vehicles, and lower material and engineering costs, partially offset by lower net price. Net price comprehends the percent increase/decrease a customer pays in the current period for the same comparably equipped vehicle produced in the previous year's period. GME reported income of $174 million for the 1999 first quarter compared with $99 million in the prior year quarter. The improvement in GME's 1999 first quarter income was primarily due to higher wholesale sales volumes and improved pricing, partially offset by increased design cost associated with the Astra. GMLAAM reported a loss of $25 million for the 1999 first quarter compared with income of $53 million for the prior year quarter. The decrease in 1999 first quarter earnings compared to 1998 first quarter results was primarily due to lower vehicle deliveries and wholesale sales due to the ongoing economic crisis throughout Latin America. GMAP reported a loss of $60 million for the 1999 first quarter compared with income of $6 million for the prior year quarter. The decrease in 1999 first quarter earnings compared to 1998 first quarter results was primarily due to decreased equity earnings at Isuzu due to the economic downturn in Asia and continued spending associated with GMAP's growth strategy. - 21 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Hughes Financial Highlights Three Months Ended March 31, 1999 1998 ---- ---- (Dollars in Millions Except Per Share Amounts) Revenues $1,452 $1,291 ----- ----- Pre-tax income 133 107 Income tax expense 36 31 Minority interests 7 1 Losses in nonconsolidated associates (31) (29) ---- ---- Net income $ 73 $ 48 === === Earnings used for computation of Available Separate Consolidated Net Income (1) (2) $78 $54 Earnings per share attributable to Class H common stock (2) $0.20 $0.13 - ------------ (1)Excludes amortization of GM purchase accounting adjustments of $5 million in both periods related to GM's acquisition of Hughes Aircraft Company (HAC) in 1985. (2)1998 results exclude the cumulative effect of accounting change of $9 million, after tax, due to Hughes' adoption of SOP 98-5, Reporting on the Costs of Start-Up Activities. GM has reported the $9 million charge in fourth quarter 1998 results and Hughes reported the change as a restatement of first quarter 1998 results. Hughes Financial Review Revenues increased to $1.5 billion in the first quarter of 1999, compared with $1.3 billion in the first quarter of 1998. The first quarter 1999 revenue growth was primarily attributable to continued strong subscriber growth and higher average monthly revenues per subscriber at the DIRECTV(R) businesses. Hughes experienced an operating loss, excluding amortization of purchase accounting adjustments related to GM's acquisition of HAC, of $37 million in the first quarter of 1999 compared with operating profit and operating profit margin, on the same basis, of $84 million and 6.5%, respectively, in the first quarter of 1998. The first quarter 1999 operating loss was principally a result of a one-time pre-tax charge of $92 million resulting from the termination of the Asia-Pacific Mobile Telecommunications satellite system (APMT) contract due to export licenses not being issued. Excluding the APMT one-time pre-tax charge, operating profit was $55 million, a decrease of $29 million compared to the prior year that is primarily attributable to higher depreciation due to additions to PanAmSat's satellite fleet and increased goodwill amortization primarily related to the purchase of an additional 9.5% interest in PanAmSat. Pre-tax income was $133 million in the first quarter of 1999, compared with $107 million in the same period of 1998. The increase in the first quarter of 1999 primarily resulted from a $155 million pre-tax gain related to the settlement of the Williams Patent infringement case (as discussed below). The gain was offset in part by the pre-tax charge to earnings of $92 million resulting from the termination of the APMT contract, the increase in depreciation and amortization expense discussed above and a decrease in interest income of $24 million. The decrease in interest income was due to a decrease in cash and cash equivalents as a result of additional equity investments, acquisitions, capital expenditures and working capital requirements. Also affecting the year to year comparison was a $10 million charge in 1998 for uncollectible amounts due from certain customers. The effective income tax rate for the first quarter of 1999 was 27.1%, compared with 29.0% for the first quarter of 1998. The effective income tax rate in 1999 benefited from the favorable resolution of tax contingencies related to prior years. Excluding amortization of purchase accounting adjustments related to GM's acquisition of HAC, Hughes' earnings used for computation of available separate consolidated net income for the first quarter of 1999 were $78 million compared with $54 million in the first quarter of 1998. On February 24, 1999, the Department of Commerce notified Hughes that it intended to deny a U.S. government export license Hughes was required to obtain in connection with a contract with APMT for the provision of a satellite-based mobile telecommunications system. As a result, APMT and Hughes terminated the contract on April 9, 1999, resulting in a pre-tax charge to Hughes' earnings of $92 million in the first quarter of 1999. - 22 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Hughes Financial Review (concluded) Hughes had maintained a suit against the U.S. government since September 1973 regarding the U.S. government's infringement and use of a Hughes patent covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites (the "Williams Patent"). In April 1998, the U.S. Court of Appeals for the Federal Circuit reaffirmed earlier decisions in the Williams Patent case including the award of $114 million in damages, plus interest. In March 1999, Hughes received and recognized as income a $155 million payment from the U.S. government as a final disposition of the suit. On January 22, 1999, Hughes agreed to acquire PRIMESTAR's 2.3 million subscriber medium-power direct-to-home satellite business and the high-power satellite assets and direct-broadcast satellite orbital frequencies of Tempo Satellite, a wholly-owned subsidiary of TCI Satellite Entertainment, Inc. The transactions will be accounted for using the purchase method of accounting. On April 28, 1999, the acquisition of PRIMESTAR's direct-to-home business was completed. The purchase price consisted of $1.1 billion in cash and 4,871,448 shares of GM Class H common stock, for a total purchase price of $1.3 billion, based on the average market price of $47.87 per share of Class H common stock at the time the acquisition agreement was signed. The purchase price for the Tempo Satellite assets consists of $500 million in cash. Of this purchase price, $150 million was paid on March 10, 1999 for a satellite that has not yet been launched. The remaining $350 million is for an in-orbit satellite and related satellite orbital frequencies. Such amount is payable upon Federal Communications Commission approval of the transfer of the 11 frequencies, which is expected in mid-1999. There can be no assurance that the Federal Communications Commission will approve this transfer or that this portion of the Tempo Satellite transaction will be consummated. In December 1998, Hughes agreed to acquire all of the outstanding capital stock of United States Satellite Broadcasting Company, Inc. (USSB). USSB provides direct-to-home premium satellite programming in conjunction with DIRECTV's basic programming service. USSB launched its service in June 1994 and, as of March 31, 1999, had more than 2.2 million subscribers nationwide, over 90% of whom are also DIRECTV subscribers. The acquisition will be accounted for using the purchase method of accounting. The purchase price, consisting of cash and GM Class H common stock, will be determined at closing based upon an agreed-upon formula and will not exceed $1.6 billion in the aggregate. Subject to certain limitations in the merger agreement, USSB shareholders will be entitled to elect to receive cash or shares of GM Class H common stock. The amount of cash to be paid in the merger cannot be less than 30% or greater than 50% of the aggregate purchase price with the remaining consideration consisting of GM Class H common stock. The merger, which is subject to USSB shareholder approval, is expected to close in the second quarter of 1999. In 1998, PanAmSat adopted a comprehensive satellite expansion and restoration plan pursuant to which PanAmSat would expand its fleet of satellites in 1999 and 2000. The additional satellites are intended to meet the expected demand for additional satellite capacity, replace capacity affected by satellite anomalies, and provide added backup to existing capacity. In connection with the plan, seven satellites are under construction by Hughes Space and Communications Company ("HSC"). As a result of manufacturing delays being experienced by HSC, however, it is expected that there will be delays in the launch of these satellites. PanAmSat now expects to launch one additional satellite in 1999, followed by five satellites in 2000 and one in 2001. It is expected that these delays will result in 1999 revenues and earnings at PanAmSat that are significantly lower than previously anticipated. A substantial portion of these revenues and earnings previously anticipated in 1999 are expected to be recognized in future years after the satellites commence commercial service. Hughes has filed a shelf registration statement with the Securities and Exchange Commission with respect to an issuance of debt securities from time to time. Hughes expects to issue between $500 million and $1 billion of these securities in the third and fourth quarters of 1999. GM filed on May 5, 1999, a registration statement on Form S-3 with the Commission with respect to a proposed issuance of $500 million of Class H common stock plus a customary over-allotment option. GM will contribute to Hughes the net proceeds from the Class H offering, together with an additional $500 million on or about the closing of the equity offering which is expected to be completed by mid 1999. Hughes will use these funds principally to repay debt Hughes incurred in connection with the PRIMESTAR/Tempo Satellite and USSB transactions. On March 17, 1999, Hughes announced its intent to make an initial investment of $1.4 billion in the Spaceway(TM) satellite system. The Spaceway system, when completed, will provide for high speed, two-way communications of video, voice and data direct to companies and individual consumers. Hughes expects that the initial investment will allow it to build three high-powered satellites to provide broadband network services "on demand" for video-conferencing, data transfer and other purposes in North America in 2002. Hughes is currently investigating subsequent phases in which Hughes would provide Spaceway services to most of the world using high-orbit satellites as well as complementary services from a low-orbit system. These subsequent phases would require significant additional investment. Financing and Insurance Operations Highlights of financial performance by GM's Financing and Insurance Operations business were as follows for the three months ended March 31, (in millions): 1999 1998 Financing revenues GMAC $3,277 $3,107 Other 232 203 ------ ------ Total $3,509 $3,310 ===== ===== Net income GMAC $392 $349 Other (19) 15 ---- ---- Total $373 $364 === === - 23 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMAC Financial Highlights Three Months Ended March 31, 1999 1998 ---- ---- (Dollars in Millions) Financing revenues Retail and lease financing $1,006 $902 Operating leases 1,795 1,785 Wholesale and term loans 476 420 ----- ----- Total financing revenues 3,277 3,107 Interest and discount 1,513 1,385 Depreciation on operating leases 1,188 1,178 ----- ----- Net financing revenue 576 544 Insurance premiums earned 447 471 Mortgage revenue 728 417 Other income 374 331 ----- ----- Net financing revenue and other 2,125 1,763 Expenses 1,484 1,248 ----- ----- Pre-tax income 641 515 Income tax expense 249 166 --- --- Net income $392 $349 === === Net income from automotive financing operations $229 $246 Net income from mortgage operations 98 23 Net income from insurance operations 65 80 ---- ---- Net income $392 $349 === === GMAC Financial Review GMAC's consolidated first quarter net income for 1999 totaled $392 million, a 12% increase from the first quarter of 1998. Net income from automotive financing operations was down 7% from the same period in 1998 primarily as a result of a significantly lower effective tax rate in the first quarter of 1998. Earnings from insurance operations decreased by 19% during the first quarter of 1999, compared to the same period during 1998. Earnings were lower principally from reduced investment income and lower underwriting results from personal lines coverages. Investment income was reduced as a result of declining interest rates and a shift in asset mix toward equity securities. Net income from mortgage operations during the first quarter of 1999 increased to a record level, posting a $75 million increase over results from the comparable period in 1998. Earnings increased as a result of improved liquidity and tighter credit spreads in the capital markets and the benefits of certain asset positions carried over from the fourth quarter of 1998. The strong period-over-period comparison also reflects unusually low earnings in the first quarter of 1998, which were negatively impacted by accelerated prepayment experience on mortgage assets. During the first quarter of 1999, GMAC financed 40.2% of new GM vehicle retail deliveries in the United States, down from 43.4% compared to the same period last year. The decline in financing penetration was primarily the result of competitive market conditions. In the United States, inventory financing was provided for 868,000 and 725,000 new GM vehicles, representing 66.9% and 62.8% of all GM sales to dealers during the first quarter of 1999 and 1998, respectively. The increase in wholesale penetration levels was a result of competitive pricing strategies by GMAC. GMAC's automotive financing revenue for the first quarter of 1999 totaled $3.3 billion, an increase of $170 million compared to the first quarter of 1998. The increase was mainly due to higher average retail and wholesale receivable balances which resulted from aggressive retail financing incentives sponsored by GM and competitive wholesale pricing by GMAC. Net automotive financing revenue combined with mortgage revenue, insurance premiums, and other income totaled $2.1 billion for the three months ended March 31, 1999, a $362 million increase over the comparable 1998 period. The increase was primarily the result of continued growth at GMACMG and the higher automotive financing revenues