-----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, UEOgvbPQeNeVj8p82H6/2FxzM/Y03Balj9K6E6H+04IR5SiaqdXZ4ntss3U3MS9P /9j8NuEuIPhgWnOb9S3rZg== 0000040730-00-000080.txt : 20000516 0000040730-00-000080.hdr.sgml : 20000516 ACCESSION NUMBER: 0000040730-00-000080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 633825 BUSINESS ADDRESS: STREET 1: 300 RENAISSANCE CTR CITY: DETROIT STATE: MI ZIP: 48265-3000 BUSINESS PHONE: 3135565000 MAIL ADDRESS: STREET 1: 3044 W GRAND BOULEVARD CITY: DETROIT STATE: MI ZIP: 48202-3091 10-Q 1 GM'S FIRST QUARTER 10-Q FOR 2000 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, 2000 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.) 300 Renaissance Center, Detroit, Michigan 48265-3000 (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, 2000, there were outstanding 621,181,380 shares of the issuer's $1-2/3 par value common stock and 138,437,233 shares of GM 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, 2000 and 1999 3 Consolidated Balance Sheets as of March 31, 2000, December 31, 1999, and March 31, 1999 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 7 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Part II - Other Information (Unaudited) Item 1. Legal Proceedings 31 Item 6. Exhibits and Reports on Form 8-K 32 Signature 32 Exhibit 99 Hughes Electronics Corporation Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) 33 Exhibit 27 Financial Data Schedule (Unaudited) (for Securities and Exchange Commission information only) - 2 - PART I GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, --------- 2000 1999 ---- ---- (Dollars in Millions Except Per Share Amounts) GENERAL MOTORS CORPORATION AND SUBSIDIARIES Manufactured products sales and revenues $40,396 $36,620 Financing revenues 4,075 3,509 Other income (Note 10) 2,387 2,306 ------- ------- Total net sales and revenues 46,858 42,435 ------ ------ Cost of sales and other operating expenses, exclusive of items listed below 33,465 30,666 Selling, general, and administrative expenses 4,786 3,822 Depreciation and amortization expense 3,238 2,724 Interest expense 2,228 1,845 Other expenses (Note 10) 509 438 ------- ------- Total costs and expenses 44,226 39,495 Income from continuing operations before income taxes and minority interests 2,632 2,940 Income tax expense 783 1,029 Minority interests 2 (14) Losses of nonconsolidated associates (68) (77) ------ ------ Income from continuing operations 1,783 1,820 Income from discontinued operations (Note 2) - 242 ------ ------ Net income 1,783 2,062 Dividends on preference stocks (29) (16) ------ ------ Earnings attributable to common stocks $1,754 $2,046 ===== ===== Basic earnings (losses) per share attributable to common stocks (Note 9) $1-2/3 par value Continuing operations $2.88 $2.73 Discontinued operations (Note 2) - 0.37 ---- ---- Earnings per share attributable to $1-2/3 par value $2.88 $3.10 ==== ==== (Losses) earnings per share attributable to Class H $(0.23) $0.20 ==== ==== Diluted earnings (losses) per share attributable to common stocks (Note 9) $1-2/3 par value Continuing operations $2.80 $2.68 Discontinued operations (Note 2) - 0.36 ---- ---- Earnings per share attributable to $1-2/3 par value $2.80 $3.04 ==== ==== (Losses) earnings per share attributable to Class H $(0.23) $0.19 ==== ==== Reference should be made to the notes to consolidated financial statements. - 3 - CONSOLIDATED STATEMENTS OF INCOME - concluded (Unaudited) Three Months Ended March 31, --------- 2000 1999 ---- ---- (Dollars in Millions) AUTOMOTIVE, COMMUNICATIONS SERVICES, AND OTHER OPERATIONS Manufactured products sales and revenues $40,396 $36,620 Other income (Note 10) 799 903 ------ ------ Total net sales and revenues 41,195 37,523 ------ ------ Cost of sales and other operating expenses, exclusive of items listed below 33,465 30,666 Selling, general, and administrative expenses 3,480 2,741 Depreciation and amortization expense 1,715 1,452 ------ ------ Total operating costs and expenses 38,660 34,859 ------ ------ Interest expense 216 194 Other expenses (Note 10) 168 58 Net expense from transactions with Financing and Insurance Operations 139 94 ------ ------ Income from continuing operations before income taxes and minority interests 2,012 2,318 Income tax expense 542 788 Minority interests 3 (6) Losses of nonconsolidated associates (68) (77) ------ ------ Income from continuing operations 1,405 1,447 Income from discontinued operations (Note 2) - 242 ------ ------ Net income - Automotive, Communications Services, and Other Operations $1,405 $1,689 ===== ===== Three Months Ended March 31, --------- 2000 1999 ---- ---- (Dollars in Millions) FINANCING AND INSURANCE OPERATIONS Financing revenues $4,075 $3,509 Insurance, mortgage, and other income 1,588 1,403 ----- ----- Total revenues and other income 5,663 4,912 ----- ----- Interest expense 2,012 1,651 Depreciation and amortization expense 1,523 1,272 Operating and other expenses 1,306 1,081 Provisions for financing losses 107 119 Insurance losses and loss adjustment expenses 234 261 ----- ----- Total costs and expenses 5,182 4,384 ----- ----- Net income from transactions with Automotive, Communications Services, and Other Operations (139) (94) --- ---- Income before income taxes and minority interests 620 622 Income tax expense 241 241 Minority interests (1) (8) --- --- Net income - Financing and Insurance Operations $378 $373 === === 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 March 31, March 31, 2000 Dec. 31, 1999 GENERAL MOTORS CORPORATION AND SUBSIDIARIES (Unaudited) 1999 (Unaudited) --------- ---- --------- ASSETS (Dollars in Millions) Automotive, Communications Services, and Other Operations Cash and cash equivalents $8,497 $9,730 $12,081 Marketable securities 1,948 1,698 1,137 ------ ------ ------- Total cash and marketable securities 10,445 11,428 13,218 Accounts and notes receivable (less allowances) 5,552 5,093 4,686 Inventories (less allowances) (Note 3) 12,028 10,638 11,566 Net assets of discontinued operations (Note 2) - - 3,191 Equipment on operating leases (less accumulated depreciation) 5,963 5,744 6,048 Deferred income taxes and other current assets 9,491 9,006 9,537 ------ ------ ------ Total current assets 43,479 41,909 48,246 Equity in net assets of nonconsolidated associates 2,158 1,711 1,659 Property - net (Note 4) 33,177 32,779 31,636 Intangible assets - net 8,808 8,527 10,170 Deferred income taxes 15,100 15,277 15,410 Other assets 25,372 25,358 13,565 ------ ------ ------ Total Automotive, Communications Services, and Other Operations assets 128,094 125,561 120,686 Financing and Insurance Operations Cash and cash equivalents 910 712 502 Investments in securities 9,016 9,110 8,703 Finance receivables - net 84,581 80,627 73,839 Investment in leases and other receivables 37,350 36,407 32,707 Other assets 21,243 21,312 15,400 Net receivable from Automotive, Comm. Serv., and Other Operations 1,407 1,001 399 ------- ------- ------- Total Financing and Insurance Operations assets 154,507 149,169 131,490 ------- ------- ------- Total assets $282,601 $274,730 $252,176 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Automotive, Communications Services, and Other Operations Accounts payable (principally trade) $17,649 $17,254 $16,162 Loans payable 2,041 1,991 869 Accrued expenses 33,214 32,854 33,210 Net payable to Financing and Insurance Operations 1,407 1,001 339 ---- ------ ------ Total current liabilities 54,311 53,100 50,580 Long-term debt 8,587 7,415 7,011 Postretirement benefits other than pensions (Note 5) 34,532 34,166 34,416 Pensions 3,395 3,339 3,761 Other liabilities and deferred income taxes 17,214 17,426 17,768 ------- ------- ------- Total Automotive, Communications Services, and Other Operations liabilities 118,039 115,446 113,536 Financing and Insurance Operations Accounts payable 4,616 4,262 4,405 Debt 124,492 122,282 106,379 Other liabilities and deferred income taxes 12,202 11,282 10,395 ------- ------- ------- Total Financing and Insurance Operations liabilities 141,310 137,826 121,179 Minority interests 621 596 580 General Motors - obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures of General Motors (Note 6) Series D 79 79 79 Series G 139 139 141 Stockholders' equity Preference stocks (Note 7) - - 1 $1-2/3 par value common stock (issued, 621,602,927; 619,412,233 and 649,568,145 shares) (Note 9) 1,036 1,033 1,083 Class H common stock (issued, 138,512,612; 137,115,187 and 106,641,918 shares) 14 14 11 Capital surplus (principally additional paid-in capital) 14,031 13,794 13,276 Retained earnings 8,404 6,961 8,703 ------- ------- ------- Subtotal 23,485 21,802 23,074 Accumulated foreign currency translation adjustments (2,115) (2,033) (1,782) Net unrealized gains on securities 1,164 996 458 Minimum pension liability adjustment (121) (121) (5,089) ------ ------ ----- Accumulated other comprehensive loss (1,072) (1,158) (6,413) ------ ------ ------ Total stockholders' equity 22,413 20,644 16,661 ------- ------- ------- Total liabilities and stockholders' equity $282,601 $274,730 $252,176 ======= ======= ======= Reference should be made to the notes to consolidated financial statements. - 5 - CONSOLIDATED BALANCE SHEETS - concluded March 31, March 31, 2000 Dec. 31, 1999 (Unaudited) 1999 (Unaudited) --------- ---- --------- (Dollars in Millions) AUTOMOTIVE, COMMUNICATIONS SERVICES, AND OTHER OPERATIONS ASSETS Cash and cash equivalents $8,497 $9,730 $12,081 Marketable securities 1,948 1,698 1,137 ------- ------- ------- Total cash and marketable securities 10,445 11,428 13,218 Accounts and notes receivable (less allowances) 5,552 5,093 4,686 Inventories (less allowances) (Note 3) 12,028 10,638 11,566 Net assets of discontinued operations (Note 2) - - 3,191 Equipment on operating leases (less accumulated depreciation) 5,963 5,744 6,048 Deferred income taxes and other current assets 9,491 9,006 9,537 ------ ------ ------ Total current assets 43,479 41,909 48,246 Equity in net assets of nonconsolidated associates 2,158 1,711 1,659 Property - net (Note 4) 33,177 32,779 31,636 Intangible assets - net 8,808 8,527 10,170 Deferred income taxes 15,100 15,277 15,410 Other assets 25,372 25,358 13,565 ------- ------- ------- Total Automotive, Communications Services, and Other Operations assets $128,094 $125,561 $120,686 ======= ======= ======= LIABILITIES AND GM INVESTMENT Accounts payable (principally trade) $17,649 $17,254 $16,162 Loans payable 2,041 1,991 869 Accrued expenses 33,214 32,854 33,210 Net payable to Financing and Insurance Operations 1,407 1,001 339 ------ ------ ------ Total current liabilities 54,311 53,100 50,580 Long-term debt 8,587 7,415 7,011 Postretirement benefits other than pensions (Note 5) 34,532 34,166 34,416 Pensions 3,395 3,339 3,761 Other liabilities and deferred income taxes 17,214 17,426 17,768 ------- ------- ------- Total Automotive, Communications Services, and Other Operations liabilities 118,039 115,446 113,536 Minority interests 595 574 520 GM investment in Automotive, Communications Services, and Other Operations 9,460 9,541 6,630 ------- ------- ------- Total Automotive, Communications Services, and Other Operations liabilities and GM investment $128,094 $125,561 $120,686 ======= ======= ======= March 31, March 31, 2000 Dec. 31, 1999 FINANCING AND INSURANCE OPERATIONS (Unaudited) 1999 (Unaudited) --------- ---- --------- (Dollars in Millions) ASSETS Cash and cash equivalents $910 $712 $502 Investments in securities 9,016 9,110 8,703 Finance receivables - net 84,581 80,627 73,839 Investment in leases and other receivables 37,350 36,407 32,707 Other assets 21,243 21,312 15,400 Net receivable from Automotive, Communications Services, and Other Operations 1,407 1,001 339 ------- ------- ------- Total Financing and Insurance Operations assets $154,507 $149,169 $131,490 ======= ======= ======= LIABILITIES AND GM INVESTMENT Accounts payable $4,616 $4,262 $4,405 Debt 124,492 122,282 106,379 Other liabilities and deferred income taxes 12,202 11,282 10,395 ------- ------- ------- Total Financing and Insurance Operations liabilities 141,310 137,826 121,179 Minority interests 26 22 60 GM investment in Financing and Insurance Operations 13,171 11,321 10,251 ------- ------- ------- Total Financing and Insurance Operations liabilities and GM investment $154,507 $149,169 $131,490 ======= ======= ======= 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, ---------------------------- 2000 1999 ------ ------ (Dollars in Millions) GENERAL MOTORS CORPORATION AND SUBSIDIARIES Net cash provided by operating activities $6,104 $15,094 Cash flows from investing activities Expenditures for property (1,805) (1,384) Investments in marketable securities - acquisitions (6,828) (7,553) Investments in marketable securities - liquidations 6,981 6,344 Mortgage servicing rights - acquisitions (178) (327) Mortgage servicing rights - liquidations - - Finance receivables - acquisitions (51,978) (42,969) Finance receivables - liquidations 35,252 31,921 Proceeds from sales of finance receivables 12,248 7,375 Operating leases - acquisitions (6,655) (5,898) Operating leases - liquidations 3,502 3,129 Investments in companies, net of cash acquired (Note 11) (154) (514) Other 146 (170) ----- ------ Net cash used in investing activities (9,469) (10,046) ----- ------ Cash flows from financing activities Net decrease in loans payable (589) (5,231) Long-term debt - borrowings 8,940 7,970 Long-term debt - repayments (5,610) (3,980) Repurchases of common and preference stocks (132) (979) Proceeds from issuing common and preference stocks 156 284 Cash dividends paid to stockholders (339) (343) ----- ----- Net cash provided by (used in) financing activities 2,426 (2,279) ----- ----- Effect of exchange rate changes on cash and cash equivalents (96) (188) ------ ------ Net cash (used in) provided by continuing operations (1,035) 2,581 Net cash provided by discontinued operations (Note 2) - 128 ----- ----- Net (decrease) increase in cash and cash equivalents (1,035) 2,709 Cash and cash equivalents at beginning of the period 10,442 9,874 ------ ------ Cash and cash equivalents at end of the period $9,407 $12,583 ===== ====== 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, ---------------------------- 2000 1999 ---- ---- Automotive, Financing Automotive, Financing Comm.Serv. and Comm.Serv. and and Other Insurance and Other Insurance --------- --------- --------- --------- (Dollars in Millions) Net cash provided by operating activities $2,449 $3,655 $9,188 $5,906 Cash flows from investing activities Expenditures for property (1,702) (103) (1,345) (39) Investments in other marketable securities - acquisitions (970) (5,858) (1,813) (5,740) Investments in other marketable securities - liquidations 720 6,261 1,077 5,267 Mortgage servicing rights - acquisitions - (178) - (327) Mortgage servicing rights - liquidations - - - - Finance receivables - acquisitions - (51,978) - (42,969) Finance receivables - liquidations - 35,252 - 31,921 Proceeds from sales of finance receivables - 12,248 - 7,375 Operating leases - acquisitions (2,174) (4,481) (2,465) (3,433) Operating leases - liquidations 1,763 1,739 1,281 1,848 Investments in companies, net of cash acquired (Note 11) (154) - (514) - Net investing activity with Financing and Insurance Operations (998) - 75 - Other (291) 437 (1,162) 992 ----- ----- ----- ----- Net cash used in investing activities (3,806) (6,661) (4,866) (5,105) ----- ----- ----- ----- Cash flows from financing activities Net decrease in loans payable (25) (564) (485) (4,746) Long-term debt - borrowings 1,186 7,754 411 7,559 Long-term debt - repayments (1,033) (4,577) (320) (3,660) Net financing activity with Automotive, Communications Services, and Other Operations - 998 - (75) Repurchases of common and preference stocks (132) - (979) - Proceeds from issuing common and preference stocks 156 - 284 - Cash dividends paid to stockholders (339) - (343) - --- ----- ----- --- Net cash (used in) provided by financing activities (187) 3,611 (1,432) (922) --- ----- ----- --- Effect of exchange rate changes on cash and cash equivalents (95) (1) (188) - Net transactions with Automotive/ Financing Operations 406 (406) (477) 477 ----- --- ----- --- Net cash (used in) provided by continuing operations (1,233) 198 2,225 356 Net cash provided by discontinued operations (Note 2) - - 128 - ----- --- ----- --- Net (decrease) increase in cash and cash equivalents (1,233) 198 2,353 356 Cash and cash equivalents at beginning of the period 9,730 712 9,728 146 ----- --- ------ --- Cash and cash equivalents at end of the period $8,497 $910 $12,081 $502 ===== === ====== ===
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. 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, 1999 consolidated financial statements and notes thereto included in General Motors Corporation's (the "Corporation" or "GM") 1999 Annual Report on Form 10-K, and all other GM, Hughes Electronics Corporation and Subsidiaries (Hughes), and General Motors Acceptance Corporation and Subsidiaries (GMAC) filings with the Securities and Exchange Commission. GM presents separate supplemental consolidating financial information for the following businesses: (1) Automotive, Communications Services, 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, vehicle and homeowners' insurance, and asset-based lending. Transactions between businesses have been eliminated in the Corporation's consolidated statements of income. Certain amounts for 1999 were reclassified to conform with the 2000 classifications. Note 2. Discontinued Operations On February 5, 1999, Delphi Automotive Systems Corporation (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 (GM Board) approved the complete separation of Delphi from GM by means of a spin-off (which was tax-free to GM and its stockholders for U.S. federal income tax purposes). On May 28, 1999, GM distributed to holders of its $1-2/3 par value common stock 80.1% of the outstanding shares of Delphi, which resulted in 0.69893 shares of Delphi common stock being distributed for each share of GM $1-2/3 par value common stock outstanding on the record date of May 25, 1999. In addition, GM contributed the remaining 2.2% of Delphi shares (around 12.4 million shares), to a Voluntary Employee Beneficiary Association (VEBA) trust established by GM to fund benefits to its hourly retirees. The financial data related to GM's investment in Delphi through May 28, 1999 is classified as discontinued operations for all periods presented. Delphi net sales (including sales to GM) included in discontinued operations totaled $7.5 billion for the three months ended March 31, 1999. Income from Delphi discontinued operations of $242 million for the three months ended March 31, 1999 is reported net of income tax expense of $174 million. The net assets of Delphi were as follows (in millions): March 31, 1999 ---- Current assets $8,730 Property and equipment - net 4,907 Deferred income taxes and other assets 4,442 Current liabilities (4,518) Long-term debt (1,667) Other liabilities (8,543) Accumulated translation adjustments 172 Minority interest related to Delphi (332) ----- Net assets of discontinued operations $3,191 ===== - 9 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 3. Inventories Inventories included the following for Automotive, Communications Services, and Other Operations (in millions): March 31, Dec. 31, March 31, 2000 1999 1999 -------- ------- -------- Productive material, work in process, and supplies $5,963 $5,505 $6,180 Finished product, service parts, etc. 7,955 7,023 7,288 ------ ------ ------ Total inventories at FIFO 13,918 12,528 13,468 Less LIFO allowance 1,890 1,890 1,902 ------ ------ ------ Total inventories (less allowances) $12,028 $10,638 $11,566 ====== ====== ====== Note 4. Property - Net Property - net included the following for Automotive, Communications Services, and Other Operations (in millions): March 31, Dec. 31, March 31, 2000 1999 1999 -------- ------- -------- Real estate, plants, and equipment $59,819 $59,777 $58,585 Less accumulated depreciation (34,010) (34,363) (33,988) ------ ------ ------ Real estate, plants, and equipment - net 25,809 25,414 24,597 Special tools - net 7,368 7,365 7,039 ------ ------ ------ Total property - net $33,177 $32,779 $31,636 ====== ====== ====== Financing and Insurance Operations had net property of $1.2 billion, $496 million, and $365 million recorded in other assets at March 31, 2000, December 31, 1999, and March 31, 1999, 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. 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% 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). - 10 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 6. Preferred Securities of Subsidiary Trusts (concluded) The Series D Debentures were 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. The Series D Preferred Securities were mandatorily redeemable upon the maturity or earlier redemption of the Series D Debentures. On May 2, 2000, GM redeemed the Series D Debentures causing the Series D Trust to redeem the approximately 3.1 million outstanding Series D Preferred Securities. The Series D Preferred Securities were redeemed at a price of $25 per share plus accrued and unpaid distributions of $0.01 per share. The Series D 7.92% Depositary Shares were redeemable, in whole or in part, at GM's option on or after August 1, 1999 at a redemption price equal to $25 per share plus accrued and unpaid dividends. GM, on May 2, 2000, redeemed the approximately 3 million outstanding Series D 7.92% Depositary Shares. The Series D 7.92% Depositary Shares were redeemed at a price of $25 per share plus accrued and unpaid dividends of $0.18 per share. The securities together had a total face value of approximately $154 million. 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. 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. America Online's Investment in GM Preference Stock On June 24, 1999, as part of a strategic alliance with Hughes, America Online (AOL) invested $1.5 billion in return for approximately 2.7 million shares of GM Series H 6.25% Automatically Convertible Preference Stock, par value $0.10 per share. This preference stock will automatically convert into GM Class H common stock in three years, based upon a variable conversion factor linked to the GM Class H common stock price at the time of conversion, and accrues quarterly dividends at a rate of 6.25% per year. It may be converted earlier in certain limited circumstances. GM immediately invested the $1.5 billion received from AOL into shares of Hughes Series A Preferred Stock designed to correspond to the financial terms of the GM Series H 6.25% Automatically Convertible Preference Stock. Dividends on the Hughes Series A Preferred Stock are payable to GM quarterly at an annual rate of 6.25%. These preferred stock dividends payable to GM will reduce Hughes' earnings used for computation of the Available Separate Consolidated Net Income (Loss) (ASCNI) of Hughes, which will have an effect equivalent to the payment of dividends on the GM Series H 6.25% Automotically Convertible Preference Stock as if those dividends were paid by Hughes. Upon conversion of the GM Series H 6.25% Automatically Convertible Preference Stock into GM Class H common stock, Hughes will redeem the Hughes Series A Preferred Stock through a cash payment to GM equal to the fair market value of GM Class H common stock issuable upon the conversion. Simultaneous with GM's receipt of the cash redemption proceeds, GM will make a capital contribution to Hughes of the same amount. In connection with this capital contribution, the denominator of the fraction used in the computation of the ASCNI of Hughes will be increased by the corresponding number of shares of GM Class H common stock issued. Accordingly, upon conversion of the GM Series H 6.25% Automatically Convertible Preference Stock into GM Class H common stock, both the numerator and denominator used in the computation of ASCNI will increase by the amount of the GM Class H common stock issued. - 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, ------------------ 2000 1999 ---- ---- Net income $1,783 $2,062 Other comprehensive income (loss): Foreign currency translation adjustments (82) (693) (1) Unrealized gains (losses) on securities 168 (23) --- --- Other comprehensive income (loss) 86 (716) ----- ----- Total comprehensive income $1,869 $1,346 ===== ===== - --------------------- (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 (EPS) 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 GM common stock was as follows (in millions): Three Months Ended March 31, ------------------ 2000 1999 ---- ---- Earnings attributable to common stocks $1-2/3 par value Continuing operations $1,786 $1,783 Discontinued operations - 242 ----- ----- Earnings attributable to $1-2/3 par value $1,786 $2,025 (Losses) earnings attributable to Class H $(32) $21 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. (Losses) earnings attributable to GM Class H common stock for the three month periods ended March 31, 2000 and 1999, represent the ASCNI of Hughes. (Losses) earnings used for computation of the ASCNI of Hughes are based on the separate consolidated net (loss) income of Hughes, excluding the effects of GM purchase accounting adjustments arising from GM's acquisition of Hughes Aircraft Company (HAC) which remains after the spin-off of Hughes Defense, reduced by the amount of dividends accrued on the Hughes Series A Preferred Stock (as an equivalent measure of the effect that GM's payment of dividends on the GM Series H 6.25% Automatically Convertible Preference Stock would have if paid by Hughes). The calculated (losses) earnings used for the computation of the ASCNI of Hughes is then multiplied by a fraction, the numerator of which is equal to the weighted-average number of shares of GM Class H common stock outstanding during the three month periods ended March 31, 2000 and 1999 (138 million and 106 million, respectively), and the denominator of which is a number equal to the weighted-average number of shares of GM Class H common stock which if issued and outstanding would represent a 100% interest in the earnings of Hughes (the "Average Class H dividend base"). The Average Class H dividend base was 432 million and 400 million during the three month periods ended March 31, 2000 and 1999, respectively. - 12 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 9. Earnings Per Share Attributable to Common Stocks (concluded) Under the GM Restated Certificate of Incorporation, the GM Board may adjust the denominator of the Class H fraction that determines the net income (loss) of Hughes attributable to the GM Class H common stock - that is, the Class H dividend base, from time to time as the GM Board deems appropriate to reflect the following: (a) subdivisions and combinations of the GM Class H common stock and stock dividends payable in shares of GM Class H common stock to holders of GM Class H common stock; (b) the fair market value of contributions of cash or property by GM to Hughes, or of cash or property of GM to or for the benefit of employees of Hughes for employee benefit plans or arrangements of GM, Hughes, or other GM subsidiaries; (c) the contribution of shares of capital stock of GM to or for the benefit of employees of Hughes or its subsidiaries for benefit plans or arrangements of GM, Hughes, or other GM subsidiaries; (d) payments made by Hughes to GM of amounts applied to the repurchase by GM of shares of GM Class H common stock, so long as the GM Board has approved the repurchase and GM applied the payment to the repurchase; and (e) the repurchase by Hughes of shares of GM Class H common stock that are no longer outstanding, so long as the GM Board approved the repurchase. Additionally, upon conversion of the GM Series H 6.25% Automatically Convertible Preference Stock into GM Class H common stock, both the numerator and the denominator used in the computation of ASCNI will increase by the number of shares of the GM Class H common stock issued (see further discussion in Note 7 to the GM consolidated financial statements). On December 15, 1999, in order to fulfill its previously disclosed goal of repurchasing shares of $1-2/3 par value common stock, GM entered into a derivative transaction pursuant to which it purchased for cash from a financial institution on that date approximately 8.5 million shares of $1-2/3 par value common stock. Upon receiving the shares, GM immediately reduced its common shares outstanding used to calculate both basic and diluted EPS. GM is obligated to deliver to the financial institution any difference in the notional value of such amount of shares, based on trading prices to be determined during a period following July 25, 2000. GM has the option to settle this derivative trade either in cash or through delivery of securities. Since the transaction gives GM this settlement option, it is considered an equity instrument for accounting purposes. As such, changes in fair value are not recorded and final settlement is recorded in equity. GM also has the right from time to time to settle all or part of the transaction prior to July 25, 2000 by delivering a notice of early settlement, in which event the notional value for the shares settled will be determined in respect of the earlier settlement date. As of March 31, 2000, there remained approximately 3.4 million unsettled shares related to this transaction. Any net loss on this transaction is included in the calculation of diluted EPS. The reconciliation of the amounts used in the basic and diluted EPS 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 ASCNI Shares Amount ------ ------ ------ ----- ------ ------ Three Months Ended March 31, 2000 Income (loss) from continuing operations $1,807 $(24) Less:Dividends on preference stocks 21 8 ----- --- Basic EPS Income (loss) from continuing operations attributable to common stocks 1,786 620 $2.88 (32) 138 $(0.23) ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 17 - - ----- --- --- --- Diluted EPS Adjusted income (loss) from continuing operations attributable to common stocks $1,786 637 $2.80 $(32) 138 $(0.23) ===== === ==== == === ==== 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 attributable to common stocks 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 attributable to common stocks $1,782 667 $2.68 $22 112 $0.19 ===== === ==== == === ====
- 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, ------------------ 2000 1999 ---- ---- Other income Interest income $535 $544 Insurance premiums 343 340 Rental car lease revenue 447 448 Mortgage operations investment income and servicing fees 775 684 Other 287 290 ----- ----- Total other income $2,387 $2,306 ===== ===== Other expenses Provision for financing losses $107 $119 Insurance losses and loss adjustment expenses 234 261 Other 168 58 --- ---- Total other expenses $509 $438 === === Note 11. Acquisitions, Investments, and Divestitures Acquisitions and Investments On January 28, 2000, GM completed the acquisition of the remaining 50% of Saab Automobile AB from Investor A.B. for $125 million. The transaction was accounted for using the purchase method of accounting. The allocation of the purchase price is expected to be finalized in the third quarter of 2000. Additionally, in the first quarter of 2000, GM finalized the allocation of the purchase price to its investment in Isuzu Motors Ltd., which resulted in approximately $227 million of negative goodwill which was used to reduce the carrying value of long-lived assets. On April 12, 2000, GM finalized the previously announced Agreement of Strategic Alliance (the "Alliance Agreement") between GM and Fuji Heavy Industries Ltd. (Fuji) in which GM purchased 157,262,925 newly-issued shares of Fuji's voting common stock, par value 50 yen ((Y)50) per share, for approximately $1.3 billion, an equity interest in Fuji of 20% on a fully diluted basis, at the time of payment. This investment will be accounted for using the equity method of accounting and Fuji will remain an independent company with GM as its largest shareholder. This Alliance Agreement will allow GM and Fuji to collaborate in the design, development, and manufacturing of cars, trucks, and related technology. In 1999, significant transactions included the merger with United States Satellite Broadcasting Company, Inc. (USSB) and acquisitions of PRIMESTAR, the asset-based lending and factoring business unit of The Bank of New York (BNYFC), and the full-service leasing business of Arriva Automotive Solutions Limited (Arriva). The following selected unaudited pro forma information is being provided to present a summary of the combined results of GM, USSB, PRIMESTAR, BNYFC, and Arriva for the three months ended March 31, 1999 as if the acquisitions had occurred as of the beginning of the period, giving effect to purchase accounting adjustments. The pro forma data presents only significant transactions, is presented for informational purposes only, and may not necessarily reflect the results of operations of GM had these companies operated as part of GM for the period presented, nor are they necessarily indicative of the results of future operations. The pro forma information excludes the effect of non-recurring