mentioned above, partially offset by lower insurance premiums earned. - 24 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMAC Financial Review (concluded) GMAC's worldwide cost of borrowing, including the effects of derivatives, for the first quarter of 1999 averaged 5.52% compared to 6.11% for the same period in 1998. Total borrowing costs for U.S. operations averaged 5.44% for the first quarter of 1999, compared to 6.11% for the same period in 1998. The decrease in average borrowing costs was largely the result of lower U.S. interest rates and a greater proportion of floating rate debt compared to fixed rate debt. Expenses in the first quarter of 1999 increased by $236 million over the comparable period a year ago. The increase was mainly attributable to continued growth at GMACMG. GMAC's effective income tax rate was 38.9% and 32.2% for the three months ended March 31, 1999 and March 31, 1998, respectively. The comparative increase in the effective tax rate can be attributed to a significantly lower effective tax rate for the first quarter of 1998 due to a decrease in U.S. and foreign taxes assessed on foreign source income. Year 2000 Many computerized systems and microprocessors that are embedded in a variety of products either made or used by GM have the potential for operational problems if they lack the ability to handle the transition to the Year 2000. Because this issue has the potential to cause disruption of GM's business operations, GM has developed a comprehensive worldwide program to identify and remediate potential Year 2000 problems in its business information systems and other systems embedded in its engineering and manufacturing operations. Additionally, GM has initiated communications and site assessments with its suppliers, its dealers and other third parties in order to assess and reduce the risk that GM's operations could be adversely affected by the failure of these third parties to adequately address the Year 2000 issue. One of GM's first priorities was the analysis of microprocessors used in GM passenger cars and trucks. This review included all current and planned models as well as the electronics in older cars and trucks produced during the period of approximately the last 15 years. GM began installing microchips capable of processing date information approximately 15 years ago. Most of the processors reviewed have no date-related functionality, and accordingly have no Year 2000 issues. Of the vehicles with processors that perform date-related functions, none have any Year 2000 issues. GM's Year 2000 program teams are responsible for remediating all of GM's information technology and embedded systems. Information technology principally consists of business information systems (such as mainframe and other shared computers and associated business application software) and infrastructure (such as personal computers, operating systems, networks and devices like switches and routers). Embedded systems include microprocessors used in factory automation and in systems such as elevators, security and facility management. GM's Year 2000 program includes assessment and remediation services provided by Electronic Data Systems Corporation (EDS) pursuant to a Master Service Agreement with GM. The Year 2000 program is being implemented in seven phases, some of which are being conducted concurrently: Inventory -- identification and validation of an inventory of all systems that could be affected by the Year 2000 issue. The inventory phase commenced in earnest in 1996 and is substantially complete. It has identified approximately 7,600 business information systems and about 1.7 million infrastructure items and embedded systems. Assessment -- initial testing, code scanning, and supplier contacts to determine whether remediation is needed and developing a remediation plan, if applicable. The assessment of business information systems is substantially complete and included a determination that about one quarter of such systems should be regarded as "critical" based on criteria such as the potential for business disruption. The assessment of infrastructure items and embedded systems was substantially completed by the end of 1998. Remediation -- design and execution of a remediation plan, followed by testing for adherence to the design. GM has substantially completed the remediation of its critical and non-critical systems. A small number of systems will be remediated or replaced in 1999. Unimportant systems have been and will continue to be removed from GM's Year 2000 inventory and will not be remediated. GM believes that it will meet its targets for Year 2000 readiness. In the normal course of its business plans, GM's Delphi Automotive Systems unit is incrementally implementing enterprise software that will replace and thereby eliminate the need to remediate certain existing systems. Implementation of this software at several Delphi sites is scheduled for completion in the first quarter of 1999, and another Delphi site implementation is not expected to be complete until July 1999. - 25 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Year 2000 (continued) System Test -- testing of remediated items to ensure that they function normally after being replaced in their original operating environment. This phase is closely related to the remediation phase and follows essentially the same schedule. Implementation -- return of items to normal operation after satisfactory performance in system testing. This phase follows essentially the same schedule as remediation and system testing. Readiness Testing -- planning for and testing of integrated systems in a Year 2000 ready environment, including ongoing auditing and follow-up. Readiness testing is currently underway. This phase commenced during the fourth quarter of 1998 and is expected to be the major focus of the Year 2000 program throughout 1999. Contingency Planning -- development and execution of plans that narrow the focus on specific areas of significant concern and concentrate resources to address them. GM currently believes that the most reasonably likely worst case scenario is that there will be some localized disruptions of systems that will affect individual business processes, facilities or suppliers for a short time rather than systemic or long-term problems affecting its business operations as a whole. GM contingency planning will continue to identify systems or other aspects of GM's business or that of its suppliers that it believes would be most likely to experience Year 2000 problems. GM contingency planning will also address those business operations in which a localized disruption could have the potential for causing a wider problem by interrupting the flow of products, materials or data to other operations. Because there is uncertainty as to which activities may be affected and the exact nature of the problems that may arise, GM's contingency planning will focus on minimizing the scope and duration of any disruptions by having sufficient personnel, inventory and other resources in place to permit a flexible, real-time response to specific problems as they may arise at individual locations around the world. Some of the actions that GM may consider include the deployment of emergency response teams on a regional or local basis and the development of plans for the allocation, stockpiling or re-sourcing of components and materials that may be critical to our continued production. Specific contingency plans and resources for permitting the necessary flexibility of response are expected to be identified and put into place commencing in mid-1999. GM's communication with its suppliers is a focused element of the assessment and remediation phases described above. GM is a leading participant in an industry trade association, the Automotive Industry Action Group, which has distributed Year 2000 compliance questionnaires as well as numerous awareness and assistance mailings to about half of the 100,000 supplier sites that supply GM throughout the world. Responses to these questionnaires, which were generally sent to GM's principal suppliers, have been received from about half of the supplier sites to which they were sent. Many of the non-responding suppliers are communicating directly with GM on an informal basis. Additionally, GM has initiated its own review of suppliers considered to be critical to GM's operations, including more than 2,400 on-site assessments to date. These assessment efforts have been substantially completed with respect to the critical supplier sites. Based on its assessment activity to date, GM believes that a substantial majority of its suppliers are making acceptable progress toward Year 2000 readiness. GM has established a program to provide further assistance to suppliers that desire more input or that are believed to be at high risk of noncompliance as a result of the foregoing assessment efforts. This supplier assistance program currently includes providing compliance workshops and remediation consultants to work with suppliers on developing and implementing their own remediation programs. GM's contingency planning efforts described above are also expected to address any critical suppliers that GM identifies as being at high risk of encountering Year 2000 problems. GM is not relying entirely on the receipt of written assurances from suppliers with respect to their Year 2000 compliance. GM is also evaluating certain suppliers on a first-hand basis and seeking to enhance their likelihood of full Year 2000 readiness by actively assisting them with training and consultation regarding Year 2000 remediation projects. GM expects that information from our suppliers, written responses and interactions with them, will provide GM with a basis for further contingency planning and risk management. GM also has a program to work with its independent dealers on their Year 2000 readiness. This program includes distributing materials that assist dealers in designing and executing their own assessment and remediation efforts. GM has also included Year 2000 compliance criteria as part of its established program for certifying that third-party business information systems properly interface with other systems provided to dealers by GM. GM's direct Year 2000 program cost is being expensed as incurred with the exception of capitalizable replacement hardware and, beginning in 1999, internal-use software. Total incremental spending by GM is not expected to be material to the Corporation's operations, liquidity or capital resources. - 26 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Year 2000 (concluded) In addition to the work for which GM has direct financial responsibility, EDS is providing Year 2000-related services to GM, as required under the Master Service Agreement. These services are being provided by EDS as part of normal fixed price services and other on-going payments to EDS. GM's current forecast is that its total direct expenditures, and the value of services performed by EDS attributable to GM's Year 2000 program, will be between approximately $710 million and $780 million for its entire Year 2000 program. Of this amount, GM currently expects its total Year 2000 direct spending to be between approximately $450 million and $520 million, with peak spending occurring in the last quarter of 1998, and early in 1999. This total direct spending estimate includes an additional payment of $75 million that GM has agreed to pay to EDS at the end of the first quarter of 2000 if systems remediated by EDS under the Master Service Agreement do not cause a significant business disruption that results in a material financial loss to GM due to the millennium change. The estimated value of the services that EDS is required to provide to GM under the Master Service Agreement, attributable to work being performed in connection with GM's Year 2000 program, is approximately $335 million. GM incurred approximately $55 million of Year 2000 expense during the first three months of 1999, approximately $145 million of Year 2000 expense during 1998 and approximately $40 million in 1997, of which, about $14 million, $40 million and $7 million was incurred on behalf of Delphi for first quarter 1999 and for the years ending 1998 and 1997, respectively. Also, the estimated value of services provided to GM by EDS during the first three months ending March 31, 1999 and for the years ending 1998 and 1997 under the Master Service Agreement attributable to work performed in connection with GM's Year 2000 program was approximately $280 million. Thus, the total direct expenditures by GM, and value of Year 2000-related services performed by EDS during the first three months ending March 31, 1999 and for the years ending 1998 and 1997, attributable to GM's Year 2000 program, amounted to approximately $520 million. Despite the incremental Year 2000 spending expected to be incurred throughout the Corporation, GM's current business plan projects continued declining information technology expenses. GM's total Year 2000 costs noted above do not include information technology projects that have been accelerated due to Year 2000, which are estimated to be approximately $30 million. In view of the foregoing, GM does not currently anticipate that it will experience a significant disruption of its business as a result of the Year 2000 issue. However, there is still uncertainty about the broader scope of the Year 2000 issue as it may affect GM and third parties that are critical to GM's operations. For example, lack of readiness by electrical and water utilities, financial institutions, government agencies or other providers of general infrastructure could, in some geographic areas, pose significant impediments to GM's ability to carry on its normal operations in the area or areas so affected. In the event that GM is unable to complete its remedial actions as described above and is unable to implement adequate contingency plans in the event that problems are encountered, there could be a material adverse effect on GM's business, results of operations or financial condition. The foregoing discussion describes the Year 2000 program being implemented by GM and its consolidated subsidiaries other than Hughes. Information about the Year 2000 efforts of Hughes can be found in Exhibit 99. Statements made herein about the implementation of various phases of GM's Year 2000 program, the costs expected to be associated with that program and the results that GM expects to achieve constitute forward-looking information. As noted above, there are many uncertainties involved in the Year 2000 issue, including the extent to which GM will be able to successfully remediate systems and adequately provide for contingencies that may arise, as well as the broader scope of the Year 2000 issue as it may affect third parties that are not controlled by GM. Accordingly, the costs and results of GM's Year 2000 program and the extent of any impact on GM's operations could vary materially from those stated herein. - 27 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES Automotive, Electronics and Other Operations Cash, marketable securities, and $3.0 billion of assets of the Voluntary Employees' Beneficiary Association (VEBA) trust invested in fixed-income securities, at March 31, 1999 totaled $16.2 billion compared with $15.4 billion at March 31, 1998 and $13.1 billion at December 31, 1998. During 1997, GM elected to pre-fund part of its other postretirement benefits liability, which is primarily related to postretirement health care expenses, by creating a VEBA trust. The total VEBA assets, which approximated $4.6 billion at March 31, 1999 compared to $4.6 billion at December 31, 1998 and $3.0 billion at March 31, 1998, had the effect of reducing GM's postretirement benefits liability on the consolidated balance sheet. Net liquidity, calculated as cash and marketable securities less the total of loans payable and long-term debt, was $5.3 billion at March 31, 1999, compared with $1.8 billion at December 31, 1998 and $5.3 billion at March 31, 1998. GM previously indicated that it had a goal of maintaining $13.0 billion of cash and marketable securities in order to continue funding product development programs throughout the next downturn in the business cycle. This $13.0 billion target includes cash to pay certain costs that were pre-funded in part by VEBA contributions. Long-term debt was $7.0 billion at March 31, 1999, compared to $7.1 billion at December 31, 1998 and $5.8 billion at March 31, 1998. The ratio of long-term debt to long-term debt and GM investment in Automotive, Electronics and Other Operations was 51.4% at March 31, 1999, compared to 58.1% at December 31, 1998 and 42.8% at March 31, 1998. The ratio of long-term debt and short-term loans payable to the total of this debt and GM investment was 54.3% at March 31, 1999, compared to 61.8% at December 31, 1998 and 47.8% at March 31, 1998. Financing and Insurance Operations GM's Financing and Insurance Operations primarily consist of GMAC. At March 31, 1999, GMAC owned assets and serviced automotive receivables totaling $140.7 billion, $2.0 billion above year-end 1998, and $15.1 billion above March 31, 1998. Earning assets totaled $124.7 billion at March 31, 1999, compared to $125.1 billion and $109.1 billion at December 31 and March 31, 1998, respectively. The higher balances compared to the first quarter of last year primarily reflects increases in on-balance sheet finance receivables as well as higher operating lease assets, partially offset by a decline in sold wholesale receivables. GMAC's finance receivables, including sold receivables, totaled $85.1 billion at March 31, 1999, $5.2 billion above December 31, 1998 levels and $9.6 billion above March 31, 1998 levels. The change since December 31, 1998 can be attributed to a $3.4 billion increase in on-balance sheet wholesale receivables and a $1.8 billion increase in serviced retail receivables. The year-to-year change primarily resulted from increases of $4.7 billion, $4.3 billion and $2.4 billion in the on-balance sheet retail, wholesale and term loans receivable portfolios, respectively. Also contributing to the year-to-year increase, sold retail receivables (including the retained subordinated interest portion) increased by $800 million. Offsetting these increases, sold wholesale receivables decreased $2.6 billion, primarily attributable to the scheduled wind down of a revolving wholesale trust. GMAC's liquidity, as well as its ability to profit from ongoing acquisition activity, is in large part dependent on its access to capital and the costs associated with raising funds in different segments of the capital markets. In this regard, GMAC regularly accesses the short-, medium-, and long-term debt markets, principally through commercial paper, term notes, and underwritten issuances. GMAC's borrowings outstanding at March 31, 1999 totaled $105.3 billion, compared with $106.2 billion at December 31, 1998 and $90.1 billion at March 31, 1998. GMAC's ratio of debt to total stockholder's equity at March 31, 1999 was 10.5:1, down from 10.8:1 at December 31, 1998 and up from 9.9:1 at March 31, 1998. The higher borrowings, as compared to March 31, 1998, were principally used to fund increased earning asset levels. GMAC and its subsidiaries maintain substantial bank lines of credit which totaled $42.0 billion at March 31, 1999, compared to $42.9 billion at year-end 1998 and $40.0 billion at March 31, 1998. The unused portion of these credit lines totaled $32.4 billion at March 31, 1999, $800 million lower and $1.3 billion higher than December 31 and March 31, 1998, respectively. Book Value Per Share Book value per share of $1-2/3 par value common stock was $22.40 at March 31, 1999, compared with $20.00 at December 31, 1998 and $22.13 at March 31, 1998. Book value per share of Class H common stock was $13.44 at March 31, 1999, compared with $12.00 at December 31, 1998 and $13.28 at March 31, 1998. Book value per share was determined based on the liquidation rights of the various classes of common stock. - 28 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Return on Net Assets (RONA) As part of its shareholder value initiatives, GM has adopted RONA as a performance measure to heighten management's focus on balance sheet investments and the return on those investments. GM's RONA calculation is based on principles established by management and approved by the Board of Directors. Annualized RONA for the three months ended March 31, 1999 was 15.6%. CASH FLOWS Automotive, Electronics and Other Operations Net cash provided by operating activities was $9.2 billion for the first quarter of 1999 compared with $3.0 billion for the first quarter of 1998. The increase in net cash provided by operating activities for the first quarter 1999 compared to the first quarter 1998 was primarily the result of increases in operating liabilities. These were primarily related to increases in accounts payable resulting from an extension of payment terms and increases in accrued and other liabilities. Net cash used in investing activities amounted to $4.9 billion for the first quarter of 1999 compared with $1.1 billion in the prior year quarter. The increase in net cash used in investing activities during the 1999 first quarter was primarily attributable to the level of investments in marketable securities and operating leases. Net cash used in financing activities was $1.4 billion for the first quarter of 1999 compared with $922 million in the prior year quarter. The increase in cash used for financing activities for the first quarter 1999 was primarily due to net decreases in loans payable and long-term debt, partially offset by reduced stock repurchases. Financing and Insurance Operations Cash provided by operating activities totaled $5.9 billion and $2.3 billion during the three months ended March 31, 1999 and 1998, respectively. The additional operating cash flow was primarily the result of a net decrease in mortgage loan originations and higher proceeds from sales of mortgage securities held for trading, partially offset by a decline in the payables due to GM. Cash used for investing activities during the first quarter of 1999 totaled $5.1 billion, a $938 million decrease compared to the same period last year. Cash usage decreased primarily as a result of higher sales of retail receivables proceeds and a reduction in notes due from GM, partially offset by net increases in acquisitions of finance receivables and available for sale securities. Cash used in financing activities during the three months ended March 31, 1999 totaled $922 million, compared with cash provided of $3.1 billion during the comparable 1998 period. The change was primarily the result of reductions in short-term debt and notes payable to GM, partially offset by an increase in long-term debt. Dividends Dividends may be paid on common stocks only when, as and if declared by the GM Board in its sole discretion. GM's policy is to distribute dividends on its $1-2/3 par value common stock based on the outlook and indicated capital needs of the business. On May 3, 1999, the GM Board declared a quarterly cash dividend of $0.50 per share on $1-2/3 par value common stock, payable June 10, 1999. The GM Board also declared quarterly dividends on the Series D and Series G Depositary Shares of $0.495 and $0.57 per share, respectively, payable August 2, 1999. The Series B preference stock was redeemed on April 5, 1999, and as a result, the amount paid out on that date to the Series B shareholders of record included accrued and unpaid dividends as part of the total redemption price. With respect to Class H common stock, the GM Board determined that it will not pay any cash dividends at this time in order to allow the earnings of Hughes to be retained for investment in its telecommunications and space businesses. - 29 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Employment and Payrolls Worldwide employment at March 31, (in thousands) 1999 1998 ---- ---- GMNA 222 233 GME 81 78 GMLAAM 23 28 GMAP 10 10 GMAC 24 22 Hughes 16 15 Other 11 10 ---- ---- Total employees 387 396 Worldwide payrolls - (in billions) $5.4 $5.3 PART II ITEM 1. LEGAL PROCEEDING (a) Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation became, or was, a party during the quarter ended March 31, 1999 or subsequent thereto, but before the filing of this report are summarized below. Environmental Matters On March 18, 1999, the Powertrain Plant in Massena, New York entered into an Administrative Order on Consent with the New York Department of Environmental Conservation and agreed to pay an administrative fine of $200,000 to resolve alleged violations of federal and state air regulations. The alleged violations involved the lack of proper documentation and certain formal approvals and are not related to any degradation to the environment. *** Other Matters On or about October 25, 1996, an action was commenced by Comsat Corporation against PanAmSat, News Corporation Limited and Grupo Televisa, 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. As to PanAmSat, the complaint alleges that PanAmSat, alone and in conspiracy with Grupo 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. Following the completion of pretrial discovery, all defendants moved for summary judgment dismissing the case. These motions are awaiting action by the court. If PanAmSat were not to prevail, the amounts involved could be material to PanAmSat. *** - 30 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Other Matters (continued) In connection with the 1997 spin-off of the defense electronics business of Hughes' predecessor and the subsequent merger of that business with Raytheon Company, the terms of the merger agreement provided processes for resolving disputes that might arise in connection with post-closing financial adjustments that were also called for by the terms of the merger agreement. Such financial adjustments might require a cash payment from Raytheon to Hughes or vice versa. A dispute currently exists regarding the post-closing adjustments which Hughes and Raytheon have proposed to one another and related issues regarding the adequacy of disclosures made by Hughes to Raytheon in the period prior to consummation of the merger. In an attempt to resolve the dispute, Hughes gave notice to Raytheon to commence an arbitration process pursuant to the procedures under the merger agreement. Raytheon responded by filing an action in Delaware Chancery Court which seeks to enjoin the arbitration as premature. That litigation is now inactive and Raytheon and Hughes are now proceeding with the dispute resolution process. It is possible that the ultimate resolution of the post-closing financial adjustment and of related disclosure issues may result in Hughes making a payment to Raytheon that would be material to Hughes. However, the amount of any payment that either party might be required to make to the other cannot be determined at this time. Hughes intends to vigorously pursue resolution of the disputes through the arbitration processes, opposing the adjustments proposed by Raytheon, and seeking the payment from Raytheon that it has proposed. *** In November 1996, Personalized Media Communications, Inc. brought an International Trade Commission proceeding against DIRECTV, U.S. Satellite Broadcasting Company, Hughes Network Systems and other manufacturers of receivers for the DIRECTV system. Personalized Media sought to prevent importation of certain receivers manufactured in Mexico, alleging infringement of one of its patents. During 1997, the International Trade Commission held for DIRECTV and other respondents on all claims at issue, finding each to be invalid. Personalized Media appealed these adverse rulings to the Court of Appeals for the Federal Circuit. During 1998, the Court of Appeals affirmed the lower holdings as to three of the claims, and remanded to the International Trade Commission for further deliberation on a remaining claim. Also in 1996, Personalized Media filed a related action in the U.S. District Court for the Northern District of California. This case has been stayed pending outcome of the International Trade Commission proceeding. The complaint alleges infringement and willful infringement of three Personalized Media patents, and seeks unspecified damages, trebling of damages, an injunction and attorneys' fees. Hughes denies that it engaged in acts of infringement of the asserted patents and intends to vigorously contest these claims. *** There is a pending grand jury investigation into whether Hughes should be accused of criminal violations of the export control laws arising out of the participation of two of its employees on a committee formed to review the findings of Chinese engineers regarding the crash of a Long March rocket in China in 1996. Hughes is also subject to the authority of the State Department to impose sanctions for non-criminal violations of the Arms Export Control Act. The possible criminal and/or civil sanctions could include fines as well as debarment from various export privileges and participating in government contracts. Hughes does not expect the grand jury investigation or State Department review to result in a material adverse effect upon its business. However, there can be no assurance as to those conclusions. *** - 31 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Other Matters (concluded) On June 11, 1998, Afro-Asian Satellite Communications (Gibraltar) Ltd. requested formal arbitration with the London Court of International Arbitration regarding a contractual dispute with Hughes Space and Communications International, Inc. Afro-Asian Satellite Communications and Hughes Space and Communications entered into a contract on May 22, 1995 whereby Hughes Space and Communications was to design and provide a geomobile telecommunications system, known as