charges. - 14 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 11. Acquisitions, Investments, and Divestitures (concluded) The pro forma information is as follows (in millions except per share amounts): Three Months Ended March 31, 1999 -------------- Total net sales and revenues $43,080 Net income from continuing operations $1,825 Net income from discontinued operations 242 ------ Net income $2,067 ===== Basic earnings per share attributable to common stocks $1-2/3 par value Continuing operations $2.73 Discontinued operations 0.37 ---- Earnings per share attributable to $1-2/3 par value $3.10 ==== Earnings per share attributable to Class H $0.20 ==== Diluted earnings per share attributable to common stocks $1-2/3 par value Continuing operations $2.68 Discontinued operations 0.36 ---- Earnings per share attributable to $1-2/3 par value $3.04 ==== Earnings per share attributable to Class H $0.19 ==== Divestitures On January 13, 2000, Hughes announced that it had reached an agreement to sell its satellite systems manufacturing businesses to The Boeing Company (Boeing) for approximately $3.8 billion in cash. The transaction, which is subject to regulatory approval, is expected to close in the third quarter of 2000 and result in an after-tax gain in excess of $1.0 billion. In addition, if Hughes were to enter into a settlement of the China investigation (see Note 13 to the GM consolidated financial statements) prior to the closing of the Boeing transaction that involves a debarment from sales to the U.S. government or a material suspension of Hughes' export licenses or other material limitation on projected business activities of the satellite systems manufacturing business, Boeing would not be obligated to complete the purchase of Hughes' satellite systems manufacturing businesses. On March 1, 2000, Hughes announced that the operations of DIRECTV Japan (DTVJ), Hughes' affiliate that provides DIRECTV services in Japan, would be discontinued and that its subscribers would have the opportunity to migrate during 2000 to SkyPerfecTV!, a company in Japan that provides direct-to-home satellite broadcast services that is expected to complete an IPO during the third quarter of 2000. In connection with the agreement, Hughes acquired an approximate 6.6% interest in SkyPerfecTV!. As a result of the transaction, in the first quarter of 2000, Hughes wrote off its investment and accrued for the estimated costs to exit the DTVJ business. The principal components of the accrued exit costs include estimated subscriber migration and termination costs and costs to terminate certain leases, programming agreements, and other long-term contractual commitments. These one-time charges were offset by the estimated fair value of the SkyPerfecTV! interest acquired. The fair value of the SkyPerfecTV! interest recorded was estimated based upon a preliminary independent appraisal, which is expected to be completed within three to six months. Accordingly, the final amount of the fair value of the SkyPerfecTV! investment recorded may be different from the amount reflected herein. The total loss related to DTVJ for the first quarter of 2000, including Hughes' share of DTVJ's operating losses, was approximately $230 million. The after-tax impact was aproximately $49 million. Hughes will continue to record its share of DTVJ's operating losses during the remainder of 2000. - 15 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 12. Segment Reporting GM's reportable operating segments within its Automotive, Communications Services, and Other Operations business consist of GM Automotive (GMA), which is comprised of four regions: GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia/Pacific (GMAP); 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 were 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, 2000 Manufactured products sales & revenues: External customers $29,033 $6,448 $1,234 $749 $- $37,464 $2,081 $851 $40,396 $- $- $- Intersegment 412 264 141 80 (897) - 11 (11) - - - - ------ ----- ----- --- --- ------ ----- --- ------ ---- ---- ---- Total manufactured products 29,445 6,712 1,375 829 (897) 37,464 2,092 840 40,396 - - - Financing revenues - - - - - - - - - 3,779 296 4,075 Other income 696 122 15 34 - 867 26 (94) 799 1,842 (254) 1,588 ------ ----- ----- --- --- ------ ----- --- ------ ----- --- ----- Total net sales and revenues $30,141 $6,834 $1,390 $863 $(897) $38,331 $2,118 $746 $41,195 $5,621 $42 $5,663 ====== ===== ===== === === ====== ===== === ====== ===== == ===== Interest income (a) $123 $100 $6 $2 $- $231 $18 $(88) $161 $483 $(109) $374 Interest expense $266 $86 $21 $- $- $373 $45 $(202) $216 $1,910 $102 $2,012 Net income (loss) $1,290 $221 $1 $7 $(1) $1,518 $(77)(c) $(36) $1,405 $397 $(19) $378 Segment assets $84,862 $21,139 $4,597 $1,268$(2,244) $109,622 $20,196 (d)$(1,724) $128,094 $153,913 $594 $154,507 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) $1,408 $174 $(25) $(60) $13 $1,510 $78(c) $101(b) $1,689 $392 $(19) $373 Segment assets $71,825 $17,869 $4,173 $1,259 $(870 $94,256 $12,990(d) $13,440 $120,686 $132,090 $(600) $131,490
(a)Interest income is included in other income. (b)The amount for Other includes income from discontinued operations related to Delphi of $242 million for the three months ended March 31, 1999. (c)The amount reported for Hughes excludes amortization of GM purchase accounting adjustments of approximately $5 million for both 2000 and 1999, related to GM's acquisition of HAC. Such amortization was allocated to GM's Other segment which is consistent with the basis upon which the segments are evaluated. (d)The amount reported for Hughes excludes the unamortized GM purchase accounting adjustments of approximately $400 million and $421 million, for 2000 and 1999, respectively, related to GM's acquisition of HAC. These adjustments were allocated to GM's Other segment which is consistent with the basis upon which the segments are evaluated. - 16 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 13. Commitments and Contingent Matters Commitments On February 1, 2000, and subsequently revised on March 13, 2000, GM announced plans for a broad restructuring of its economic interest in Hughes, including an offer to repurchase $1-2/3 par value common stock in exchange for $9.0 billion of GM Class H common stock, and contributions up to $7.0 billion in GM Class H common stock to the U.S. Hourly-Rate Employee Pension Plan and VEBA trust. The exchange offer commenced April 24, 2000 and is expected to expire May 19, 2000. GM will issue 1.065 shares of GM Class H common stock for each share of GM $1-2/3 par value common stock tendered. This exchange ratio reflected a premium of 17.7% on GM $1-2/3 par value common stock, based on the closing price of $88.50 per share of GM $1-2/3 par value common stock and $97.81 per share of GM Class H common stock on the New York Stock Exchange composite tape on April 19, 2000. GM will accept up to 86,396,977 shares of GM $1-2/3 par value common stock and issue up to 92,012,781 shares of GM Class H common stock. GM expects to complete the exchange offer as well as the pension and VEBA contributions during the second quarter of 2000. On March 13, 2000, GM entered into an agreement with Fiat S.p.A. (Fiat) to form a strategic industrial alliance, including substantial financial participation in each other's business. As part of the alliance, GM will acquire a 20% stake in Fiat in exchange for $2.4 billion in GM $1-2/3 par value common stock. Fiat's holdings of GM will amount to approximately 5.1% of GM $1-2/3 par value common stock. GM and Fiat will enter into a separate registration rights agreement with respect to the shares of GM $1-2/3 par value common stock to be acquired by Fiat. The transaction is expected to be completed in 2000. Contingent Matters 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 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 participating in government contracts. If Hughes were to enter into a settlement of this matter prior to the closing of the Boeing transaction (see Note 11 to the GM consolidated financial statements) that involves a debarment from sales to the U.S. government or a material suspension of Hughes' export licenses or other material limitation on projected business activities of the satellite systems manufacturing businesses, Boeing would not be obligated to complete the purchase of Hughes' satellite systems manufacturing businesses. 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 such a favorable outcome. In connection with the 1997 spin-off of the defense electronics business of Hughes' predecessor as part of the Hughes restructuring transactions and the subsequent merger of that business with Raytheon Company (Raytheon), 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. These 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. Hughes and Raytheon are proceeding with the dispute resolution process. It is possible that 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 dispute through the arbitration processes, opposing the adjustments proposed by Raytheon, and seeking the payment from Raytheon that Hughes has proposed. General Electric Capital Corporation (GECC) and DIRECTV, Inc. (DIRECTV) entered into a contract on July 31, 1995, in which GECC agreed to establish and manage a private label consumer credit program for consumer purchases of hardware and related DIRECTV programming. Under the contract, GECC also agreed to provide certain related services to DIRECTV, including credit risk scoring, billing, and collections services. DIRECTV agreed to act as a surety for loans complying with the terms of the contract. Hughes guaranteed DIRECTV's performance under the contract. A complaint and counterclaim have been filed by the parties in the U.S. District Court for the District of Connecticut concerning GECC's performance and DIRECTV's obligation to act as a surety. GECC claims damages from DIRECTV in excess of $140 million. DIRECTV is seeking damages from GECC in excess of $45 million. Hughes intends to vigorously contest GECC's allegations and pursue Hughes' own contractual rights and remedies. Hughes does not believe that the litigation will have a material adverse impact on Hughes' results of operations or financial position. The court has set a trial date of June 12, 2000. - 17 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 13. Commitments and Contingent Matters (continued) Contingent Matters (continued) As part of a marketing agreement entered into with AOL on June 21, 1999, Hughes committed to increase its sales and marketing expenditures over the next three years by approximately $1.5 billion relating to DirecPC/AOL-Plus, DlRECTV, DlRECTV/AOL TV and DirecDuo. Hughes Space and Communications International (HSCI), a wholly owned subsidiary of Hughes Space and Communications Company, has certain contracts with ICO Global Communications Operations (ICO) to build the satellites and related components for a global wireless communications system. On August 27, 1999, the ICO parent company filed for bankruptcy protection under Chapter 11 in U.S. Bankruptcy Court in Wilmington, Delaware. On May 3, 2000, the U.S. Bankruptcy Court approved a plan of reorganization and ICO's assumption of contracts with HSCI. In connection with the contract assumption, ICO is expected to pay, in the second quarter of 2000, all pre-petition amounts due to Hughes related to the ICO contracts. On June 3, 1999, the National Rural Telecommunications Cooperative (NRTC) filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc. (together "DIRECTV") in the United States District Court for the Central District of California, alleging that DIRECTV has breached the DBS Distribution Agreement (the "DBS Agreement") with the NRTC. The DBS Agreement provides the NRTC with certain rights, in certain specified portions of the United States, with respect to DIRECTV programming delivered over 27 of the 32 frequencies at the 101 degrees west longitude orbital location. The NRTC claims that DIRECTV has wrongfully deprived it of the exclusive right to distribute programming formerly provided by USSB over the other five frequencies at 101 degrees. DIRECTV denies that the NRTC is entitled to exclusive distribution rights to the former USSB programming because, among other things, the NRTC's exclusive distribution rights are limited to programming distributed over 27 of the 32 frequencies at 101 degrees. The NRTC's complaint seeks, in the alternative, the right to distribute former USSB programming on a non-exclusive basis and the recovery of related revenues from the date USSB was acquired by Hughes. DIRECTV maintains that the NRTC's right under the DBS Agreement is to market and sell the former USSB programming as its agent and the NRTC is not entitled to the claimed revenues. DIRECTV intends to vigorously defend against the NRTC claims. DIRECTV has also filed a counterclaim against the NRTC seeking a declaration of the parties' rights under the DBS Agreement. On August 26, 1999, the NRTC filed a second lawsuit against DIRECTV alleging that DIRECTV has breached the DBS Agreement. In this lawsuit, the NRTC is asking the court to require DIRECTV to pay the NRTC a proportionate share of unspecified financial benefits that DIRECTV derives from programming providers and other third parties. DIRECTV ignored the NRTC on account of the allegations in these matters and plans to vigorously defend itself against these claims. A purported class action suit was filed against DIRECTV on behalf of the NRTC's participating members on February 29, 2000. The members assert claims identical to the claims that were asserted by Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc. in their lawsuit against DIRECTV. Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV in United States District Court in Los Angeles. The plaintiffs allege, among other things, that DIRECTV has interfered with their contractual relationship with the NRTC. The plaintiffs plead that their rights and damages are derivative of the rights and claims asserted by the NRTC in its two cases against DIRECTV. The plaintiffs also allege that DIRECTV has interfered with their contractual relationships with manufacturers and distributors by preventing those parties from selling receiving equipment to the plaintiffs' dealers. DIRECTV denies that it has wrongfully interfered with any of the plaintiffs' business relationships and will vigorously defend the lawsuit. Although an amount of loss, if any, cannot be estimated at this time, an unfavorable outcome could be reached in the NRTC and Pegasus litigation that could be material to Hughes' results of operations or financial position. EchoStar Communications Corporation (EchoStar) and others commenced an action in the U.S. District Court in Colorado on February 1, 2000 against DIRECTV, Hughes Network Systems, and Thomson Consumer Electronics, Inc. seeking, among other things, injunctive relief and unspecified damages, including treble damages, in connection with allegations that the defendants have entered into agreements with retailers and program providers and engaged in other conduct that violates the antitrust laws and constitutes unfair competition. DIRECTV believes that the complaint is without merit and intends to vigorously defend against the allegations raised. Although an amount of loss, if any, cannot be estimated at this time, an unfavorable outcome could be reached that could be material to Hughes' results of operations or financial position. - 18 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded (Unaudited) Note 13. Commitments and Contingent Matters (concluded) Contingent Matters (concluded) Hughes and DIRECTV filed counterclaims against EchoStar on March 13, 2000, alleging that EchoStar tortiously interfered with DIRECTV's relationship with Kelly Broadcasting System, a provider of foreign-language programming; engaged in unfair business practices in connection with improper sales of network programming, misleading advertisements for National Football League games and EchoStar's "PRIMESTAR bounty program"; and infringed on PRIMESTAR trademarks. In Anderson, et al v. General Motors Corporation, a jury in a Los Angeles Superior Court returned a verdict of $4.9 billion against GM in a product liability lawsuit involving a post-collision fuel fed fire in a 1979 Chevrolet Malibu. In post-trial developments, the trial court has reduced the punitive damages from $4.8 billion to $1.1 billion and has entered an order which stays execution of the judgment pending resolution of all appeals by GM and has released the bond GM had posted for the punitive and compensatory damages (the cost of which was not material to the Corporation). GM continues to pursue its appellate rights, including efforts to secure a new trial and the complete elimination of responsibility to pay any damages in this matter consistent with GM's view that the design of the Chevrolet Malibu was not responsible for plaintiffs' injuries. In connection with GM's disposition of certain businesses (including Delphi), GM has granted the United Auto Workers guarantees covering benefits to be provided to certain former U.S. hourly employees of GM who became employees of the disposed businesses. These guarantees have limited terms that do not extend beyond October 2007. In connection with such guarantees relating to certain of Delphi's U.S. hourly employees, GM and Delphi entered into an agreement, the provisions of which are designed to prevent or mitigate the risk that GM's guarantee relating to Delphi's employees would ever be called upon, or, if it is, any payments thereunder by GM would result in the obligation of Delphi to indemnify and hold GM harmless as to such amounts. GM believes that the likelihood it will make payments under any of these various guarantees is remote and that if such payments are made they will not be material to GM's financial position or results of operations. 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 March 31, 2000. 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 condition or results of operations. * * * * * * - 19 - 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 December 31, 1999 consolidated financial statements and notes thereto along with the MD&A included in General Motors Corporation's (the "Corporation" or "GM") 1999 Annual Report on Form 10-K, and all other GM, Hughes Electronics Corporation and Subsidiaries (Hughes), and General Motors Acceptance Corporation and Subsidiaries (GMAC) filings with the Securities and Exchange Commission. All earnings per share amounts included in the MD&A are reported as diluted. GM presents separate supplemental consolidating financial information for the following businesses: Automotive, Communications Services, and Other Operations and Financing and Insurance Operations. GM's reportable operating segments within its Automotive, Communications Services, and Other Operations business consist of: . GM Automotive (GMA) is comprised of four regions: GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia/Pacific (GMAP). . Hughes includes activities relating to digital entertainment, information and communications services, and satellite-based private business networks. . The Other segment includes the design, manufacturing, and marketing of locomotives and heavy-duty transmissions, the elimination of intersegment transactions, and certain non-segment specific revenues and expenditures. GM's reportable operating segments within its Financing and Insurance Operations business consist of GMAC and Other. The Financing and Insurance Operations' Other segment includes financing entities operating in the U.S., Canada, Brazil, and Sweden which are not associated with GMAC. 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 purpose of assisting in making internal operating decisions. In this regard, certain common expenses were allocated among regions less precisely than would be required for stand-alone 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, Communications Services, 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. - 20 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS In the first quarter of 2000, GM's consolidated income from continuing operations totaled $1.8 billion or $2.80 per share of $1-2/3 par value common stock, which represents a decrease of $37 million compared with $1.8 billion or $2.68 per share of $1-2/3 par value common stock in the first quarter of 1999. On April 12, 1999, the GM Board of Directors (GM Board) approved the complete separation of Delphi Automotive Systems Corporation (Delphi) from GM by means of a spin-off (which was tax-free to GM and its stockholders for U.S. federal income tax purposes) which was completed on May 28, 1999 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 $3.04 per share of $1-2/3 par value common stock. Additional information regarding the spin-off of Delphi is contained in Note 2 to the GM consolidated financial statements. Automotive, Communications Services, and Other Operations - --------------------------------------------------------- Highlights of financial performance by GM's Automotive, Communications Services, and Other Operations business were as follows for the three months ended March 31, (in millions): 2000 1999 ---- ---- Total net sales and revenues GMA $38,331 $35,363 Hughes 2,118 1,635 Other 746 525 -------- -------- Total net sales and revenues $41,195 $37,523 ====== ====== Net income (loss) GMA $1,518 $1,510 Hughes (1) (77)(2) 78 Other (36) (141) ------- ----- Income from continuing operations 1,405 1,447 Discontinued operations - 242 -------- ------ Net income $1,405 $1,689 ===== ===== - ---------------- (1) Excludes amortization of GM purchase accounting adjustments of $5 million for the first quarters of 2000 and 1999, related to GM's acquisition of Hughes Aircraft Company (HAC) in 1985. Such amortization was allocated to GM's Other segment which is consistent with the basis upon which the segments are evaluated. (2) Includes a $13 million net loss related to the discontinuation of DIRECTV Japan's (DTVJ) operations and migration of its subscribers to SkyPerfecTV!. The net loss is comprised of a pre-tax charge of approximately $171 million, partially offset by a $158 million tax benefit associated with DTVJ's higher tax basis. See the Hughes Financial Review for further information. - 21- GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMA Financial Highlights Three Months Ended March 31, ---------------------- 2000 1999 ---- ---- (Dollars in Millions) GMNA Total net sales and revenues $30,141 $28,068 ------ ------ Pre-tax income 1,922 2,097 Income tax expense 615 665 Earnings/(losses) of nonconsolidated associates and minority interests (17) (24) ----- ----- GMNA income $1,290 $1,408 ===== ===== GME Total net sales and revenues $6,834 $6,277 ----- ----- Pre-tax income 349 281 Income tax expense 130 105 Earnings/(losses) of nonconsolidated associates and minority interests 2 (2) --- --- GME income $221 $174 === === GMLAAM Total net sales and revenues $1,390 $1,033 ----- ----- Pre-tax loss (36) (58) Income tax benefit (23) (36) Earnings/(losses) of nonconsolidated associates and minority interests 14 (3) -- --- GMLAAM income (loss) $1 $(25) = == GMAP Total net sales and revenues $863 $647 --- --- Pre-tax income (loss) 27 (25) Income tax expense (benefit) 10 (6) Earnings/(losses) of nonconsolidated associates and minority interests (10) (41) -- -- GMAP income (loss) $7 $(60) = == GMA (1) Total net sales and revenues $38,331 $35,363 ------ ------ Pre-tax income 2,263 2,315 Income tax expense 732 735 Earnings/(losses) of nonconsolidated associates and minority interests (13) (70) ----- ----- GMA income $1,518 $1,510 ===== ===== - ----------------- (1) GMA's results include eliminations of transactions among GMNA, GME, GMLAAM, and GMAP. - 22 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Vehicle Unit Deliveries of Cars and Trucks - GMA Three Months Ended March 31, ------------------------------------- 2000 1999 ------------------------ ------------------------- GM as GM as a % of a % of Industry GM Industry Industry GM Industry -------- --- -------- -------- --- -------- (Units in Thousands) GMNA United States Cars 2,227 644 28.9% 2,007 628 31.3% Trucks 2,262 639 28.3% 2,023 533 26.4% ----- ------ ----- ------ Total United States 4,489 1,283 28.6% 4,030 1,161 28.8% Canada, Mexico, and Other 590 159 27.1% 549 153 27.7% ------ ------ ------ ------ Total GMNA 5,079 1,442 28.4% 4,579 1,314 28.7% GME 5,509 518 9.4% 5,306 508 9.6% GMLAAM 834 133 15.9% 794 125 15.8% GMAP 3,261 111 3.4% 3,165 112 3.5% ------ ----- ------ ----- Total Worldwide 14,683 2,204 15.0% 13,844 2,059 14.9% ====== ===== ====== ===== Three Months Ended March 31, ------------------------- 2000 1999 ------- -------- (Units in Thousands) Wholesale Sales GMNA Cars 731 783 Trucks 758 718 ----- ----- Total GMNA 1,489 1,501 ----- ----- GME Cars 460 433 Trucks 39 37 --- --- Total GME 499 470 --- --- GMLAAM Cars 92 75 Trucks 43 47 --- --- Total GMLAAM 135 122 --- --- GMAP Cars 39 38 Trucks 77 54 --- -- Total GMAP 116 92 --- -- Total Worldwide 2,239 2,185 ===== ===== GMA Financial Review GMA reported income of $1.5 billion which is consistent with the income reported in the prior year quarter. Continued competitive pricing pressure and higher structural and engineering costs were offset by higher wholesale sales volumes, improved mix, and further material cost reductions. These factors also contributed to the decrease in GMA's net margin to 4.0% for the first quarter of 2000 from 4.3% for the first quarter of 1999. Total net sales and revenues for GMA in the first quarter of 2000 were $38.3 billion compared with $35.4 billion in the first quarter of 1999. The increase in net sales and revenues from the prior year quarter was primarily due to a 54,000 unit increase in wholesale sales volumes. GMA's worldwide vehicle deliveries were 2,204,000 for the first quarter of 2000, which represented a market share of 15.0% compared with 2,059,000 for the first quarter of 1999, which represented a market share of 14.9%. - 23 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMA Financial Review (concluded) GM is currently negotiating an agreement (which was announced in November 1999) with Commerce One, a recognized leader in business-to-business electronic procurement solutions, for development of an automotive focused e-commerce marketsite called the GM TradeXchange. In connection with this agreement, GM, Ford Motor Company, and DaimlerChrysler Corporation jointly announced on February 25, 2000 that they are planning to combine their efforts to form a business-to-business integrated supplier exchange through a single global portal which will create the world's largest virtual marketplace. The new enterprise will offer open participation to all auto manufacturers around the world, and their respective market of suppliers and dealers. Eventually, this marketplace could be expanded to encompass other industries. The three automakers plan to have equal ownership in the new venture which would operate as a separate independent business. A memorandum of agreement has been signed and requisite governmental approval will be sought shortly. Until then, GM TradeXchange will continue to offer its services. GMNA reported income of $1.3 billion for the first quarter of 2000 compared with $1.4 billion for the prior year quarter. The decrease in GMNA's first quarter 2000 income was primarily due to increased competitive pricing pressure, labor economics, and an increase in spending for product development activity, partially offset by material cost reductions. Net price was slightly lower for the quarter at (0.7)% year-over-year. 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. GMNA's market share for the first quarter of 2000 was 28.4% compared with 28.7% for the first quarter of 1999. GME reported income of $221 million for the first quarter of 2000 compared with $174 million for the prior year quarter. The improvement in GME's first quarter 2000 income was primarily due to higher wholesale sales volumes related to the Zafira and Corsa, partially offset by increased pricing pressures, as well as a shift of volumes from higher profit sales in Western Europe to lower profit sales in Central and Eastern Europe. During 1999, the European parliament began consideration of legislation regarding end-of-life vehicles and the responsibility of manufacturers of such vehicles for dismantling and recycling vehicles they have sold. GME is currently assessing the impact of this potential legislation on their results of operations and financial position. GMLAAM reported income of $1 million for the first quarter of 2000 compared with a loss of $25 million for the prior year quarter. The increase in GMLAAM's first quarter 2000 income compared to 1999 first quarter results was primarily due to higher wholesale sales volumes, nominal price increases, and equity income improvements from several joint ventures in the region, partially offset by increased material and freight costs driven by GM do Brasil's and its suppliers' exposure to hard currencies and inflationary factors, as well as increased manufacturing costs in preparation for the start of production at the Gravatai Plant in Brazil. GMAP reported income of $7 million for the first quarter of 2000 compared with a loss of $60 million for the prior year quarter. The increase in GMAP's first quarter 2000 income compared to first quarter 1999 results was primarily due to continued strong performance in Australia by Holden and improved equity earnings at Shanghai GM, which did not commence regular production until April 1999. Hughes Financial Highlights Three Months Ended March 31, ------------------------ 2000 1999 ---- ---- (Dollars in Millions Except Per Share Amounts) Total net sales and revenues $2,118 $1,635 ----- ----- Pre-tax (loss) income (213) 133 Income tax (benefit) expense (192) 36 Minority interests 8 7 Losses of nonconsolidated associates (69) (31) -- -- Net (loss) income $ (82) $ 73 == == (Losses) earnings used for computation of Available Separate Consolidated Net Income (1) $(101) $78 (Losses) earnings per share attributable to Class H common stock $(0.23) $0.19 - ------------ (1)Excludes amortization of GM purchase accounting adjustments of $5 million in both periods related to GM's acquisition of HAC in 1985. Includes accrued preferred stock dividends of $25 million in the first quarter of 2000. - 24 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Hughes Financial Review Total net sales and revenues for the first quarter of 2000 increased to $2.1 billion, compared with $1.6 billion in the first quarter of 1999. The DIRECTV businesses contributed to the overall change with an increase in revenues of $619 million over the first quarter of 1999 that resulted from the addition of 510,000 new subscribers in the United States and Latin America since December 31, 1999, and added revenues from PRIMESTAR By DIRECTV and premium channel services. PRIMESTAR medium-power direct-to-home and United States Satellite Broadcasting Company, Inc. (USSB) premium channel services businesses were acquired in mid-1999. Also contributing to the overall increase in net sales and revenues was Hughes Network Systems, which shipped nearly 1 million DIRECTV receiver systems during the first quarter of 2000 compared to about 0.2 million shipped in the first quarter of 1999 leading to an increase in net sales and revenues of $134 million. PanAmSat also reported an increase in net sales and revenues of $105 million due primarily to outright sales and sales-type leases of satellite transponders during the first quarter of 2000. These increases in net sales and revenues were partially offset by a $266 million decrease in net sales and revenues at Hughes Space and Communications which was principally due to decreased activity associated with a contract with ICO Global Communications Operations and a $155 million pre-tax gain related to the settlement of a patent infringement case included in 1999. Hughes had a pre-tax loss of $213 million in the first quarter of 2000, compared with pre-tax income of $133 million in the first quarter of 1999. The pre-tax loss for the first quarter of 2000 was primarily due to a one-time pre-tax charge of $171 million related to an agreement with SkyPerfecTV! and discontinuation of the DTVJ business, which is described below. Also contributing to the loss in the first quarter of 2000 was $99 million of higher depreciation and amortization expense due primarily to the 1999 PRIMESTAR and USSB acquisitions. Pre-tax income for the first quarter of 1999 included a $155 million pre-tax gain related to the settlement of a patent infringement case discussed above offset in part by a pre-tax charge to earnings of $92 million resulting from the termination of a satellite systems contract with Asia Pacific Mobile Telecommunications. Hughes recognized an income tax benefit in the first quarter of 2000 of $192 million, compared to income tax expense of $36 million in the first quarter of 1999. The income tax benefit for the first quarter of 2000 reflects the $158 million tax benefit associated with the write-off of