the Agrani System, consisting of two satellites, associated ground stations and other related hardware and software. The value of the contract was $671,145,000. In its request to the London Court, Afro-Asian Satellite Communications is claiming that Hughes Space and Communications failed to perform its obligations under the contract and that Afro-Asian Satellite Communications was therefore entitled to terminate the contract, which it purported to do by letter dated January 25, 1996. Afro-Asian Satellite Communications is now seeking from Hughes Space and Communications approximately $45,000,000 (representing repayment of monies paid to Hughes Space and Communications, interest, and limited reprocurement costs). Hughes Space and Communications' position is that it performed its obligations under the contract and that it was not fully paid by Afro-Asian Satellite Communications. As a result, Hughes Space and Communications terminated its contract with Afro-Asian Satellite Communications in January 1996, and is seeking to recover its additional costs of $38,774,400 through the arbitration which is now underway. *** In connection with the two previously reported suits relating to the 1996 split-off of EDS from General Motors which purport to be class actions brought on behalf of certain holders of General Motors Class E common stock, Stephen A. Solomon v. General Motors Corporation, et al. and TRV Holding Company v. General Motors Corporation, et al., as to which defendants filed a motion to dismiss the complaint on December 11, 1997, the Delaware Court of Chancery signed an order on April 27, 1999 dismissing the complaint with prejudice. Plaintiffs have filed a Notice of Appeal in the Supreme Court of the State of Delaware. *** In connection with the previously reported suits purporting to be class actions, all of which claim that the Type II door latches used in approximately 40 million 1978 to 1986 model GM passenger cars and light trucks are defective, the Judicial Panel on Multidistrict Litigation has granted GM's motion to consolidate such actions for coordinated pretrial proceedings and transferred the cases to a federal court in Chicago. *** (b) Previously reported legal proceedings which have been terminated, either during the quarter ended March 31, 1999, or subsequent thereto, but before the filing of this report are summarized below: In connection with nine previously reported lawsuits in the Delaware Court of Chancery: Jules Levine v. General Motors Corporation, et al., Steven Verkouteren v. General Motors Corporation, et al., Malcolm Rosenwald v. General Motors Corporation, et al., Richard Strauss v. General Motors Corporation, et al., Jeanette Whited, et al. v. General Motors Corporation, et al., Andrew Carlucci, I.R.A. v. General Motors Corporation, et al., Dr. Joseph Mantel v. General Motors Corporation, et al., John P.McCarthy Profit Sharing Plan v. General Motors Corporation, et al., and Patinkin v. General Motors Corporation, et al, of which lawsuits have been consolidated under the caption, In Re General Motors Class H Shareholders Litigation, purporting to be class actions challenging General Motors spin-off of the Hughes defense business in 1997, the Delaware Chancery Court signed an order on March 31, 1999 dismissing the complaint with prejudice. Plaintiffs did not file an appeal during the period in which they were permitted. *** - 32 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Other Matters (concluded) In connection with the previously reported matter involving a suit which Hughes has maintained 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, the U.S. Supreme Court on March 1, 1999, denied the U.S. Government's petition for certiorari relating to the denial of a rehearing which the government had sought from the U.S. Court of Appeals for the Federal Circuit relating to a decision by that court that the conclusions previously reached in the Williams case were consistent with the U.S. Supreme Court's findings in the Warner-Jenkinson case. The case was remanded back to the Court of Appeals where final judgment was entered in favor of Hughes as a result of which Hughes collected $155 million from the U.S. Government on March 30, 1999. *** In connection with the previously reported eleven suits which purport to be class actions alleging that certain antilock braking systems on 1989 to 1996 light-duty GM trucks are defective, the United States Court of Appeals for the Eighth Circuit on April 14, 1999, affirmed the dismissal of all such actions. * * * * * * ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. Exhibit Number Exhibit Name Page No. 99 Hughes Electronics Corporation Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 34 27 Financial Data Schedule (for SEC information only) (b) REPORTS ON FORM 8-K. Five reports on Form 8-K, dated January 14, 1999, January 20, 1999, January 22, 1999 (2), January 27, 1999, were filed during the quarter ended March 31, 1999 reporting matters under Item 5, Other Events, and reporting certain agreements under Item 7, Financial Statements, Pro Forma Financial Information, and Exhibits. * * * * * * SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GENERAL MOTORS CORPORATION (Registrant) By Date May 17, 1999 /s/Peter R. Bible - ----------------- ----------------- (Peter R. Bible, Chief Accounting Officer) - 33 - EX-99 2 HUGHES INFORMATION EXHIBIT 99 HUGHES ELECTRONICS CORPORATION FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENT OF INCOME AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME (Unaudited) Three Months Ended March 31, 1999 1998 ---- ---- (Dollars in Millions Except Per Share Amounts) Revenues Product sales $716.1 $692.1 Direct broadcast, leasing and other services 735.7 598.9 -------- -------- Total Revenues 1,451.8 1,291.0 ------- ------- Operating Costs and Expenses Cost of products sold 669.2 542.3 Broadcast programming and other costs 291.6 264.8 Selling, general and administrative expenses 404.8 302.6 Depreciation and amortization 123.0 97.7 Amortization of GM purchase accounting adjustments 5.3 5.3 ---------- ---------- Total Operating Costs and Expenses 1,493.9 1,212.7 ------- ------- Operating (Loss) Profit (42.1) 78.3 Interest income 13.6 37.5 Interest expense (6.9) (3.0) Other, net 137.7 (34.3) ------- -------- Income Before Income Taxes, Minority Interests and Cumulative Effect of Accounting Change 102.3 78.5 Income taxes 35.8 31.4 Minority interests in net losses of subsidiaries 6.5 1.3 --------- --------- Income before cumulative effect of accounting change 73.0 48.4 Cumulative effect of accounting change, net of taxes - (9.2) ----------- ---------- Net Income 73.0 39.2 Adjustments to exclude the effect of GM purchase accounting adjustments 5.3 5.3 --------- --------- Earnings Used for Computation of Available Separate Consolidated Net Income $ 78.3 $ 44.5 ======== ======== Available Separate Consolidated Net Income Average number of shares of General Motors Class H Common Stock outstanding (in millions) (Numerator) 106.3 104.1 Class H dividend base (in millions) (Denominator) 400.2 399.9 Available Separate Consolidated Net Income $ 20.8 $ 11.5 ======== ======== Earnings Attributable to General Motors Class H Common Stock on a Per Share Basis Basic $0.20 $0.11 ==== ==== Diluted $0.19 $0.11 ==== ==== Reference should be made to the Notes to Financial Statements. - 34 - HUGHES ELECTRONICS CORPORATION BALANCE SHEET March 31, 1999 December 31, ASSETS (Unaudited) 1998 ----------- ---- (Dollars in Millions) Current Assets Cash and cash equivalents $780.0 $1,342.1 Accounts and notes receivable (less allowances) 849.3 922.4 Contracts in process, less advances and progress payments of $25.2 and $27.0 713.2 783.5 Inventories 578.8 471.5 Prepaid expenses and other, including deferred income taxes of $17.3 and $33.6 295.4 326.9 -------- -------- Total Current Assets 3,216.7 3,846.4 Satellites, net 3,580.5 3,197.5 Property, net 1,061.2 1,059.2 Net Investment in Sales-type Leases 167.9 173.4 Intangible Assets, net of accumulated amortization of $441.6 and $413.2 3,732.9 3,552.2 Investments and Other Assets 1,652.5 1,606.3 --------- --------- Total Assets $13,411.7 $13,435.0 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts payable $710.2 $764.1 Advances on contracts 302.0 291.8 Deferred revenues 51.7 43.8 Current portion of long-term debt 170.3 156.1 Accrued liabilities 664.0 753.7 ------- ------- Total Current Liabilities 1,898.2 2,009.5 ------- ------- Long-Term Debt 856.6 778.7 Deferred Gains on Sales and Leasebacks 65.0 121.5 Accrued Operating Leaseback Expense 6.1 56.0 Postretirement Benefits Other Than Pensions 151.2 150.7 Other Liabilities and Deferred Credits 846.0 811.1 Deferred Income Taxes 651.9 643.9 Commitments and Contingencies Minority Interests 485.6 481.7 Stockholder's Equity Capital stock and additional paid-in capital 8,150.4 8,146.1 Net income retained for use in the business 330.8 257.8 Subtotal Stockholder's Equity 8,481.2 8,403.9 Accumulated Other Comprehensive Income (Loss) Minimum pension liability adjustment (37.1) (37.1) Accumulated unrealized gains on securities 11.5 16.1 Accumulated foreign currency translation adjustments (4.5) (1.0) Accumulated other comprehensive loss (30.1) (22.0) ---------- --------- Total Stockholder's Equity 8,451.1 8,381.9 -------- -------- Total Liabilities and Stockholder's Equity $13,411.7 $13,435.0 ======== ======== Reference should be made to the Notes to Financial Statements. - 35 - HUGHES ELECTRONICS CORPORATION CONDENSED STATEMENT OF CASH FLOWS (Unaudited) Three Months Ended March 31, 1999 1998 ---- ---- (Dollars in Millions) Cash Flows from Operating Activities Net Cash Provided by (Used in) Operating Activities $6.5 $(38.7) --- ------ Cash Flows from Investing Activities Investment in companies, net of cash acquired (242.1) (8.4) Expenditures for property (47.1) (38.1) Increase in satellites (230.2) (270.1) Early buy-out of satellite under sale and leaseback (141.3) (96.6) Proceeds from disposal of property - 17.6 --------- ------ Net Cash Used in Investing Activities (660.7) (395.6) ----- ----- Cash Flows from Financing Activities Net increase in notes and loans payable 14.2 - Long-term debt borrowings 405.0 875.0 Repayment of long-term debt (327.1) (725.0) ----- ----- Net Cash Provided by Financing Activities 92.1 150.0 ------ ----- Net decrease in cash and cash equivalents (562.1) (284.3) Cash and cash equivalents at beginning of the period 1,342.1 2,783.8 ------- ------- Cash and cash equivalents at end of the period $ 780.0 $2,499.5 ======== ======= Reference should be made to the Notes to Financial Statements. - 36 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting. In the opinion of management, all adjustments (consisting only of normal recurring items) which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. For further information, refer to the financial statements and notes thereto included in the General Motors ("GM") 1998 Annual Report on Form 10-K. The financial statements include the applicable portion of intangible assets, including goodwill, and related amortization resulting from purchase accounting adjustments associated with GM's purchase of Hughes in 1985. In 1998, Hughes adopted American Institute of Certified Public Accountants Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that all start-up costs previously capitalized be written off and recognized as a cumulative effect of accounting change, net of taxes, as of the beginning of the year of adoption. On a prospective basis, these types of costs are required to be expensed as incurred. The unfavorable cumulative effect of this accounting change was $9.2 million after-tax, or $0.02 per share of GM Class H common stock in the first quarter of 1998. Note 2. Inventories Major Classes of Inventories March 31, December 31, (Dollars in Millions) 1999 1998 ---- ---- Productive material and supplies $72.2 $73.4 Work in process 390.0 285.1 Finished goods 116.6 113.0 ----- ----- Total $578.8 $471.5 ===== ===== Note 3. Comprehensive Income Hughes' total comprehensive income was as follows: Three Months Ended March 31, (Dollars in Millions) 1999 1998 ---- ---- Net income $73.0 $39.2 Other comprehensive loss: Foreign currency translation adjustments (3.5) (0.3) Unrealized loss on securities (4.6) (0.6) ----- ----- Other comprehensive loss (8.1) (0.9) ----- ----- Total comprehensive income $64.9 $38.3 ==== ==== Note 4. Earnings Per Share Attributable to GM Class H Common Stock and Available Separate Consolidated Net Income Earnings per share attributable to GM Class H common stock is determined based on the relative amounts available for the payment of dividends to holders of GM Class H common stock. Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). - 37 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 4. Earnings Per Share Attributable to GM Class H Common Stock and Available Separate Consolidated Net Income - Concluded Amounts available for the payment of dividends on GM Class H common stock are based on the Available Separate Consolidated Net Income ("ASCNI") of Hughes. The ASCNI of Hughes is determined quarterly and is equal to the separate consolidated net income of Hughes, excluding the effects of GM purchase accounting adjustments arising from GM's acquisition of Hughes (earnings used for computation of ASCNI), multiplied by a fraction, the numerator of which is a number equal to the weighted-average number of shares of GM Class H common stock outstanding during the period (106.3 million and 104.1 million during the first quarters of 1999 and 1998, respectively) and the denominator of which was 400.2 and 399.9 million during the first quarters of 1999 and 1998, respectively. The denominator used in determining the ASCNI of Hughes may be adjusted from time-to-time as deemed appropriate by the GM Board of Directors ("GM Board") to reflect subdivisions or combinations of the GM Class H common stock, certain transfers of capital to or from Hughes, the contribution of shares of capital stock of GM to or for the benefit of Hughes employees and the retirement of GM Class H common stock purchased by Hughes. The GM Board's discretion to make such adjustments is limited by criteria set forth in GM's Restated Certificate of Incorporation. Effective January 1, 1999, shares of Class H common stock delivered by GM in connection with the award of such shares to and the exercise of stock options by employees of Hughes will increase the denominator of the fraction referred to above. The basic and diluted earnings per share for Class H stock for the period ended March 31, 1999 (in million except per share amounts) is as follows: Per Share ASCNI Shares Amount Period Ended March 31, 1999 Basic EPS $20.8 106.3 $0.20 Effect of Dilutive Securities 0.8 5.9 0.01 --- --- ---- Diluted EPS $21.6 112.2 $0.19 ===== ===== ===== Basic and diluted earnings attributable to Class H common stock on a per share basis were $0.11 at March 31, 