Hughes' historical investments in DTVJ and tax benefits resulting from increased operating losses in the first quarter of 2000. Losses of nonconsolidated associates increased to $69 million in the first quarter of 2000, compared with $31 million in the first quarter of 1999. The increase was primarily due to higher equity losses recorded for DTVJ due to Hughes' increased investment during the third quarter of 1999. (Losses) earnings used for computation of Available Separate Consolidated Net Income (Loss) (ASCNI) in the first quarter of 2000 was a loss of $101 million, compared with earnings of $78 million in the first quarter of 1999. ASCNI in the first quarter of 2000 included $25 million of accrued preferred stock dividends. On March 1, 2000, Hughes announced that the operations of DTVJ, Hughes' affiliate that provides DIRECTV services in Japan, would be discontinued and that its subscribers would have the opportunity to migrate during 2000 to SkyPerfecTV!, a company in Japan that provides direct-to-home satellite broadcast services that is expected to complete an initial public offering during the third quarter of 2000. In connection with the agreement, Hughes acquired an approximate 6.6% interest in SkyPerfecTV!. As a result of the transaction, in the first quarter of 2000, Hughes wrote off its investment and accrued for the estimated costs to exit the DTVJ business. The principal components of the accrued exit costs include estimated subscriber migration and termination costs and costs to terminate certain leases, programming agreements, and other long-term contractual commitments. These one-time charges were offset by the estimated fair value of the SkyPerfecTV! interest acquired. The fair value of the SkyPerfecTV! interest recorded was estimated based upon a preliminary independent appraisal, which is expected to be completed within three to six months. Accordingly, the final amount of the fair value of the SkyPerfecTV! investment recorded may be different from the amount reflected herein. The total loss related to DTVJ for the first quarter of 2000, including Hughes' share of DTVJ's operating losses, was approximately $230 million. The after-tax impact was approximately $49 million. Hughes will continue to record its share of DTVJ's operating losses during the remainder of 2000. On January 13, 2000, Hughes announced that it had reached an agreement to sell its satellite systems manufacturing businesses to The Boeing Company for approximately $3.8 billion in cash. The transaction, which is subject to regulatory approval, is expected to close in the third quarter of 2000 and result in an after-tax gain in excess of $1.0 billion. - 25 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES 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): 2000 1999 ---- ---- Total net sales and revenues GMAC $5,621 $4,827 Other 42 85 ----- ----- Total net sales and revenues $5,663 $4,912 ===== ===== Net income (loss) GMAC $397 $392 Other (19) (19) ---- ---- Total net income $378 $373 === === GMAC Financial Highlights Three Months Ended March 31, ------------------ 2000 1999 ---- ---- (Dollars in Millions) Financing revenues Retail and lease financing $1,144 $1,006 Operating leases 2,012 1,795 Wholesale, commercial, and other loans 623 476 ------ ------ Total financing revenues 3,779 3,277 Interest and discount 1,910 1,513 Depreciation on operating leases 1,330 1,188 ----- ----- Net financing revenue 539 576 Mortgage revenue 860 728 Insurance premiums earned 462 447 Other income 520 374 ----- ----- Net financing revenue and other 2,381 2,125 Expenses 1,750 1,484 ----- ----- Pre-tax income 631 641 Income tax expense 234 249 --- --- Net income $397 $392 === === Net income from automotive and other financing operations $262 $229 Net income from insurance operations 62 65 Net income from mortgage operations 73 98 ---- ---- Net income $397 $392 === === GMAC Financial Review Net income from automotive and other financing operations totaled $262 million, up 14% from the $229 million earned in the first quarter of last year. Earnings were higher due primarily to higher asset levels and favorable loss experience. These higher earnings were partially offset by the onset of increased interest expense resulting from recent Federal Reserve rate increases. Insurance operations generated net income of $62 million in the first quarter of 2000, virtually unchanged from the $65 million earned in the first quarter of 1999. Increased volume was offset by storm-related losses. Mortgage operations earned $73 million in the first quarter of 2000, down 26% from the record $98 million earned for the same period last year. The decline in year-over-year performance is due to the non-recurrence of substantial benefits realized in the first quarter of 1999 that resulted from the securitization and sale of mortgage assets. During the first quarter of 2000, GMAC financed 45.3% of new GM vehicle retail deliveries in the United States, up from 42.0% compared to the same period last year. The increase in financing penetration was primarily the result of increased lease incentive programs sponsored by GM. GMAC also provides wholesale financing for GM and other dealers' new and used vehicle inventories. In the United States, inventory financing was provided for 866,000 new GM vehicles in 2000 and 868,000 new GM vehicles in 1999, representing 66.8% of all GM sales to U.S. dealers during the first quarter of 2000 and 1999. Wholesale penetration levels remained stable as a result of continued competitive pricing strategies by GMAC. - 26 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMAC Financial Review (concluded) Financing revenue totaled $3.8 billion in the first quarter of 2000, an increase of $502 million compared with the first quarter of 1999. The growth was mainly due to higher average retail, wholesale, operating lease, and other loan receivable balances, which resulted primarily from strong GM sales levels and continued GM-sponsored special financing programs. Insurance premiums earned totaled $462 million for the three months ended March 31, 2000, a $15 million increase over the comparable 1999 period. This increase was caused by higher volume in the mechanical repair protection, personal auto, and property and casualty reinsurance lines of business. These increases were partially offset by lower volume in commercial lines, primarily due to the July 1999 termination of an auto dealership program. Mortgage revenue and other income totaled $1.4 billion for the three months ended March 31, 2000, compared to $1.1 billion during the comparable period a year ago. The change from the comparable period in 1999 was mainly attributable to increases in mortgage servicing and processing fees and other income; interest and servicing fees earned on receivables due from Automotive, Communications Services, and Other Operations; and the inclusion of GMAC Commercial Credit LLC, which was acquired in July 1999. GMAC's worldwide cost of borrowing, including the effects of derivatives, for the first quarter of 2000 averaged 6.21% compared to 5.52% for the same period in 1999. Total borrowing costs for U.S. operations averaged 6.32% for the first quarter of 2000, compared to 5.44% for the same period in 1999. The increase in average borrowing costs was mainly a result of the steady increase in market interest rates beginning in the third quarter of 1999. Consolidated salaries and other operating expenses totaled $1.3 billion and $1.0 billion for the respective quarters ended March 31, 2000 and 1999. The increase was mainly attributable to continued growth and acquisitions at GMAC Mortgage Group, Inc. during the last three quarters of 1999. Additionally, GMAC acquisitions during 1999 contributed to a rise in goodwill amortization. The effective income tax rate was 37.1% and 38.8% for the three months ended March 31, 2000 and 1999, respectively. The decline in the effective tax rate can be attributed to decreases in accruals from prior years based upon periodic assessment of the adequacy of such accruals. LIQUIDITY AND CAPITAL RESOURCES Automotive, Communications Services, 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, 2000, totaled $13.4 billion compared with $14.4 billion at December 31, 1999 and $16.2 billion at March 31, 1999. The decrease from December 31, 1999 is primarily due to a $1.0 billion cash equity injection in GMAC. The total VEBA assets in the VEBA trust used to pre-fund part of GM's other postretirement benefits liability approximated $6.3 billion at March 31, 2000, compared to $6.3 billion at December 31, 1999 and $4.6 billion at March 31, 1999. Net liquidity, calculated as cash and marketable securities less the total of loans payable and long-term debt, was $(183) million at March 31, 2000, compared with $2.0 billion at December 31, 1999 and $5.3 billion at March 31, 1999. 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 $8.6 billion at March 31, 2000, compared to $7.4 billion at December 31, 1999 and $7.0 billion at March 31, 1999. The ratio of long-term debt to long-term debt and GM investment in Automotive, Communications Services, and Other Operations was 47.6% at March 31, 2000, compared to 43.7% at December 31, 1999 and 51.4% at March 31, 1999. The ratio of long-term debt and short-term loans payable to the total of this debt and GM investment was 52.9% at March 31, 2000, compared to 49.6% at December 31, 1999 and 54.3% at March 31, 1999. Financing and Insurance Operations - ---------------------------------- GM's Financing and Insurance Operations are conducted by GMAC, certain of its subsidiaries, and other financing entities operating in the U.S., Canada, Brazil, and Sweden which are not associated with GMAC. At March 31, 2000, GMAC owned assets and serviced automotive receivables totaling $166.9 billion, $4.6 billion above year-end 1999, and $25.8 billion above March 31, 1999. The year-to-year increase was principally the result of higher commercial and other loan receivables; serviced retail loan receivables; operating lease assets; serviced wholesale loan receivables; intangible assets; receivables due from Automotive, Communications Services, and Other Operations; other assets; and factored receivables. These increases were partially offset by a decline in real estate mortgages held for sale. - 27 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Financing and Insurance Operations (concluded) - ---------------------------------- Automotive and commercial finance receivables serviced by GMAC, including sold receivables, totaled $100.1 billion at March 31, 2000, $3.1 billion above December 31, 1999 levels and $15.0 billion above March 31, 1999 levels. The year-to-year increase was primarily a result of an $8.1 billion increase in commercial and other loan receivables, a $4.9 billion increase in serviced retail loan receivables, and a $2.5 billion increase in serviced wholesale loan receivables. The change in commercial and other loan receivables was due to the acquisition of the asset-based lending and factoring business unit of The Bank of New York Financial Corporation in July 1999 and increases in secured notes. Continued GM-sponsored retail financing incentives contributed to the rise in serviced retail loan receivables. The increase in serviced wholesale loan receivables over the prior year was a result of an increase in dealer inventory levels. The decrease in the on-balance sheet wholesale loan receivables was a result of two sales of wholesale receivables during the second half of 1999. GMAC's liquidity, as well as its ability to profit from ongoing acquisition activity, is in large part dependent upon its timely 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-term, medium-term, and long-term debt markets, principally through commercial paper, notes, and underwritten transactions. As of March 31, 2000, GMAC's total borrowings were $123.2 billion, compared with $121.2 billion and $105.3 billion at December 31, 1999 and March 31, 1999, respectively. The increased borrowings since March 31, 1999 were used to fund increased earning asset levels. GMAC's ratio of total debt to total stockholder's equity at March 31, 2000 was 9.5:1, compared to 10.9:1 at December 31, 1999, and 10.5:1 at March 31, 1999. The decline was due to capital contributions from GM totaling $1.5 billion during the first quarter of 2000. GMAC and its subsidiaries maintain substantial bank lines of credit which totaled $45.8 billion at March 31, 2000, compared to $46.2 billion at year-end 1999 and $42.0 billion at March 31, 1999. The unused portion of these credit lines totaled $36.5 billion at March 31, 2000, $963 million and $4.1 billion higher than December 31 and March 31, 1999, respectively. Included in the unused credit lines at March 31, 2000, is a $14.7 billion syndicated multi-currency global credit facility available for use in the U.S. by GMAC and in Europe, by GMAC International Finance B.V. and GMAC (UK) plc. The entire $14.7 billion is available to GMAC in the U.S., $900 million is available to GMAC (UK) plc and $750 million is available to GMAC International Finance B.V. At March 31, 1999, syndicated revolving credit facilities of $11.2 billion were available for use by these entities. The syndicated credit facility serves for GMAC's unsecured commercial paper programs. Also included in the unused credit lines is a $12.0 billion U.S. asset-backed commercial paper liquidity and receivables facility for New Center Asset Trust, a non-consolidated limited purpose business trust established to issue asset-backed commercial paper. Book Value Per Share Book value per share of $1-2/3 par value common stock was $29.42 at March 31, 2000, compared with $27.02 at December 31, 1999 and $22.40 at March 31, 1999. Book value per share of GM Class H common stock was $17.65 at March 31, 2000, compared with $16.21 at December 31, 1999 and $13.44 at March 31, 1999. Book value per share was determined based on the liquidation rights of the various classes of common stock. 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 GM Board. GM's 2000 first quarter RONA for continuing operations on an annualized basis, excluding Hughes, was 15.9%. CASH FLOWS Automotive, Communications Services, and Other Operations - --------------------------------------------------------- Net cash provided by operating activities was $2.4 billion for the first quarter of 2000 compared with $9.2 billion for the first quarter of 1999. The decrease in net cash provided by operating activities for the first quarter 2000 compared to the first quarter 1999 was primarily the result of decreases in operating liabilities. These decreases were primarily related to an extension of the payment terms in the first quarter of 1999. Net cash used in investing activities amounted to $3.8 billion for the first quarter of 2000 compared with $4.9 billion for the first quarter of 1999. The decrease in net cash used in investing activities during the first quarter of 2000 was primarily attributable to decreased cash used for investments in companies and investments in marketable securities and operating leases, partially offset by a $1.0 billion cash equity injection in GMAC. - 28 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CASH FLOWS Automotive, Communications Services, and Other Operations (concluded) - --------------------------------------------------------- Net cash used in financing activities was $187 million for the first quarter of 2000 compared with $1.4 billion for the first quarter of 1999. The decrease in net cash used for financing activities for the first quarter 2000 was primarily due to reduced stock repurchases as a result of the Corporation completing its $4.0 billion stock repurchase program in 1999, and increases in loans payable and long-term debt. Financing and Insurance Operations - ---------------------------------- Net cash provided by operating activities totaled $3.7 billion and $5.9 billion during the three months ended March 31, 2000 and 1999, respectively. The reduction in operating cash flow was primarily the result of a reduction in the net proceeds from sales of mortgage loans and an increase in miscellaneous assets, partially offset by a decrease in the origination/purchases of mortgage loans. Net cash used for investing activities during the first quarter of 2000 totaled $6.7 billion, a $1.6 billion increase compared to the same period last year. Net cash used increased primarily as a result of net increases in acquisitions of finance receivables and operating leases, partially offset by increased proceeds from sales of finance receivables. Net cash provided by financing activities during the three months ended March 31, 2000 totaled $3.6 billion, compared with net cash used of $922 million during the comparable 1999 period. The change was primarily the result of increases in short-term loans payable and a $1.0 billion cash equity injection from Automotive, Communications Services, and Other Operations, partially offset by a net decrease 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. In February 2000, the GM Board declared a quarterly cash dividend of $0.50 per share on $1-2/3 par value common stock, paid March 10, 2000 to holders of record as of February 11, 2000. 