1998. Note 5. Other Postretirement Benefits Hughes has disclosed in the financial statements certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as "accumulated postretirement benefit obligations," "liabilities" or "obligations." Notwithstanding the recording of such amounts and the use of these terms, Hughes does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of Hughes (other than pensions) represent legally enforceable liabilities of Hughes. Note 6. Acquisitions On January 22, 1999, Hughes agreed to acquire PRIMESTAR's 2.3 million subscriber medium-power direct-to-home satellite business and the high-power satellite assets and direct-broadcast satellite orbital frequencies of Tempo Satellite, a wholly-owned subsidiary of TCI Satellite Entertainment, Inc. The transactions will be accounted for using the purchase method of accounting. On April 28, 1999, the acquisition of PRIMESTAR's direct-to-home business was completed. The purchase price consisted of $1.1 billion in cash and 4,871,448 shares of GM Class H common stock, for a total purchase price of $1.33 billion, based on the average market price of $47.87 per share of Class H common stock at the time the acquisition agreement was signed. The purchase price for the Tempo Satellite assets consists of $500.0 million in cash. Of this purchase price, $150.0 million was paid on March 10, 1999 for a satellite that has not yet been launched. The remaining $350.0 million is for an in-orbit satellite and related satellite orbital frequencies. Such amount is payable upon Federal Communications Commission approval of the transfer of the 11 frequencies, which is expected in mid-1999. There can be no assurance that the Federal Communications Commission will approve this transfer or that this portion of the Tempo Satellite transaction will be consummated. - 38 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 6. Acquisitions (concluded) In December 1998, Hughes agreed to acquire all of the outstanding capital stock of United States Satellite Broadcasting Company, Inc. ("USSB"). USSB provides direct-to-home premium satellite programming in conjunction with DIRECTV's basic programming service. USSB launched its service in June 1994 and, as of March 31, 1999, had more than 2.2 million subscribers nationwide, 90% of whom are also DIRECTV subscribers. The acquisition will be accounted for using the purchase method of accounting. The purchase price, consisting of cash and GM Class H common stock, will be determined at closing based upon an agreed-upon formula and will not exceed $1.62 billion in the aggregate. Subject to certain limitations in the merger agreement, USSB shareholders will be entitled to elect to receive cash or shares of GM Class H common stock. The amount of cash to be paid in the merger cannot be less than 30% or greater than 50% of the aggregate purchase price with the remaining consideration consisting of GM Class H common stock. The merger, which is subject to USSB shareholder approval, is expected to close in the second quarter of 1999. In October 1998, Hughes agreed to acquire, pending regulatory approval in Mexico, an additional ownership interest in Grupo Galaxy Mexicana, S.A. de C.V. ("GGM"), a Galaxy Latin America, LLC local operating company located in Mexico, from Grupo MVS, S.A. de C.V. The GGM transaction was completed in February 1999 upon receipt of government regulatory approval in Mexico. Hughes' equity ownership represents 49.0% of the voting equity and all of the non-voting equity of GGM. The GGM transaction was accounted for using the purchase method of accounting. The increased ownership resulted in GGM's consolidation since the date of acquisition. Note 7. Segment Reporting Hughes' segments, which are differentiated by their products and services, include Direct-To-Home Broadcast, Satellite Services, Satellite Systems and Network Systems. Direct-To-Home Broadcast is engaged in acquiring, promoting, selling and/or distributing digital programming via satellite to residential and commercial customers. Satellite Services is engaged in the selling, leasing and operating of satellite transponders and providing services for cable television systems, news companies, Internet service providers and private business networks. Satellite Systems designs, manufactures and markets satellites and satellite components. Network Systems products include satellite-based business networks and Internet access service, cellular-based fixed wireless telephony systems, mobile cellular digital packet data systems and DIRECTV(TM) receiver equipment. Other includes the corporate office and other entities. Operating Segments:
Direct-To- Home Satellite Satellite Network Elimi- Broadcast Services Systems Systems Other nations Total ------------------ ------- ------- ----- ------- ----- (Dollars in Millions) For the Three Months Ended: March 31, 1999 External Revenues $556.0 $159.7 $535.6 $200.5 - - $1,451.8 Intersegment Revenues 0.6 33.8 94.7 30.4 $0.2 $(159.7) - - ------------------------------------------------------------------------------- Total Revenues $556.6 $193.5 $630.3 $230.9 $0.2 $(159.7)$1,451.8 - -------------------------------------------------------------------------------- Operating (Loss) Profit(1) $(23.4) $78.3 $(14.4) $(17.8) $(13.4) $(51.4) $(42.1) - -------------------------------------------------------------------------------- March 31, 1998 External Revenues $387.9 $167.1 $553.7 $179.1 $3.2 - $1,291.0 Intersegment Revenues - 25.9 70.6 5.6 0.3 $(102.4) - - -------------------------------------------------------------------------------- Total Revenues $387.9 $193.0 $624.3 $184.7 $3.5 $(102.4)$1,291.0 - -------------------------------------------------------------------------------- Operating (Loss) Profit(1) $(31.6) $84.9 $55.1 $(11.9) $(10.8) $(7.4 $78.3 - --------------------------------------------------------------------------------
(1) Includes amortization arising from purchase accounting adjustments related to GM's acquisition of Hughes amounting to $0.8 million in each of the three-month periods for the Satellite Services segment and $4.5 million in each of the three-month periods for Other. - 39 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Concluded (Unaudited) Note 8. Contingencies In connection with the 1997 spin-off of the defense electronics business of Hughes' predecessor and the subsequent merger of that business with Raytheon Company, the terms of the merger agreement provided a process for resolving disputes that might arise in connection with post-closing financial adjustments that were also called for by the terms of the merger agreement. Such financial adjustments might require a cash payment from Raytheon to Hughes or vice versa. A dispute currently exists regarding the post-closing adjustments which Hughes and Raytheon have proposed to one another and related issues regarding the adequacy of disclosures made by Hughes to Raytheon in the period prior to consummation of the merger. In an attempt to resolve the dispute, Hughes gave notice to Raytheon to commence an arbitration process pursuant to the procedures under the merger agreement. Raytheon responded by filing an action in Delaware Chancery Court which seeks to enjoin the arbitration as premature. That litigation is now inactive and Raytheon and Hughes are now proceeding with the dispute resolution process. It is possible that the ultimate resolution of the post-closing financial adjustment and of related disclosure issues may result in Hughes making a payment to Raytheon that would be material to Hughes. However, the amount of any payment that either party might be required to make to the other cannot be determined at this time. Hughes intends to vigorously pursue resolution of the disputes through the arbitration processes, opposing the adjustments proposed by Raytheon, and seeking the payment from Raytheon that it has proposed. On February 24, 1999, the Department of Commerce notified Hughes that it intended to deny a U.S. government export license Hughes was required to obtain in connection with a contract with Asia-Pacific Mobile Telecommunications Satellite Pte. Ltd. ("APMT") for the provision of a satellite-based mobile telecommunications system. As a result, APMT and Hughes terminated the contract on April 9, 1999, resulting in a pre-tax charge to Hughes' earnings of $92 million in the first quarter of 1999. Hughes had maintained a suit against the U.S. government since September 1973 regarding the U.S. government's infringement and use of a Hughes patent covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites (the "Williams Patent"). In April 1998, the U.S. Court of Appeals for the Federal Circuit reaffirmed earlier decisions in the Williams Patent case including the award of $114.0 million in damages, plus interest. In March 1999, Hughes received and recognized as income a $154.6 million payment from the U.S. government as a final disposition of the suit. - 40 - HUGHES ELECTRONICS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis should be read in conjunction with the Hughes management's discussion and analysis included in the General Motors ("GM") 1998 Annual Report to the Securities and Exchange Commission ("SEC") on Form 10-K. In addition, the following discussion excludes purchase accounting adjustments related to GM's acquisition of Hughes (see Supplemental Data beginning on page 55). Statements made concerning expected financial performance, ongoing financial performance strategies, and possible future action which Hughes intends to pursue to achieve strategic objectives for each of its four principal business segments constitute forward-looking information. The implementation of these strategies and of such future actions and the achievement of such financial performance are each subject to numerous conditions, uncertainties and risk factors, and, accordingly, no assurance can be given that Hughes will be able to successfully accomplish its strategic objectives or achieve such financial performance. The principal important risk factors which could cause actual performance and future actions to differ materially from forward-looking statements made herein include economic conditions, product demand and market acceptance, government action, ability to obtain export licenses, competition, ability to achieve cost reductions, technological risk, ability to address the year 2000 issue, interruptions to production attributable to causes outside of Hughes' control, the success and timeliness of satellite launches, in-orbit performance of satellites and Hughes' ability to access capital to maintain its financial flexibility. General During 1998, four Hughes-built satellites experienced the failure of a primary spacecraft control processor ("SCP"). Three of these satellites were owned and operated by PanAmSat and the fourth was owned by DIRECTV. With the exception of the Galaxy(R) IV satellite, operated by PanAmSat, control of the satellites was automatically switched to the spare SCP and the spacecraft are operating normally. The spare SCP on the Galaxy IV satellite had previously failed, resulting in the loss of the satellite. An extensive investigation by Hughes revealed that electrical shorts involving tin-plated relay switches are the most likely cause of the primary SCP failures. The failure of the second SCP on Galaxy IV appears to be unrelated and is being treated as an isolated anomaly. Although there exists the possibility of failure of other currently operating SCP's, Hughes believes the probability of a primary and spare SCP failing in any one in-orbit HS-601 satellite is low. Hughes believes that the phenomenon will not be repeated on satellites currently being built and those ready for launch, although there can be no assurance in this regard. During April 1999, the primary SCP failed on a satellite built by Hughes for an unaffiliated customer. While the investigation into the cause of the failure is still in process, it is possible that the failure was caused by the same factors that caused the SCP failures described above. Battery anomalies have occurred on two other Hughes-built PanAmSat satellites. In both cases, battery cells have failed resulting in the need to shut-off a number of transponders for a brief time during twice-yearly eclipse periods. To date, the impact on customers has been minimal. There can be no assurance, however, that service to all full-time customers will not be interrupted for brief periods during future eclipse periods or that additional battery cell failures will not occur in the future. Such future service interruptions, depending on their extent, could result in a claim by affected customers for termination of their transponder agreements or the displacement of other customers. PanAmSat is developing solutions for its customers that may include transition of the affected services to other PanAmSat satellites or the launch of replacement satellites. In addition, following the launch of a PanAmSat satellite that was not built by Hughes, an error by the satellite's manufacturer was discovered that affected the geographical coverage or flexibility of a number of the transponders on the satellite. PanAmSat is evaluating the impact of the error and currently believes that a portion of those transponders will not be marketable for their intended purpose, although the affected transponders may be capable of generating revenue at a reduced rate. In 1998, PanAmSat adopted a comprehensive satellite expansion and restoration plan pursuant to which PanAmSat would expand its fleet of satellites in 1999 and 2000. The additional satellites are intended to meet the expected demand for additional satellite capacity, replace capacity affected by satellite anomalies, and provide added backup to existing capacity. In connection with the plan, seven satellites are under construction by Hughes Space and Communications Company ("HSC"). As a result of manufacturing delays being experienced by HSC, however, it is expected that there will be delays in the launch of these satellites. PanAmSat now expects to launch one additional satellite in 1999, followed by five satellites in 2000 and one in 2001. It is expected that these delays will result in 1999 revenues and earnings at PanAmSat that are significantly lower than previously anticipated. A substantial portion of these revenues and earnings previously anticipated in 1999 are expected to be recognized in future years after the satellites commence commercial service. - 41- HUGHES ELECTRONICS CORPORATION On February 24, 1999, the Department of Commerce notified Hughes that it intended to deny a U.S. government export license Hughes was required to obtain in connection with a contract with Asia-Pacific Mobile Telecommunications Satellite Pte. Ltd. ("APMT") for the provision of a satellite-based mobile telecommunications system. As a result, APMT and Hughes terminated the contract on April 9, 1999, resulting in a pre-tax charge to Hughes' earnings of $92 million in the first quarter of 1999. Hughes had maintained a suit against the U.S. government since September 1973 regarding the U.S. government's infringement and use of a Hughes patent covering "Velocity Control and Orientation of a Spin Stabilized Body," principally satellites (the "Williams Patent"). In April 1998, the U.S. Court of Appeals for the Federal Circuit reaffirmed earlier decisions in the Williams Patent case including the award of $114.0 million in damages, plus interest. In March 1999, Hughes received and recognized as income a $154.6 million payment from the U.S. government as a final settlement of the suit. There is a pending grand jury investigation into whether Hughes should be indicted for criminal violations of the export control laws arising out of the participation of two of its employees on a committee formed to review the findings of the Chinese engineers regarding the failure of a Long March rocket in China in 1996. Hughes is also subject to the authority of the State Department to impose sanctions for non-criminal violations of the Arms Export Control Act. The possible criminal and/or civil sanctions could include fines as well as debarment from various export privileges and participation in government contracts. Hughes does not expect the grand jury investigation or State Department review to result in a material adverse effect upon its business. However, there can be no assurance as to those conclusions. In addition, a congressional committee chaired by Representative Cox has prepared a report that is expected to be publicly released during May 1999. This report may contain negative commentary about the compliance of U.S. satellite manufacturers, including Hughes, with export control laws. On March 17, 1999, Hughes announced its intent to make an initial investment of $1.4 billion in the Spaceway(TM) satellite system. The Spaceway system, when completed, will provide for high speed, two-way communications of video, voice and data direct to companies and individual consumers. Hughes expects that the initial investment will allow it to build three high-powered satellites to provide broadband network services "on demand" for video-conferencing, data transfer and other purposes in North America in 2002. Hughes is currently investigating subsequent phases in which Hughes would provide Spaceway services to most of the world using high-orbit satellites as well as complementary services from a low-orbit system. These subsequent phases would require significant additional investment. On May 5, 1999, DIRECTV announced plans for delivering local broadcast network channels by satellite to DIRECTV customers in major metropolitan areas across the United States. The delivery of local network channels into DIRECTV's domestic local markets, also referred to as local-into-local, is contingent upon Federal Communications Commission approval of the acquisition of the remaining Tempo high-power satellite assets (see discussion of the Tempo transaction in Acquisitions and Divestitures, below) and the passage by Congress of legislation that has been introduced that will allow satellite companies to provide the local-into-local service. DIRECTV plans to utilize its existing satellites to deliver the local-into-local service to New York and Los Angeles markets, and utilize the Tempo frequencies to deliver the local-into-local service to DIRECTV's other major metropolitan markets. To receive local channels, outside the Los Angeles and New York markets, consumers will have to purchase a small elliptical-shaped dish, which will be available later this year. There can be no assurance that the Federal Communications Commission will approve the transfer of the Tempo satellite assets or that the Tempo transaction will be consummated. Additionally, there can be no assurance that the necessary legislation will be passed by Congress. On May 11, 1999, it was announced that DIRECTV and Hughes Network Systems will collaborate with America Online ("AOL") on a new service that will combine digital satellite television programming from DIRECTV with AOL 's new interactive television Internet service. Hughes Network Systems will design and build dual-purpose DIRECTV/AOL receiver equipment. The new service will be suited for both frequent Internet users and the mass market consumer who wants to connect to the Internet through their television. Results of Operations Revenues. First quarter 1999 revenues increased 12.5% to $1,451.8 million compared with $1,291.0 million in the first quarter of 1998. The increase in first quarter 1999 revenues reflects continued growth in the DIRECTV(R) businesses. Direct-To-Home Broadcast segment first quarter 1999 revenues increased 43.5% to $556.6 million from $387.9 million in the first quarter of 1998. The increase resulted from continued record subscriber growth, higher average monthly revenue per subscriber and low subscriber churn rates. Domestic DIRECTV contributed significantly to this growth with quarterly revenues of $474 million, a 34% increase over last year's first quarter revenues of $353 million. With its best-ever first quarter of 304,000 net new subscribers in the United States, total DIRECTV(R) subscribers grew to 4,762,000 as of March 31, 1999. Hughes' Latin American DIRECTV subsidiary, Galaxy Latin America ("GLA") nearly doubled its revenues to $61 million from $31 million in the first quarter of 1998. With the addition of 70,000 net new subscribers in the first quarter, an 84% increase over the 38,000 net new subscribers acquired in the same period last year, cumulative DIRECTV subscribers in Latin America were 554,000 as of March 31, 1999. - 42- HUGHES ELECTRONICS CORPORATION The Satellite Services segment's first quarter 1999 revenues increased to $193.5 million compared with $193.0 million in the prior year. The slight change in revenues resulted primarily from an increase in telecommunication services revenue, primarily due to growth in data and Internet-related service agreements. For the first quarter of 1999, revenues for the Satellite Systems segment increased to $630.3 million from revenues of $624.3 million for the same period in 1998. Increased sales to commercial customers of $31 million, including Thuraya Satellite Telecommunications, ICO Global Communications and PanAmSat were largely offset by $25 million of lower sales on government contracts such as UHF Follow-on and Tracking and Data Relay Satellites ("TDRS"). First quarter 1999 revenues for the Network Systems segment were $230.9 million compared with $184.7 million in the same period last year, an increase of 25.0%. This increase in revenues was primarily due to a higher sales of DIRECTV(TM) receiver equipment and satellite-based mobile telephony systems. Costs and Expenses. Selling, general and administrative expenses increased to $404.8 million in the first quarter of 1999 from $302.6 million in the same period of 1998. The increase resulted primarily from higher programming, marketing and subscriber acquisition costs in the Direct-To-Home Broadcast segment. The increase in depreciation and amortization expense to $123.0 million in the first quarter of 1999 from $97.7 million in the same period of 1998, resulted primarily from higher depreciation due to additions to PanAmSat's satellite fleet and increased goodwill amortization related to the purchase of an additional 9.5% interest in PanAmSat. Operating Profit/(Loss). Hughes incurred an operating loss of $36.8 million in the first quarter of 1999 compared with operating profit and operating profit margin, on the same basis, of $83.6 million and 6.5%, respectively, in the first quarter of 1998. The operating loss in the first quarter of 1999 was principally a result of a one-time pre-tax charge of $92.0 million resulting from the termination of the APMT contract and $25.3 million of higher depreciation and amortization expense discussed above. The operating loss in the Direct-To-Home Broadcast segment for the first quarter of 1999 was $23.4 million compared with an operating loss of $31.6 million in the first quarter of 1998. The lower operating loss in 1999 was principally due to increased subscriber revenues that more than offset increased programming, marketing and subscriber acquisition costs. Domestic DIRECTV reported operating profit for the first quarter of 1999 of $5 million compared with an operating loss of $10 million in the first quarter of 1998. GLA's first quarter operating loss for 1999 was $28 million compared with $22 million in the same period of 1998. The higher operating loss for GLA in the first quarter of 1999 was primarily due to the increased cost of its new higher-capacity Galaxy VIII-i satellite and increased advertising expenditures. In 1999, domestic DIRECTV's cost of acquiring new subscribers is expected to increase due to, among other things, incentives granted by United States Satellite Broadcasting Company, Inc. ("USSB") to manufacturers of DIRECTV receiving equipment which will be assumed upon the successful completion of the USSB acquisition. In addition, depending on the competitive environment, subscriber acquisition costs could increase further due to increased incentives to dealers and consumers. Beyond 1999, subscriber acquisition costs will continue to be largely determined by the competitive environment. Additionally, the international DIRECTV businesses, due to competition, may also have to incur increased subscriber acquisition costs through competitive offers in the future to maintain or improve their market positions. The Satellite Services segment operating profit in the first quarter of 1999 decreased 7.7% to $79.1 million from $85.7 million in the same period of 1998. The decrease in operating profit was due to increased depreciation related to additions to PanAmSat's satellite fleet. As a result, operating profit margin for the first quarter of 1999 declined to 40.9% from 44.4% in the same period last year. The Satellite Systems segment reported an operating loss in the first quarter of 1999 of $14.4 million compared to operating profit of $55.1 million and operating profit margin of 8.8% in the first quarter of 1998. The operating loss in the first quarter of 1999 resulted from the one-time pre-tax charge of $81.0 million resulting from the termination of the APMT contract. Excluding the one-time charge, operating profit increased $11.5 million or 20.9% over 1998, primarily due to earnings adjustments in the first quarter of 1999 on several commercial satellite contracts. The Network Systems segment operating loss in the first quarter of 1999 was $17.8 million compared with an operating loss of $11.9 million in the first quarter of 1998. The higher operating loss in the first quarter of 1999 was primarily due to a one-time pre-tax charge of $11.0 million resulting from the termination of the APMT contract. Excluding the one-time pre-tax charge, the segment's operating loss for the first quarter was $6.8 million. The decrease in operating loss was primarily due to higher sales of DIRECTV receiver equipment and satellite-based mobile telephony systems. - 43 HUGHES ELECTRONICS CORPORATION Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"). EBITDA is defined as operating profit (loss), plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flow from operations, as determined in accordance with generally accepted accounting principles. Hughes management believes it is a meaningful measure of performance and is commonly used by other large communications, entertainment and media service providers. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect funds available for investment in the business of Hughes, dividends or other discretionary uses. In addition, EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies. EBITDA margin is calculated by dividing EBITDA by total revenues. For the first quarter of 1999, EBITDA, excluding a one-time charge of $92.0 million in 1999 related to the termination of the APMT contract, was $178.2 million versus $181.3 million for the same period in 1998. EBITDA margin on the same basis was 12.3% for the first quarter of 1999 compared to 14.0% in the first quarter of 1998. Direct-To-Home Broadcast had positive EBITDA in the first quarter of 1999 of $3.9 million compared with negative EBITDA of $9.1 million in the first quarter of 1998. Domestic DIRECTV contributed significantly to this growth with EBITDA of $25 million in the first quarter of 1999 compared to $8 million in last year's quarter as strong revenue growth outpaced increased programming, marketing and subscriber acquisition costs. As a result, EBITDA margin in the first quarter of 1999 increased to 5.2% from 2.3% in the same period of 1998. This gain was partially offset by GLA's larger negative EBITDA in the first quarter of 1999 of $20 million compared to $13 million in the same period of 1998, primarily due to the increased cost of the new higher-capacity Galaxy VIII-i satellite and increased advertising expenditures. For Satellite Services, EBITDA in the first quarter of 1999 was $145.9 million compared with $140.2 million in the same period of last year. EBITDA margin increased to 75.4% versus 72.6% in last year's first quarter. The increases in EBITDA and EBITDA margin were principally due to lower satellite leaseback expenses resulting from the exercise of certain early buy-out options under sale-leaseback agreements during the first quarter of 1999. Excluding the 1999 first quarter pre-tax charge of $81.0 million related to the termination of the APMT contract, EBITDA for the Satellite Systems segment increased to $79.6 million from $65.8 million in the first quarter of 1998. The increase included earnings adjustments in the current quarter on several commercial satellite contracts. As a result, EBITDA margin, on the same basis, was 12.6% for the first quarter of 1999 compared to 10.5% for the first quarter of 1998. Network Systems' EBITDA, excluding a pre-tax charge of $11.0 million resulting from the termination of the APMT contract under which Hughes Network Systems was providing ground network equipment and handsets, grew to $5.1 million in the first quarter of 1999, compared to a negative EBITDA of $3.4 million in the first quarter of 1998. EBITDA margin on the same basis was 2.2% compared to a negative EBITDA margin in the first quarter of 1998. The increase in EBITDA was primarily due to the higher sales discussed above. Interest Income and Expense. Interest income decreased to $13.6 million in the first quarter of 1999 compared with $37.5 million in the first quarter of 1998. The decrease in interest income was due to lower cash balances in the first quarter of 1999 compared to 1998 which resulted from the purchase of an additional 9.5% interest in PanAmSat, additional capital expenditures for satellites, payment to GM for the Delco post-closing price adjustment, a payment for certain of the Tempo assets in March 1999, and the early buy-out of a satellite sale-leaseback at PanAmSat. Interest expense increased $3.9 million in the first quarter of 1999 from the same period in 1998 due to the increase in PanAmSat's borrowings to finance the early buy-out of a satellite sale-leaseback and from an additional $170.1 million of borrowings related to SurFin Ltd. ("Surfin"). Other, net. Other, net in the first quarter of 1999 reflects the $154.6 million pre-tax gain related to the settlement of the Williams Patent infringement case offset by losses from unconsolidated subsidiaries of $30.6 million attributable principally to equity investments in American Mobile Satellite Corporation ("AMSC") and DIRECTV Japan. The first quarter 1998 amount includes losses from unconsolidated subsidiaries of $28.9 million, primarily related to AMSC, DIRECTV Japan and SurFin. Income Taxes. The effective income tax rate was 33.3% in the first quarter of 1999 and 37.5% in the first quarter of 1998. The decrease in the first quarter 1999 effective tax rate compared to the same period of 1998 reflects the favorable resolution of tax contingencies related to prior years. Accounting Change. In 1998, Hughes adopted American Institute of Certified Public Accountants Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that all start-up costs previously capitalized be written off and recognized as a cumulative effect of accounting change, net of taxes, as of the beginning of the year of adoption. On a prospective basis, these types of costs are required to be expensed as incurred. The unfavorable cumulative effect of this accounting change was $9.2 million after-tax, or $0.02 per share of GM Class H common stock in the first quarter of 1998. Earnings. 