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, paid May 1, 2000, to holders of record on April 3, 2000. With respect to GM 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. A quarterly dividend of $8.7793 per share for the GM Series H 6.25% Automatically Convertible Preference Stock was paid May 1, 2000, to the holder of record on April 3, 2000. Employment and Payrolls Worldwide employment at March 31, (in thousands) 2000 1999 ---- ---- GMNA 214 222 GME 90 81 GMLAAM 23 23 GMAP 11 10 GMAC 26 24 Hughes 18 16 Other 13 11 --- --- Total employees 395 387 === === Three Months Ended March 31, ------------------ 2000 1999 ---- ---- Worldwide payrolls - (in billions) $5.5 $5.4 === === - 29 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES New Accounting Standard In June 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No. 133. This statement defers, for one year, the effective date of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, to those fiscal years beginning after June 15, 2000. 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. GM will adopt SFAS No. 133 by January 1, 2001, as required. Management is currently assessing the impact of this statement on GM's results of operations and financial position. * * * * * * * - 30 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS - -------------------------- (a) Material pending 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, 2000 or subsequent thereto, but before the filing of this report are summarized below: Other Matters With respect to the previously reported purported class actions filed against General Motors alleging defective rear disc brake caliper pins in the 1988-1993 "GM W-Body Cars," GM has agreed to resolve these matters. GM has entered into an agreement for settlement of the New Jersey consolidated case, Maryjane Garcia and Thomas Cook v. General Motors Corporation, and Peter Bishop v. General Motors Corporation. If approved by the court, the proposed settlement would provide for GM to contribute to the cost of the court providing notice of the proposed settlement to members of the class, and for payment by GM of $19 million to reimburse class members for eligible brake repair expenses and for plaintiffs' attorneys' fees. The trial court in New Jersey has preliminarily approved the proposed settlement. Notice of the proposed settlement will be provided to members of the class and a hearing will be held by the court to determine whether the proposed settlement is fair, reasonable and adequate. Pursuant to the settlement agreement, the plaintiffs in the other previously reported cases will dismiss their lawsuits; these include Keith McGill v. General Motors Corporation and Richard Dolowich v. General Motors Corporation (filed in New York), and Marcel v. General Motors Corporation, Neff v. General Motors Corporation, and Cohen v. General Motors Corporation (filed in Pennsylvania). * * * General Electric Capital Corporation (GECC) and DIRECTV, Inc. (DIRECTV) entered into a contract on July 31, 1995, in which GECC agreed to establish and manage a private label consumer credit contract, GECC also agreed to provide certain related services to DIRECTV, including credit risk scoring, billing, and collections services. DIRECTV agreed to act as a surety for loans complying with the terms of the contract. Hughes guaranteed DIRECTV's performance under the contract. A complaint and counterclaim have been filed by the parties in the U.S. District Court for the District of Connecticut concerning GECC's performance and DIRECTV's obligation to act as surety. GECC claims damages from DIRECTV in excess of $140 million. DIRECTV is seeking damages from GECC in excess of $45 million. Hughes intends to vigorously contest GECC's allegations and pursue Hughes' own contractual rights and remedies. The court has set a trial date of June 12, 2000. *** With respect to the previously reported actions against the DIRECTV unit of Hughes filed by the National Rural Telecommunications Galaxy Inc. (NRTC) on June 3, 1999 and August 26, 1999, and a related action filed by Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., on January 11, 2000, a purported class action was filed on February 29, 2000 against DIRECTV on behalf of the NRTC's participating members asserting claims substantially the same as those asserted in the actions brought by Pegasus and Golden Sky. *** With respect to the previously reported action against DIRECTV, Hughes Network Systems, and Thomson Consumer Electronics, Inc., filed by EchoStar Communications Corporation (EchoStar) and others on February 1, 2000, Hughes and DIRECTV filed counterclaims against EchoStar on March 13, 2000, alleging that EchoStar tortiously interfered with DIRECTV's relationship with Kelly Broadcasting System, a provider of foreign-language programming; engaged in unfair business practices in connection with improper sales of network programming, misleading advertisements for National Football League games and EchoStar's "PRIMESTAR bounty program"; and infringed the PRIMESTAR trademarks. * * * * * * * - 31 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS (Including Those Incorporated by Reference). Exhibit Number Exhibit Name Page No. - ------ ----------------------------------------------- -------- 99 Hughes Electronics Corporation Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 33 27 Financial Data Schedule (Unaudited) (for Securities and Exchange Commission information only) (b) REPORTS ON FORM 8-K. Ten reports on Form 8-K, dated August 2, 1999 (filed January 14, 2000), January 13, 2000, January 20, 2000, February 1, 2000, February 25, 2000, March 1, 2000, March 6, 2000, March 7, 2000, March 13, 2000, and March 31, 2000 were filed during the quarter ended March 31, 2000 reporting matters under Item 5, Other Events and reporting certain agreements under Item 7, Financial Statements, Pro Forma Financial Information, and Exhibits. * * * * * * SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GENERAL MOTORS CORPORATION -------------------------- (Registrant) Date: May 15, 2000 /s/Peter R. Bible - ------------------ ----------------- (Peter R. Bible, Chief Accounting Officer) - 32 - EX-99 2 HUGHES INFORMATION ON EXHIBIT 99 EXHIBIT 99 HUGHES ELECTRONICS CORPORATION FINANCIAL STATEMENTS AND MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS STATEMENTS OF OPERATIONS AND AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS) (Unaudited) Three Months Ended March 31, ---------------------- 2000 1999 ---- ---- (Dollars in Millions) Revenues Direct broadcast, leasing and other services $1,432.0 $755.8 Product sales 271.1 162.6 -------- ----- Total Revenues 1,703.1 918.4 ------- ----- Operating Costs and Expenses Broadcast programming and other costs 667.8 313.9 Cost of products sold 198.3 136.2 Selling, general and administrative expenses 694.8 377.8 Depreciation and amortization 204.7 110.9 -------- ----- Total Operating Costs and Expenses 1,765.6 938.8 ------- ----- Operating Loss (62.5) (20.4) Interest income 3.9 13.6 Interest expense (44.9) (6.9) Other, net (234.2) (17.3) -------- ------ Loss From Continuing Operations Before Income Taxes and Minority Interests (337.7) (31.0) Income tax benefit (221.8) (13.4) Minority interests in net losses of subsidiaries 7.6 6.5 ------- ----- Loss from continuing operations (108.3) (11.1) Income from discontinued operations, net of taxes 26.4 84.1 ----- ---- Net Income (Loss) $(81.9) $73.0 Adjustments to exclude the effect of GM purchase accounting adjustments 5.3 5.3 ------- ----- Earnings (Loss) excluding the effect of GM purchase accounting adjustments (76.6) 78.3 Preferred stock dividends (24.7) - ------ ------- Earnings (Loss) Used for Computation of Available Separate Consolidated Net Income (Loss) $(101.3) $78.3 ====== ==== Available Separate Consolidated Net Income (Loss) Average number of shares of General Motors Class H Common Stock outstanding (in millions) (Numerator) 137.8 106.3 Average Class H dividend base (in millions) (Denominator) 431.5 400.2 Available Separate Consolidated Net Income (Loss) $(32.4) $20.8 ===== ==== Reference should be made to the Notes to Financial Statements. - 33 - HUGHES ELECTRONICS CORPORATION BALANCE SHEETS March 31, 2000 December 31, ASSETS (Unaudited) 1999 ----------- ---- (Dollars in Millions) Current Assets Cash and cash equivalents $232.5 $238.2 Accounts and notes receivable (less allowances) 987.0 960.9 Contracts in process 163.3 155.8 Inventories 319.7 236.1 Net assets of discontinued operations 1,322.4 1,224.6 Deferred income taxes 545.9 254.3 Prepaid expenses and other 969.5 788.1 -------- -------- Total Current Assets 4,540.3 3,858.0 Satellites, net 4,037.3 3,907.3 Property, net 1,314.6 1,223.0 Net Investment in Sales-type Leases 178.3 146.1 Intangible Assets, net 7,341.8 7,406.0 Investments and Other Assets 2,556.0 2,056.6 --------- --------- Total Assets $19,968.3 $18,597.0 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts payable $1,147.6 $1,062.2 Deferred revenues 132.5 130.5 Short-term borrowings and current portion of long-term debt 732.6 555.4 Accrued liabilities and other 1,281.5 894.0 ------- -------- Total Current Liabilities 3,294.2 2,642.1 Long-Term Debt 1,857.2 1,586.0 Other Liabilities and Deferred Credits 1,399.8 1,454.2 Deferred Income Taxes 1,042.7 689.1 Commitments and Contingencies Minority Interests 564.2 544.3 Stockholder's Equity Capital stock and additional paid-in capital 9,898.1 9,809.5 Preferred stock 1,488.7 1,487.5 Retained deficit (191.0) (84.4) -------- -------- Subtotal Stockholder's Equity 11,195.8 11,212.6 -------- -------- Accumulated Other Comprehensive Income (Loss) Minimum pension liability adjustment (7.3) (7.3) Accumulated unrealized gains on securities 637.0 466.0 Accumulated foreign currency translation adjustments (15.3) 10.0 ------- ------- Accumulated other comprehensive income 614.4 468.7 -------- -------- Total Stockholder's Equity 11,810.2 11,681.3 -------- -------- Total Liabilities and Stockholder's Equity $19,968.3 $18,597.0 ======== ======== Reference should be made to the Notes to Financial Statements. - 34 - HUGHES ELECTRONICS CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, ---------------------- 2000 1999 ---- ---- (Dollars in Millions) Cash Flows from Operating Activities Net Cash Provided by Operating Activities $7.9 $85.4 --- ---- Cash Flows from Investing Activities Investment in companies, net of cash acquired (74.2) (242.1) Expenditures for property (182.3) (34.8) Increase in satellites (232.0) (211.3) Early buy-out of satellite under sale and leaseback - (141.3) Proceeds from disposal of property 12.0 - Proceeds from sale of investments 36.6 - Proceeds from insurance claims 33.8 - ------ ------ Net Cash Used in Investing Activities (406.1) (629.5) ------ ------ Cash Flows from Financing Activities Net increase in short-term borrowings and current portion of long-term debt 177.2 14.2 Long-term debt borrowings 1,258.4 405.0 Repayment of long-term debt (987.2) (327.1) Stock options exercised 38.9 - Preferred stock dividends paid to General Motors (23.4) - ------ ------ Net Cash Provided by Financing Activities 463.9 92.1 ----- ---- Net cash provided by (used in) continuing operations 65.7 (452.0) Net cash used in discontinued operations (71.4) (110.5) ----- ------ Net decrease in cash and cash equivalents (5.7) (562.5) Cash and cash equivalents at beginning of the period 238.2 1,342.0 ----- ------- Cash and cash equivalents at end of the period $232.5 $779.5 ===== ===== Reference should be made to the Notes to Financial Statements. - 35 - 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 footnotes thereto included in the Hughes Electronics Corporation Annual Report on Form 10-K for the year ended December 31, 1999, filed with the Securities and Exchange Commission on March 10, 2000 and the Hughes Electronics Corporation Current Reports on Form 8-K filed with the Securities and Exchange Commission through the date of this report. Certain prior period amounts have been reclassified to conform to the March 31, 2000 presentation. Revenues, operating costs and expenses, and other non-operating results for the discontinued operations of the satellite systems manufacturing businesses are excluded from Hughes' results from continuing operations for all periods presented herein. As a result, the financial results of the satellite systems manufacturing businesses are presented in Hughes' Statements of Operations and Available Separate Consolidated Net Income (Loss) in a single line item entitled "income from discontinued operations, net of taxes," the related assets and liabilities are presented in the balance sheets in a single line item entitled "net assets of discontinued operations" and the net cash flows as "net cash used in discontinued operations." See further discussion in Note 8. The accompanying financial statements include the applicable portion of intangible assets, including goodwill, and related amortization resulting from purchase accounting adjustments associated with General Motors Corporation's ("GM") purchase of Hughes in 1985, with certain amounts allocated to the satellite systems manufacturing businesses. Note 2. Inventories Major Classes of Inventories March 31, December 31, 2000 1999 ---- ---- (Dollars in Millions) Productive material and supplies $64.9 $59.1 Work in process 126.4 67.0 Finished goods 128.4 110.0 ----- ----- Total $319.7 $236.1 ===== ===== Note 3. Comprehensive Income Hughes' total comprehensive income was as follows: Three Months Ended March 31, ------------------- 2000 1999 ---- ---- (Dollars in Millions) Net income (loss) $(81.9) $73.0 Other comprehensive income (loss): Foreign currency translation adjustments (25.3) (3.5) Unrealized gains on securities 171.0 9.3 ----- ----- Other comprehensive income 145.7 5.8 ----- ----- Total comprehensive income $63.8 $78.8 ==== ==== - 36 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 4. Available Separate Consolidated Net Income (Loss) GM Class H common stock is a "tracking stock" of GM designed to provide holders with financial returns based on the financial performance of 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). Amounts available for the payment of dividends on GM Class H common stock are based on the Available Separate Consolidated Net Income (Loss) ("ASCNI") of Hughes. The ASCNI of Hughes is determined quarterly and is equal to the separate consolidated net income (loss) of Hughes, excluding the effects of GM purchase accounting adjustments arising from GM's acquisition of Hughes and including the effects of preferred dividends paid and/or payable to GM (earnings (loss) used for computation of ASCNI), multiplied by a fraction, the numerator of which is equal to the weighted-average number of shares of GM Class H common stock outstanding during the period (137.8 million and 106.3 million during the first quarters of 2000 and 1999, respectively) and the denominator of which is a number equal to the weighted-average number of shares of GM Class H common stock which, if issued and outstanding, would represent 100% of the tracking stock interest in the earnings of Hughes (Average Class H dividend base). The Average Class H dividend base was 431.5 million and 400.2 million during the first quarters of 2000 and 1999, respectively. Under the GM Restated Certificate of Incorporation, the GM Board of Directors ("GM Board") may adjust the denominator of the Class H fraction that determines the net income of Hughes attributable to the GM Class H common stock - that is, the Class H dividend base, from time to time as the GM Board deems appropriate to reflect the following: (a) subdivisions and combinations of the GM Class H common stock and stock dividends payable in shares of GM Class H common stock to holders of GM Class H common stock; (b) the fair market value of contributions of cash or property by GM to Hughes, or of cash or property of GM to or for the benefit of employees of Hughes for employee benefit plans or arrangements of GM, Hughes or other GM subsidiaries; (c) the contribution of shares of capital stock of GM to or for the benefit of employees of Hughes or its subsidiaries for benefit plans or arrangements of GM, Hughes or other GM subsidiaries; (d) payments made by Hughes to GM of amounts applied to the repurchase by GM of shares of GM Class H common stock, so long as the GM Board has approved the repurchase and GM applied the payment to the repurchase; and (e) the repurchase by Hughes of shares of GM Class H common stock that are no longer outstanding, so long as the GM Board approved the repurchase. Additionally, upon conversion of the General Motors Series H 6.25% Automatically Convertible Preference Stock ("GM Series H preference stock") into GM Class H common stock, both the numerator and the denominator used in the computation of ASCNI will increase by the number of shares of the GM Class H common stock issued (see further discussion in Note 5). Note 5. Hughes Series A Preferred Stock On June 24, 1999, as part of a strategic alliance with Hughes, America Online ("AOL") invested $1.5 billion in shares of GM Series H preference stock. The GM Series H preference stock will automatically convert on June 24, 2002 into GM Class H common stock based upon a variable conversion factor linked to the GM Class H common stock price at the time of conversion, and accrues quarterly dividends at a rate of 6.25% per year. It may be converted earlier in certain limited circumstances. GM immediately invested the $1.5 billion received from AOL in shares of Hughes Series A Preferred Stock designed to correspond to the financial terms of the GM Series H preference stock. Dividends on the Hughes Series A Preferred Stock are payable to GM quarterly at an annual rate of 6.25%. These preferred stock dividends payable to GM will reduce Hughes' earnings used for computation of the ASCNI of Hughes, which will have an equivalent effect to the payment of dividends on the GM Series H preference stock as if those dividends were paid by Hughes. Upon conversion of the GM Series H preference stock into GM Class H common stock, Hughes will redeem the Hughes Series A Preferred Stock through a cash payment to GM equal to the fair market value of the GM Class H common stock issuable upon the conversion. Simultaneous with GM's receipt of the cash redemption proceeds, GM will make a capital contribution to Hughes of the same amount. In connection with this capital contribution, the denominator of the fraction used in the computation of the ASCNI of Hughes will be increased by the corresponding number of shares of GM Class H common stock issued. Accordingly, upon conversion of the GM Series H preference stock into GM Class H common stock, both the numerator and denominator used in the computation of ASCNI will increase by the amount of the GM Class H common stock issued. - 37 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 6. Other Postretirement Benefits Hughes has accrued in the financial statements certain amounts associated with estimated future postretirement benefits other than pensions. Notwithstanding the recording of such amounts, 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 7. Short-Term Borrowings and Long-Term Debt Short-Term Borrowings and Current Portion of Long-Term Debt Interest Rates at March 31, December 31, March 31, 2000 2000 1999 -------------- ---- ---- (Dollars in Millions) Floating rate notes, net of unamortized discount 7.29% $499.3 $498.9 364-day revolving credit facility 6.88% - 7.13% 200.0 - Current portion of long-term debt 6.19% 33.3 56.5 ------ ------ Total short-term borrowings and current portion of long-term debt $732.6 $555.4 ===== ===== Long-Term Debt Interest Rates at March 31, December 31, March 31, 2000 2000 1999 -------------- ---- ---- (Dollars in Millions) Notes payable 6.00% - 6.88% $829.9 $874.1 Revolving credit facilities 6.83% - 6.94% 1,023.5 727.9 Other debt 9.61% - 11.7% 37.1 40.5 ------- ------- Total debt 1,890.5 1,642.5 Less current portion 33.3 56.5 ------- ------- Total long-term debt $1,857.2 $1,586.0 ======= ======= Note 8. Acquisitions, Investments and Divestitures Acquisitions and Investments On May 20, 1999, Hughes acquired by merger all of the outstanding capital stock of United States Satellite Broadcasting Company, Inc. ("USSB"), a provider of premium subscription television programming via the digital broadcasting system that it shares with DIRECTV. The total consideration of approximately $1.6 billion, paid in July 1999, consisted of approximately $0.4 billion in cash and 22.6 million shares of GM Class H common stock. On April 28, 1999, Hughes completed the acquisition of PRIMESTAR's 2.3 million subscriber medium-power direct-to-home satellite business. The purchase price consisted of $1.1 billion in cash and 4.9 million shares of GM Class H common stock, for a total purchase price of $1.3 billion. As part of the agreement to acquire PRIMESTAR, Hughes agreed to purchase the high-power satellite assets, which consisted of an in-orbit satellite and a satellite which has not yet been launched, and related orbital frequencies of Tempo Satellite Inc., a wholly owned subsidiary of TCI Satellite Entertainment Inc. The purchase price for the Tempo Satellite assets consisted of $500 million in cash, $150 million paid on March 10, 1999 and the remaining $350 million paid on June 4, 1999. Hughes agreed, in connection with its acquisition of PRIMESTAR, to exit the medium-power business prior to May 1, 2001. Hughes formulated a detailed exit plan during the second quarter of 1999 and immediately began to migrate the medium-power customers to DIRECTV's high-power platform. Accordingly, Hughes accrued exit costs of $150 million in determining the purchase price allocated to the net assets acquired. The principal components of such exit costs include penalties to terminate assumed contracts and costs to remove medium-power equipment from customer premises. The timing of subscriber migration and exit of the medium-power business is currently estimated to occur by the end of 2000. The amount of accrued exit costs remaining at March 31, 2000 was $112 million. - 38 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 8. Acquisitions, Investments and Divestitures - Concluded The following selected unaudited pro forma information is being provided to present a summary of the combined results of Hughes and USSB and PRIMESTAR for the three months ended March 31, 1999 as if the acquisitions had occurred as of the beginning of the period, giving effect to purchase accounting adjustments. The pro forma data presents only these significant transactions, is presented for informational purposes only and may not necessarily reflect the results of operations of Hughes had these companies operated as part of Hughes for the period presented, nor are they necessarily indicative of the results of future operations. The pro forma information excludes the effect of non-recurring charges. Three Months Ended March 31, 1999 -------------- (Dollars in Millions) Total revenues $1,472.4 Net income 78.8 Pro forma available separate consolidated net income 26.3 Divestitures On March 1, 2000, Hughes announced that the operations of DIRECTV Japan, Hughes' affiliate that provides DIRECTV services in Japan, would be discontinued and that its subscribers would have the opportunity to migrate during 2000 to SkyPerfecTV!, a company in Japan that provides direct-to-home satellite broadcast services that is expected to complete an initial public offering during the third quarter of 2000. In connection with the agreement, Hughes acquired an approximate 6.6% interest in SkyPerfecTV!. As a result of the transaction, in the first quarter of 2000 Hughes wrote off its investment and accrued for the estimated costs to exit the DIRECTV Japan business. The principal components of the accrued exit costs include estimated subscriber migration and termination costs and costs to terminate certain leases, programming agreements and other long-term contractual commitments. These one-time charges were offset by the estimated fair value of the SkyPerfecTV! interest acquired. The fair value of the SkyPerfecTV! interest recorded was estimated based upon a preliminary independent appraisal, which is expected to be completed within three to six months. Accordingly, the final amount of the fair value of the SkyPerfecTV! investment recorded may be different from the amount reflected herein. The total loss related to DIRECTV Japan for the first quarter of 2000, including Hughes' share of DIRECTV Japan's operating losses, was about $230 million and was recorded in "other, net." The after-tax impact was about $49 million. Hughes will continue to record its share of DIRECTV Japan's operating losses during the remainder of 2000. On January 13, 2000, Hughes announced that it had reached an agreement to sell its satellite systems manufacturing businesses to The Boeing Company ("Boeing") for $3.75 billion in cash. The transaction, which is subject to regulatory approval, is expected to close in the third quarter of 2000 and result in an after-tax gain in excess of $1 billion. The financial results for the satellite systems manufacturing businesses are treated as discontinued operations for all periods presented herein. Note 9. Segment Reporting Hughes' segments, which are differentiated by their products and services, include Direct-To-Home Broadcast, Satellite Services, and Network Systems. Direct-To-Home Broadcast is engaged in acquiring, promoting, selling and/or distributing digital entertainment 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. Network Systems is engaged in manufacturing equipment used in satellite-based private business networks, manufacturing DIRECTV(TM), DirecPC(R) and DirecDuo(TM) receiver equipment and providing business communications services. Other includes the corporate office and other entities. - 39 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 9. Segment Reporting - Concluded Selected information for Hughes' operating segments follows: Direct-To- Home Satellite Network Elimi- Broadcast Services Systems Other nations Total --------- --------- ------- ----- ------- ----- (Dollars in Millions) For the Three Months Ended: March 31, 2000 External Revenues $1,166.7 $264.4 $269.0 $3.0 - $1,703.1 Intersegment Revenues 7.1 34.7 95.5 0.6 $(137.9) - ------- ----- ----- --- ------ ------- Total Revenues $1,173.8 $299.1 $364.5 $3.6 $(137.9) $1,703.1 ------- ----- ----- --- ------ ------- Operating Profit (Loss) $(126.0) $127.3 $0.6 $(35.2) $(29.2) $(62.5) March 31, 1999 External Revenues $556.0 $159.7 $200.5 $2.2 - $918.4 Intersegment Revenues 0.6 33.8 30.4 0.5 $(65.3) - ----- ----- ----- --- ----- ----- Total Revenues $556.6 $193.5 $230.9 $2.7 $(65.3) $918.4 ----- ----- ----- --- ----- ----- Operating Profit (Loss) $(23.4) $78.3 $(17.8) $(26.8) $(30.7) $(20.4) Note 10. Contingencies In connection with the 1997 spin-off of the defense electronics business of Hughes' predecessor as part of the Hughes restructuring transactions and the subsequent merger of that business with Raytheon Company ("Raytheon"), 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. These 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. Hughes and Raytheon are 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 dispute through the arbitration processes, opposing the adjustments proposed by Raytheon, and seeking the payment from Raytheon that Hughes has proposed. On June 3, 1999, the National Rural Telecommunications Cooperative ("NRTC") filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc., which Hughes refers to together in this description as "DIRECTV", in the U.S. District Court for the Central District of California, alleging that DIRECTV has breached the DBS Distribution Agreement with the NRTC. The DBS Distribution Agreement provides the NRTC with certain rights, in certain specified portions of the United States, with respect to DIRECTV programming delivered over 27 of the 32 frequencies at the 101(degree) west longitude orbital location. The NRTC claims that DIRECTV has wrongfully deprived it of the exclusive right to distribute programming formerly provided by USSB over the other five frequencies at 101(degree). DIRECTV denies that the NRTC is entitled to exclusive distribution rights to the former USSB programming because, among other things, the NRTC's exclusive distribution rights are limited to programming distributed over 27 of the 32 frequencies at 101(degree). The NRTC's complaint seeks, in the alternative, the right to distribute former USSB programming on a non-exclusive basis and the recovery of related revenues from the date USSB was acquired by Hughes. DIRECTV maintains that the NRTC's right under the DBS Distribution Agreement is to market and sell the former USSB programming as its agent and the NRTC is not entitled to the claimed revenues. DIRECTV intends to vigorously defend against the NRTC claims. DIRECTV has also filed a counterclaim against the NRTC seeking a declaration of the parties' rights under the DBS Distribution Agreement. - 40 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 10. Contingencies - Continued On August 26, 1999, the NRTC filed a second lawsuit against DIRECTV alleging that DIRECTV has breached the DBS Distribution Agreement. In this lawsuit, the NRTC is asking the court to require DIRECTV to pay the NRTC a proportionate share of unspecified financial benefits that DIRECTV derives from programming providers and other third parties. DIRECTV denies that it owes any sums to the NRTC on account of the allegations in these matters and plans to vigorously defend itself against these claims. A purported class action suit was filed against DIRECTV on behalf of the NRTC's participating members on February 29, 2000. The members assert claims identical to the claims that were asserted by Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc. in their lawsuit against DIRECTV described in the following paragraph. Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV in the U.S. District Court in Los Angeles. The plaintiffs allege, among other things, that DIRECTV has interfered with their contractual relationship with the NRTC. The plaintiffs plead that their rights and damages are derivative of the rights and claims asserted by the NRTC in its two cases against DIRECTV. The plaintiffs also allege that DIRECTV has interfered with their contractual relationships with manufacturers and distributors by preventing those parties from selling receiving equipment to the plaintiffs' dealers. DIRECTV denies that it has wrongfully interfered with any of the plaintiffs' business relationships and will vigorously defend the lawsuit. Although an amount of loss, if any, cannot be estimated at this time, an unfavorable outcome could be reached in the NRTC and Pegasus litigation that could be material to Hughes' results of operations or financial position. General Electric Capital Corporation ("GECC") and DIRECTV, Inc. entered into a contract on July 31, 1995, in which GECC agreed to establish and manage a private label consumer credit program for consumer purchases of hardware and related DIRECTV programming. Under the contract, GECC also agreed to provide certain related services to DIRECTV, including credit risk scoring, billing and collections services. DIRECTV agreed to act as a surety for loans complying with the terms of the contract. Hughes guaranteed DIRECTV's performance under the contract. A complaint and counterclaim have been filed by the parties in the U.S. District Court for the District of Connecticut concerning GECC's performance and DIRECTV's obligation to act as a surety. GECC claims damages from DIRECTV in excess of $140 million. DIRECTV is seeking damages from GECC in excess of $45 million. Hughes intends to vigorously contest GECC's allegations and pursue Hughes' own contractual rights and remedies. Hughes does not believe that the litigation will have a material adverse impact on Hughes' results of operations or financial position. The court has set a trial date of June 12, 2000. 