1999 first quarter earnings increased to $78.3 million from $44.5 million in the first quarter of 1998. Basic earnings per share for the first quarter were $0.20 per share versus earnings per share of $0.11 in the first quarter of 1998. - 44 HUGHES ELECTRONICS CORPORATION Liquidity and Capital Resources Cash and Cash Equivalents. Cash and cash equivalents were $780.0 million at March 31, 1999 compared to $1,342.1 million at December 31, 1998. The $562.1 million decline during the quarter was due to additional capital expenditures for satellites, a payment for certain of the Tempo Satellite assets (see "Acquisitions and Divestitures"), the early buy-out of a satellite sale-leaseback at PanAmSat and general working capital requirements. Cash provided by operating activities for the first quarter of 1999 was $6.5 million, compared to cash used by operating activities of $38.7 million in the first quarter of 1998. This change was due primarily to the increase in net income, which included the Williams Patent settlement. Net cash used in investing activities was $660.7 million for the three months ended March 31, 1999 and $395.6 million for the same period in 1998. The substantial increase in 1999 compared to 1998 resulted from increased investments in companies, net of cash acquired, which included the acquisition of the Tempo Satellite assets (see "Acquisitions and Divestitures") and the early buy-out of a satellite sales-leaseback at PanAmSat. Net cash provided by financing activities was $92.1 million for the first quarter of 1999, compared with $150.0 million for first quarter 1998. The 1999 financing activities reflect lower net borrowings compared to 1998. Liquidity Measurement. As a measure of liquidity, the current ratio (ratio of current assets to current liabilities) at March 31, 1999 and December 31, 1998 was 1.69 and 1.91, respectively. Working capital decreased by $518.4 million to $1,318.5 million at March 31, 1999 from $1,836.9 million at December 31, 1998. Dividend Policy and Use of Cash. Since the completion of the recapitalization of Hughes in late 1997, the GM Board has not paid, and does not currently intend to pay in the foreseeable future, cash dividends on its GM Class H common stock. Similarly, since such time, Hughes has not paid dividends to GM and does not currently intend to do so in the foreseeable future. Future Hughes earnings, if any, are expected to be retained for the development of the businesses of Hughes. Expected cash requirements for the remainder of 1999 relate to capital expenditures for property and equipment and expenditures for additional satellites of approximately $1.6 billion, the early buy-out of satellite sale-leasebacks, the funding of business acquisitions, including the acquisitions discussed below and additional equity investments. These cash requirements are expected to be funded from a combination of existing cash balances, amounts available under existing credit facilities, additional borrowings and equity offerings, as needed. Also, although Hughes may be required to make a cash payment to or receive a cash payment from Raytheon, the amount of a cash payment to or from Raytheon, if any, is not determinable at this time. Debt and Credit Facilities. At March 31, 1999, Hughes' 59.1% owned subsidiary, SurFin, had a total of $170.1 million outstanding under two separate $150.0 million unsecured revolving credit facilities. These facilities are expected to be replaced in May 1999 with a single $400.0 million unsecured revolving credit facility. In January 1998, PanAmSat issued five, seven, ten and thirty-year notes totaling $750.0 million. The proceeds received were used by PanAmSat to repay $600.0 million of outstanding borrowings. PanAmSat maintains a $500.0 million multi-year revolving credit facility and a $500.0 million commercial paper program. The multi-year revolving credit facility provides for a commitment through December 24, 2002. Borrowings under the credit facility and commercial paper program are limited to $500.0 million in the aggregate and are expected to be used to fund PanAmSat's satellite expansion program. No amounts were outstanding under the credit facility at March 31, 1999. $85.0 million was outstanding under the commercial paper program at March 31, 1999. At March 31, 1999, other long-term debt of $21.6 million was outstanding. Hughes has $1.0 billion of unused credit available under two unsecured revolving credit facilities, consisting of a $750.0 million multi-year facility and a $250.0 million 364-day facility. The multi-year credit facility provides for a commitment of $750.0 million through December 5, 2002 and the 364-day credit facility provides for a commitment of $250.0 million through December 1, 1999. No amounts were outstanding under either facility at March 31, 1999. These facilities provide backup capacity for Hughes' $1.0 billion commercial paper program. No amounts were outstanding under the commercial paper program at March 31, 1999. - 45 HUGHES ELECTRONICS CORPORATION In order to fund the purchase price of PRIMESTAR, on April 28, 1999, Hughes borrowed $500.0 million under a term-loan which is expected to be repaid from the proceeds of the equity offering and related GM contribution (as discussed below). Hughes has filed a shelf registration statement with the Securities and Exchange Commission with respect to an issuance of debt securities from time to time. Hughes expects to issue between $500 million and $1 billion of these securities in the third and fourth quarters of 1999. GM filed on May 5, 1999, a registration statement on Form S-3 with the Commission with respect to a proposed issuance of $500.0 million of Class H common stock plus a customary over-allotment option . GM will contribute to Hughes the net proceeds from the Class H offering, together with an additional $500.0 million on or about the closing of the equity offering which is expected to be completed by mid 1999. Hughes will use these funds principally to repay debt Hughes incurred in connection with the PRIMESTAR/Tempo Satellite and USSB transactions. Acquisitions and Divestitures. On January 22, 1999, Hughes agreed to acquire PRIMESTAR's 2.3 million subscriber medium-power direct-to-home satellite business and the high-power satellite assets and direct-broadcast satellite orbital frequencies of Tempo Satellite, a wholly-owned subsidiary of TCI Satellite Entertainment, Inc. The transactions will be accounted for using the purchase method of accounting. On April 28, 1999, the acquisition of PRIMESTAR's direct-to-home business was completed. The purchase price consisted of $1.1 billion in cash and 4,871,448 shares of GM Class H common stock, for a total purchase price of $1.33 billion, based on the average market price of $47.87 per share of Class H common stock at the time the acquisition agreement was signed. The purchase price for the Tempo Satellite assets consists of $500.0 million in cash. Of this purchase price, $150.0 million was paid on March 10, 1999 for a satellite that has not yet been launched. The remaining $350.0 million is for an in-orbit satellite and related satellite orbital frequencies. Such amount is payable upon Federal Communications Commission approval of the transfer of the 11 frequencies, which is expected in mid-1999. There can be no assurance that the Federal Communications Commission will approve this transfer or that this portion of the Tempo Satellite transaction will be consummated. In December 1998, Hughes agreed to acquire all of the outstanding capital stock of USSB. USSB provides direct-to-home premium satellite programming in conjunction with DIRECTV's basic programming service. USSB launched its service in June 1994 and, as of March 31, 1999, had more than 2.2 million subscribers nationwide, over 90% of whom are also DIRECTV subscribers. The acquisition will be accounted for using the purchase method of accounting. The purchase price, consisting of cash and GM Class H common stock, will be determined at closing based upon an agreed-upon formula and will not exceed $1.62 billion in the aggregate. Subject to certain limitations in the merger agreement, USSB shareholders will be entitled to elect to receive cash or shares of GM Class H common stock. The amount of cash to be paid in the merger cannot be less than 30% or greater than 50% of the aggregate purchase price with the remaining consideration consisting of GM Class H common stock. The merger, which is subject to USSB shareholder approval, is expected to close in the second quarter of 1999. In October 1998, Hughes agreed to acquire, pending regulatory approval in Mexico, an additional ownership interest in Grupo GalAXY mEXICANA, s.a. DE c.v.("GGM"), a GLA local operating company located in Mexico, from Grupo MVS, S.A. de C.V. The GGM transaction was completed in February 1999 upon receipt of government regulatory approval in Mexico. Hughes' equity ownership represents 49.0% of the voting equity and all of the non-voting equity of GGM. The GGM transaction was accounted for using the purchase method of accounting. The increased ownership resulted in GGM's consolidation since the date of acquisition. The PRIMESTAR and USSB transactions and the equity offering will result in an increase to the total shares of GM Class H common stock outstanding. Those transations, along with GM capital contribution will also cause an increse in the Class H dividend base. These increases will result in a change to the fraction used to calculate the Available Separate Consolidated Net Income ("ASCNI") of Hughes. See further discussion of ASCNI in Note 4 to the Notes to the Financial Statements. New Accounting Standards. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires all derivatives to be recorded as either assets or liabilities and the instruments to be measured at fair value. Gains or losses resulting from changes in the values of those derivatives are to be recognized immediately or deferred depending on the use of the derivative and whether or not it qualifies as a hedge. Hughes plans to adopt SFAS No. 133 by January 1, 2000, as required. Management is currently assessing the impact of this statement on Hughes' results of operations and financial position. Year 2000 Many computer technologies made or used by Hughes throughout its business have the potential for operational problems if they lack the ability to handle the transition to the Year 2000. Computer technologies include both information technology ("IT") in the form of hardware and software, as well as non-information technology ("Non-IT") which includes embedded technology such as microprocessors. - 46 - HUGHES ELECTRONICS CORPORATION Because of the potential disruption that this issue could cause to Hughes' business operations and its customers, a comprehensive, company-wide, Year 2000 program was initiated in 1996 to identify and remediate potential Year 2000 problems. The Year 2000 program addresses both IT and Non-IT systems related to internal systems and Hughes' products and services. Hughes' Year 2000 program is being implemented in seven phases, some of which are being conducted concurrently: (1)Awareness - establish project teams made up of project leaders from each Hughes operating company, assign responsibilities and establish awareness of Year 2000 issues. The awareness phase has been completed. (2)Inventory - identify all systems within Hughes, determine if they are critical and identify responsible personnel for compliance. The inventory phase has been completed. Many of Hughes' systems are already Year 2000 compliant, or had already been scheduled for replacement as part of Hughes' ongoing systems plans. (3)Assessment - categorize all systems and determine activities that are required to achieve compliance, including contacting and assessing the Year 2000 readiness of material third party vendors and suppliers of hardware and software. The assessment phase is substantially complete. A detailed assessment of the ground stations is in progress and final plans are being prepared. All critical systems have been identified in this phase and are the primary focus of the project teams. Critical systems identified requiring remediation include satellite control and communication software, broadcast systems, systems utilized in customer service/billing, engineering and manufacturing operations. Hughes has also identified the need to upgrade network control software for customers who have maintenance agreements with Hughes. Hughes' in-orbit satellites do not have date-dependent processing. (4)Remediation - modify, repair or replace categorized systems. Remediation has begun on many systems and is targeted for completion by the end of the second quarter of 1999, with the exception of satellite control software , which is expected to be completed early in the fourth quarter of 1999. The remediation tasks for the satellite ground control software and ground stations delivered by Hughes are being coordinated with Raytheon, the supplier. (5)Testing - test remediated systems to assure normal function when placed in their original operating environment and further test for Year 2000 compliance. Overall testing is completed at approximately the same time as remediation due to the overlap of the remediation and testing phases. Testing is currently underway and is expected to be a primary focus of the project teams over the next several quarters. Hughes expects to complete this phase shortly after the remediation phase, with on-going review and follow-up. (6)Implementation - once a remediated system and its interfaces have been successfully tested, the system will be put into its operating environment. A number of remediated systems have already been put back into operations. The remaining remediated systems will be put into operations during 1999. (7)Contingency Planning - development and execution of plans that narrow the focus on specific areas of significant concern and concentrate resources to address them. All Year 2000 critical systems are expected to be Year 2000 compliant by the end of 1999. However, Hughes is in the process of developing contingency plans to address the risk of any system not being Year 2000 compliant and expects to complete such plans in the third quarter of 1999. Hughes currently believes that the most reasonably likely worst case scenario is a temporary loss of functionality in satellite control and communication software. The loss of real-time satellite control software functionality would be addressed through the use of back-dated processors or through manual procedures but could result in slightly higher operating costs until the Year 2000 problems are corrected. Hughes is utilizing both internal and external resources for the remediation and testing of its systems that are undergoing Year 2000 modification. Hughes' Year 2000 program is generally on schedule, with the exception of the satellite control software which is expected to be completed early in the fourth quarter of 1999. Hughes has incurred and expensed approximately $4.0 million during the first quarter of 1999 and approximately $7.0 million during 1998, related to the assessment of, and on-going efforts in connection with, its Year 2000 program. Future spending for system remediation and testing are currently estimated to be from $13 million to $17 million, with the majority of the expense expected to be incurred by mid-1999. Each Hughes operating company is funding its respective Year 2000 efforts with current and future operating cash flows. - 47 - HUGHES ELECTRONICS CORPORATION Hughes has mailed Year 2000 verification request letters to its suppliers and other third parties and is coordinating efforts to assess and reduce the risk that Hughes' operations could be adversely affected by the failure of these third parties to adequately address the Year 2000 issue. A high percentage of the third parties have replied and a large number of Hughes' third parties' systems are Year 2000 compliant or are expected to be Year 2000 compliant in a timely manner. For those third party systems that are not yet Year 2000 compliant, Hughes will continue to identify action plans or alternatives to meet Hughes' requirements. In view of the foregoing, Hughes does not currently anticipate that it will experience a significant disruption of its business as a result of the Year 2000 issue. However, there is still uncertainty about the broader scope of the Year 2000 issue as it may affect Hughes and third parties that are critical to Hughes' operations. For example, lack of readiness by electrical and water utilities, financial institutions, governmental agencies or other providers of general infrastructure could pose significant impediments to Hughes' ability to carry on its normal operations. If the modifications and conversions required to make Hughes Year 2000 ready are not made or are not completed on a timely basis and in the event that Hughes is unable to implement adequate contingency plans in the event that problems are encountered internally or externally by third parties, the resulting problems could have a material adverse effect on Hughes' results of operations and financial condition. Security Ratings In March 1999, Standard and Poor's Rating Services ("S&P") lowered the long-term debt rating of Hughes from A- to BBB. The S&P BBB credit rating indicates the issuer has adequate capacity to pay interest and repay principal. Additionally, S&P affirmed its A-2 rating on Hughes' commercial paper. The A-2 commercial paper rating is the third highest category available and indicates a strong degree of safety regarding timely payment. S&P's ratings outlook for Hughes remains developing. In April 1999, Moody's Investors Service ("Moody's") lowered the long-term credit rating of Hughes from Baa1 to Baa2. The Baa2 rating for senior debt indicates medium-grade obligations with adequate likelihood of interest and principal payment and principal security. Moody's ratings for Hughes' commercial paper remained unchanged at P-2. The rating is the second highest rating available and indicates that the issuer has a strong ability for repayment relative to other issuers. Moody's ratings outlook for Hughes's long-term and short-term debt is stable. Debt ratings by the various rating agencies reflect each agency's opinion of the ability of issuers to repay debt obligations punctually. The lowered ratings reflect increased financial leverage at Hughes resulting from a significant acceleration of its growth initiatives, including the PRIMESTAR/Tempo Satellite and USSB transactions, PanAmSat's satellite deployment and restoration plan, and the investment in Spaceway. Lower ratings generally result in higher borrowing costs. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating. Supplemental Data The financial statements reflect the application of purchase accounting adjustments as previously discussed. However, as provided in GM's Restated Certificate of Incorporation, the earnings attributable to GM Class H common stock for purposes of determining the amount available for the payment of dividends on GM Class H common stock specifically excludes such adjustments. More specifically, amortization of the intangible assets associated with GM's purchase of Hughes amounted to $5.3 million for the first quarters of 1999 and 1998. Such amounts are excluded from the earnings available for the payment of dividends on GM Class H common stock and are charged against earnings available for the payment of dividends on GM's $1-2/3 par value common stock. Unamortized purchase accounting adjustments associated with GM's purchase of Hughes were $421.3 million at March 31, 1999 and $426.6 million at December 31, 1998. In order to provide additional analytical data to the users of Hughes' financial information, supplemental data in the form of unaudited summary pro forma financial data are provided. Consistent with the basis on which earnings of Hughes available for the payment of dividends on the GM Class H common stock is determined, the pro forma data exclude purchase accounting adjustments related to GM's acquisition of Hughes. Included in the supplemental data are certain financial ratios which provide measures of financial returns excluding the impact of purchase accounting adjustments. The pro forma data are not presented as a measure of GM's total return on its investment in Hughes. - 48 HUGHES ELECTRONICS CORPORATION Unaudited Summary Pro Forma Financial Data* Pro Forma Condensed Statement of Income Three Months Ended March 31, 1999 1998 ---- ---- (Dollars in Millions Except per Share Amounts) Total revenues $1,451.8 $1,291.0 Total operating costs and expenses 1,488.6 1,207.4 ------- ------- Operating (loss) profit (36.8) 83.6 Non-operating income 144.4 0.2 Income taxes 35.8 31.4 Minority interests in net losses of subsidiaries 6.5 1.3 Cumulative effect of accounting change - (9.2) ------ ----- Earnings Used for Computation of Available Separate Consolidated Net Income $78.3 $44.5 ==== ==== Earnings Attributable to General Motors Class H Common Stock on a Per Share Basis Basic $0.20 $0.11 ==== ==== Diluted $0.19 $0.11 ==== ==== Earnings Attributable Pro Forma Condensed Balance Sheet March 31, December 31, Assets 1999 1998 ---- ---- (Dollars in Millions) Total Current Assets $3,216.7 $3,846.4 Satellites, net 3,580.5 3,197.5 Property, net 1,061.2 1,059.2 Net Investment in Sales-type Leases 167.9 173.4 Intangible Assets, Investments and Other Assets, net 4,964.1 4,731.9 Total Assets $12,990.4 $13,008.4 Liabilities and Stockholder's Equity Total Current Liabilities $1,898.2 $2,009.5 Long-Term Debt 856.6 778.7 Postretirement Benefits Other Than Pensions, Other Liabilities and Deferred Credits 1,720.2 1,783.2 Minority Interests 485.6 481.7 Total Stockholder's Equity (1) 8,029.8 7,955.3 ------- --------- Total Liabilities and Stockholder's Equity (1) $12,990.4 $13,008.4 ======== ======== * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes. (1)General Motors' equity in its wholly-owned subsidiary, Hughes. Holders of GM Class H common stock have no direct rights in the equity or assets of Hughes, but rather have rights in the equity and assets of GM (which includes 100% of the stock of Hughes). - 49 HUGHES ELECTRONICS CORPORATION Unaudited Summary Pro Forma Financial Data* - Continued Pro Forma Selected Segment Data Direct-To- Home Satellite Satellite Network Eliminations Broadcast Services Systems Systems and Other Total --------- -------- ------- ------- --------- ----- (Dollars in Millions) For the Three Months Ended: March 31, 1999 Total Revenues $556.6 $193.5 $630.3 $230.9 $(159.5) $1,451.8 - -------------------------------------------------------------------------------- Operating (Loss) Profit(3) $(23.4) $79.1 $(14.4) $(17.8) $(60.3) $(36.8) Operating Profit Margin - 40.9% - - - - EBITDA(3) (4) $3.9 $145.9 $(1.4) $(5.9) $(56.3) $86.2 EBITDA Margin(4) 0.7% 75.4% - - - 5.9% - -------------------------------------------------------------------------------- Depreciation and Amortization $27.3 $66.8 $13.0 $11.9 $4.0 $123.0 Capital Expenditures $77.6(1)$339.8(2) $12.3 $2.2 $(32.2) $399.7 - -------------------------------------------------------------------------------- March 31, 1998 Total Revenues $387.9 $193.0 $624.3 $184.7 $(98.9) $1,291.0 - -------------------------------------------------------------------------------- Operating (Loss) Profit $(31.6) 85.7 $55.1 $(11.9) $(13.7 $83.6 Operating Profit Margin - 44.4% 8.8% - - 6.5% EBITDA(4) $(9.1) $140.2 $65.8 $(3.4) $(12.2) $181.3 EBITDA Margin(4) - 72.6% 10.5% - - 14.0% - -------------------------------------------------------------------------------- Depreciation and Amortization $22.5 $54.5 $10.7 $8.5 $1.5 $97.7 Capital Expenditures $13.7 $249.6(2) $10.7 $4.8 $125.9 $404.7 - -------------------------------------------------------------------------------- * The Financial Statements reflect the application of purchase accounting adjustments related to GM's acquisition of Hughes. However, as provided in the General Motors' Restated Certificate of Incorporation, the earnings attributable to GM Class H common stock for purposes of determining the amount available for the payment of dividends on GM Class H common stock specifically excludes such adjustments. In order to provide additional analytical data, the above unaudited pro forma selected segment data, which exclude the purchase accounting adjustments related to GM's acquisition of Hughes, are presented. (1)Includes expenditures related to satellites amounting to $53.0 million in the first quarter of 1999. (2)Includes expenditures related to satellites amounting to $189.7 million and $145.6 million in 1999 and 1998, respectively. Also included in the 1999 and 1998 amount are $141.3 million and $96.6 million, respectively, related to the early buy-out of satellite sale-leasebacks. (3)First quarter 1999 includes a charge of $81.0 million and $11.0 million at Satellite Systems and Network Systems, respectively, for the termination of the Asia-Pacific Mobile Telecommunications satellite systems contract due to export licenses not being issued. (4)EBITDA is defined as operating profit (loss), plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flow from operations, as determined in accordance with generally accepted accounting principles. See discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations. * * * * * * * - 50- HUGHES ELECTRONICS CORPORATION Unaudited Summary Pro Forma Financial Data* - Concluded Pro Forma Selected Financial Data Three Months Ended March 31, 1999 1998 ---- ---- (Dollars in Millions) Operating (loss) profit $(37) $84 EBITDA (1) $86 $181 EBITDA margin (2) 5.9% 14.0% Income before income taxes, minority interests and cumulative effect of accounting change $108 $84 Earnings used for computation of available separate consolidated net income $78 $45 Average number of GM Class H dividend base shares (3) 400.2 399.9 Stockholder's equity $8,030 $7,911 Working capital $1,319 $3,258 Operating profit as a percent of revenues N/A 6.5% Income from continuing operations before income taxes, minority interests and cumulative effect of accounting change as a percent of revenues 7.4% 6.5% Net income as a percent of revenues 5.4% 3.4% * The summary excludes purchase accounting adjustments related to GM's acquisition of Hughes . (1)EBITDA is defined as operating profit (loss), plus depreciation and amortization. EBITDA is not presented as an alternative measure of operating results or cash flow from operations, as determined in accordance with generally accepted accounting principles. See discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations. (2) EBITDA margin is calculated by dividing EBITDA by total revenues. (3) Class H dividend base shares is used in calculating earnings attributable to GM Class H common stock on a per share basis. This is not the same as the average number of GM Class H shares outstanding, which was 106.3 million for the first quarter of 1999 and 104.1 million for the first quarter of 1998. * * * * * * * - 51- EX-27 3 FDS -- FOR MARCH 1998
5 This schedule contains summary financial information extracted from General Motors Corporation March 31, 1998 Consolidated Financial Statements and is qualified in its entirety by reference to First Quarter 1999 Form 10-Q 0000040730 General Motors Corporation 1,000,000 U.S. Dollars 3-MOS Dec-31-1998 Jan-01-1998 Mar-31-1998 1 10,513 10,201 67,174 0 11,149 39,729 66,863 34,641 229,533 45,421 98,572 222 1 1,126 15,755 229,533 36,104 40,846 30,812 33,442 228 101 1,367 2,333 852 1,509 287 0 0 1,796 2.30 2.28
EX-27 4 FDS -- FOR MARCH 1999
5 This schedule contains summary financial information extracted from General Motors Corporation March 31, 1999 Consolidated Financial Statements and is qualified in its entirety by reference to First Quarter 1999 Form 10-Q 0000040730 General Motors Corporation 1,000,000 U.S. Dollars 3-MOS Dec-31-1999 Jan-01-1999 Mar-31-1999 1 12,583 9,840 78,525 0 11,566 48,246 65,624 33,988 251,735 50,580 114,259 220 1 1,094 15,566 251,735 36,620 42,435 30,666 33,285 105 119 1,845 2,940 1,029 1,820 242 0 0 2,062 3.10 3.04
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