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 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 participating in government contracts. If Hughes were to enter into a settlement of this matter prior to the closing of the Boeing transaction that involves a debarment from sales to the U.S. government or a material suspension of Hughes' export licenses or other material limitation on projected business activities of the satellite systems manufacturing businesses, Boeing would not be obligated to complete the purchase of Hughes' satellite systems manufacturing businesses. Hughes does not expect the grand jury investigation or State Department review to result in a material adverse effect upon its business. - 41 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Concluded (Unaudited) Note 10. Contingencies - Concluded Hughes Space and Communications International ("HSCI"), a wholly owned subsidiary of Hughes Space and Communications Company, has certain contracts with ICO Global Communications Operations ("ICO") to build the satellites and related components for a global wireless communications system. On August 27, 1999, the ICO parent company filed for bankruptcy protection under Chapter 11 in U.S. Bankruptcy Court in Wilmington, Delaware. On May 3, 2000 the U.S. Bankruptcy Court approved a plan of reorganization and ICO's assumption of contracts with HSCI. In connection with the contract assumption, ICO is expected to pay, in the second quarter of 2000, all pre-petition amounts due to Hughes related to the ICO contracts. EchoStar Communications Corporation and others commenced an action in the U.S. District Court in Colorado on February 1, 2000 against DIRECTV, Hughes Network Systems and Thomson Consumer Electronics, Inc. seeking, among other things, injunctive relief and unspecified damages, including treble damages, in connection with allegations that the defendants have entered into agreements with retailers and program providers and engaged in other conduct that violates the antitrust laws and constitutes unfair competition. DIRECTV believes that the complaint is without merit and intends to vigorously defend against the allegations raised. Although an amount of loss, if any, cannot be estimated at this time, an unfavorable outcome could be reached that could be material to Hughes' results of operations or financial position. Hughes and DIRECTV filed counterclaims against EchoStar on March 13, 2000, alleging that EchoStar tortiously interfered with DIRECTV's relationship with Kelly Broadcasting System, a provider of foreign-language programming; engaged in unfair business practices in connection with improper sales of network programming, misleading advertisements for National Football League games and EchoStar's "PRIMESTAR bounty program"; and infringed on PRIMESTAR trademarks. Hughes is subject to various claims and legal actions which are pending or may be asserted against it. The aggregate ultimate liability of Hughes under these claims and actions was not determinable at March 31, 2000. In the opinion of Hughes management, such liability is not expected to have a material adverse effect on Hughes' results of operations or financial position. - 42 - HUGHES ELECTRONICS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY DATA Three Months Ended March 31, ---------------------- 2000 1999 --------- --------- (Dollars in Millions) Statement of Operations Data: (Unaudited) Total revenues $1,703.1 $918.4 Total operating costs and expenses 1,765.6 938.8 ------- ----- Operating loss (62.5) (20.4) Interest, net (41.0) 6.7 Other, net (234.2) (17.3) Income tax benefit (221.8) (13.4) Minority interests in net losses of subsidiaries 7.6 6.5 -------- ------ Loss from continuing operations (108.3) (11.1) Income from discontinued operations, net of taxes 26.4 84.1 ----- ---- Net income (loss) $(81.9) $73.0 ===== ==== Other Data: EBITDA $142.2 $90.5 EBITDA Margin 8.3% 9.9% Depreciation and amortization 204.7 110.9 Capital expenditures 414.3 387.4 March 31, 2000 December 31, (Unaudited) 1999 --------- ---- Balance Sheet Data: (Dollars in Millions) Cash and cash equivalents $232.5 $238.2 Total current assets 4,540.3 3,858.0 Total assets 19,968.3 18,597.0 Total current liabilities 3,294.2 2,642.1 Long-term debt 1,857.2 1,586.0 Minority interests 564.2 544.3 Total stockholder's equity 11,810.2 11,681.3 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. EBITDA margin is calculated by dividing EBITDA by total revenues. In addition, EBITDA and EBITDA margin as presented herein may not be comparable to similarly titled measures reported by other companies. - 43 - HUGHES ELECTRONICS CORPORATION SUMMARY DATA - Concluded (Unaudited) Selected Segment Data Direct-To- Elimi- Home Satellite Network nations Broadcast Services Systems and Other Total --------- -------- ------- --------- ----- (Dollars in Millions) For the Three Months Ended: March 31, 2000 Total Revenues $1,173.8 $299.1 $364.5 $(134.3) $1,703.1 - -------------------------------------------------------------------------- Operating Profit (Loss) $(126.0) $127.3 $0.6 $(64.4) $(62.5) Operating Profit Margin N/A 42.6% 0.2% N/A N/A EBITDA $(9.2) $201.0 $11.8 $(61.4) $142.2 EBITDA Margin N/A 67.2% 3.2% N/A 8.3% - -------------------------------------------------------------------------- Depreciation and Amortization $116.8 $73.7 $11.2 $3.0 $204.7 Capital Expenditures 168.0 (1) 158.0 (2) 67.6 (3) 20.7 414.3 - -------------------------------------------------------------------------- March 31, 1999 Total Revenues $556.6 $193.5 $230.9 $(62.6) $918.4 - -------------------------------------------------------------------------- Operating Profit (Loss) $(23.4) $78.3 $(17.8) $(57.5) $(20.4) Operating Profit Margin N/A 40.5% N/A N/A N/A EBITDA $3.9 $146.0 $(5.9) $(53.5) $90.5 EBITDA Margin 0.7% 75.5% N/A N/A 9.9% - -------------------------------------------------------------------------- Depreciation and Amortization $27.3 $67.7 $11.9 $4.0 $110.9 Capital Expenditures 77.6 (1) 339.8 (2) 2.2 (32.2) 387.4 - -------------------------------------------------------------------------- (1)Includes expenditures related to satellites amounting to $11.6 million and $53.0 million in the first quarter of 2000 and 1999, respectively. (2)Includes expenditures related to satellites amounting to $146.0 million and $189.7 million in the first quarter of 2000 and 1999, respectively. Also included in the first quarter of 1999 is $141.3 million related to the early buy-out of a satellite sale-leaseback. (3)Includes expenditures related to satellites amounting to $53.7 million in the first quarter of 2000. - 44 - HUGHES ELECTRONICS CORPORATION 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") 1999 Annual Report on Form 10-K for the year ended December 31, 1999, filed with the Securities and Exchange Commission on March 10, 2000 and the Hughes Electronics Corporation Current Reports on Form 8-K, filed with the Securities and Exchange Commission through the date of this report. In addition, the following discussion excludes purchase accounting adjustments related to GM's acquisition of Hughes. This Quarterly Report may contain certain statements that Hughes believes are, or may be considered to be, "forward-looking statements," within the meaning of various provisions of the Securities Act of 1933 and of the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by use of statements that include phrases such as we "believe," "expect," "anticipate," "intend," "plan," "foresee" or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to certain risks and uncertainties that could cause Hughes' actual results to differ materially from those contemplated by the relevant forward-looking statement. 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, local political or economic developments in or affecting countries where Hughes has operations, ability to obtain export licenses, competition, ability to achieve cost reductions, technological risk, limitations on access to distribution channels, the success and timeliness of satellite launches, in-orbit performance of satellites, ability of customers to obtain financing and Hughes' ability to access capital to maintain its financial flexibility. Additionally, the in-orbit satellites of Hughes and its 81% owned subsidiary, PanAmSat Corporation ("PanAmSat"), are subject to the risk of failing prematurely due to, among other things, mechanical failure, collision with objects in space or an inability to maintain proper orbit. Satellites are subject to the risk of launch delay and failure, destruction and damage while on the ground or during launch and failure to become fully operational once launched. Delays in the production or launch of a satellite or the complete or partial loss of a satellite, in-orbit or during launch, could have a material adverse impact on the operation of Hughes' businesses. With respect to both in-orbit and launch problems, insurance carried by Hughes and PanAmSat does not compensate for business interruption or loss of future revenues or customers. Hughes has, in the past, experienced technical anomalies on some of its satellites. Service interruptions caused by these anomalies, depending on their severity, could result in claims by affected customers for termination of their transponder agreements, cancellation of other service contracts or the loss of other customers. Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report and Hughes undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances. General Business Overview The continuing operations of Hughes are comprised of the following segments: Direct-To-Home Broadcast, Satellite Services and Network Systems. The discontinued operations of Hughes consist of its satellite systems manufacturing businesses, which on January 13, 2000, Hughes agreed to sell to The Boeing Company ("Boeing"). This transaction is discussed more fully below in "Liquidity and Capital Resources - Acquisitions, Investments and Divestitures." The Direct-To-Home Broadcast segment consists primarily of the United States and Latin America DIRECTV businesses, which provide digital multi-channel entertainment. The DIRECTV U.S. operations were significantly affected during 1999 with Hughes' acquisition of the direct broadcast satellite medium-power business of PRIMESTAR in April 1999 and Hughes' acquisition of United States Satellite Broadcasting Company, Inc. ("USSB"), a provider of premium subscription programming services, in May 1999. Currently, DIRECTV is continuing to offer the medium-power PRIMESTAR subscribers the opportunity to transition to the high-power DIRECTV(R) service and plans to cease operating the medium-power PRIMESTAR business, PRIMESTAR By DIRECTV, by the end of 2000. The USSB acquisition provided DIRECTV with 25 channels of video programming, including premium networks such as HBO(R), Showtime(R), Cinemax(R) and The Movie Channel(R), which are now being offered to DIRECTV's subscribers. The results of operations for PRIMESTAR and USSB have been included in Hughes' financial information since their dates of acquisition. See Note 8 to the financial statements and "Liquidity and Capital Resources - Acquisitions, Investments and Divestitures," below, for further discussion of these transactions. In the fourth quarter of 1999, DIRECTV U.S. began providing local broadcast network services and is currently providing those services to 23 U.S. markets. On May 2, 2000, DIRECTV U.S. announced that it will add 12 additional local channel markets throughout the second and third quarters, and by late September 2000, expects to offer local channels in 35 markets across the country. - 44 - HUGHES ELECTRONICS CORPORATION The Latin America DIRECTV businesses are comprised of Galaxy Latin America, LLC ("GLA"), Hughes' 78% owned subsidiary that provides DIRECTV services to 27 countries in Latin America and the Caribbean Basin; SurFin Ltd. ("SurFin"), a company 75% owned by Hughes, that provides financing of subscriber receiver equipment to certain GLA operating companies; Grupo Galaxy Mexicana, S.R.L. de C.V. ("GGM"), the exclusive distributor of DIRECTV in Mexico which was acquired in February 1999; and Galaxy Brasil, Ltda. ("GLB"), the exclusive distributor of DIRECTV in Brazil, which was acquired in July 1999. The results of operations for SurFin, GGM, and GLB have been included in Hughes' financial information since their dates of acquisition. See "Liquidity and Capital Resources - Acquisitions, Investments and Divestitures," below, for further discussion of these transactions. Also included as part of the non-operating results of the Direct-To-Home Broadcast segment is DIRECTV Japan, Hughes' affiliate that provides DIRECTV services in Japan. On March 1, 2000, Hughes announced that DIRECTV Japan's operations would be discontinued and that its subscribers would have the opportunity to migrate during 2000 to SkyPerfecTV!, a company in Japan that provides direct-to-home satellite broadcast services that is expected to complete an initial public offering during the third quarter of 2000. In connection with the agreement, Hughes acquired an ownership interest in SkyPerfecTV!. See Note 8 to the financial statements and "Liquidity and Capital Resources - Acquisitions, Investments and Divestitures," below, for further discussion. The Satellite Services segment consists of PanAmSat, Hughes' 81% owned subsidiary. PanAmSat provides satellite services to its customers primarily through long-term operating lease contracts for the full or partial use of satellite transponder capacity. During the first quarter of 2000, PanAmSat announced the introduction of NET/36(TM), a high-speed, bandwidth-intensive network that will deliver popular video, audio and data content with high clarity to thousands of digital subscriber line providers, cable headends, Internet service providers and broadband wireless providers worldwide. PanAmSat plans to introduce the Net/36 service in the United States by the end of 2000. The Network Systems segment consists of Hughes Network Systems ("HNS"), who is engaged in manufacturing equipment used in satellite-based private business networks, manufacturing DIRECTV(TM), DirecPC(R) and DirecDuo(TM) receiver equipment and providing business communications services. In April of 2000, HNS announced plans to market a two-way broadband satellite service to consumers. HNS will add two-way capabilities to its nationwide high-speed satellite Internet service, DirecPC, early in the fourth quarter of 2000. Offering always-on capability, the new two-way high-speed satellite service will allow consumers to completely bypass the dial-up telephone network when accessing the Internet. Two-way DirecPC will also be offered with a DirecDuo antenna system, allowing consumers to receive both DirecPC and DIRECTV using the same antenna. The Network Systems segment was affected in February 1999 by a notification received by Hughes from the Department of Commerce that it intended to deny a U.S. government export license that Hughes was required to obtain in connection with its 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 $92.0 million in the first quarter of 1999. Of the $92.0 million charge, $11.0 million was attributable to the Network Systems segment and the remainder to Hughes Space and Communications which is included in discontinued operations. The charge represented the write-off of receivables and inventory, with no alternative use, related to the contract. Satellite Fleet During the first quarter of 2000, PanAmSat successfully launched and commenced service of the Galaxy XR satellite for Alaska's General Communications, Inc., Disney and other customers. PanAmSat also commenced service of the Galaxy-XI satellite in April of 2000, which provides expansion and backup services for PanAmSat's Galaxy(R) cable neighborhood customers. Also, in April of 2000, PanAmSat successfully launched Galaxy IVR, a replacement satellite for Galaxy IV, which brought Hughes' total fleet of satellites to 26, five owned by DIRECTV and 21 owned and operated by PanAmSat. Both PanAmSat and DIRECTV expect to launch additional satellites during 2000. - 45 - HUGHES ELECTRONICS CORPORATION Results of Operations Revenues. Revenues for the first quarter of 2000 increased 85.4% to $1,703.1 million, compared with $918.4 million in the first quarter of 1999. The Direct-To-Home Broadcast segment contributed to the overall change with an increase in revenues of $617.2 million over the first quarter of 1999 that resulted from an increased number of subscribers, including the addition of 510,000 new subscribers in the United States and Latin America since December 31, 1999, added revenues from the PRIMESTAR By DIRECTV and premium channel services and subscribers converted from PRIMESTAR By DIRECTV to the high-power DIRECTV service. Also contributing to the overall increase in revenues was the Network Systems segment, which shipped nearly 1.0 million DIRECTV receiver systems during the first quarter of 2000 compared to about 0.2 million shipped in the first quarter of 1999 leading to an increase in revenues of $133.6 million. The Satellite Services segment also reported an increase in revenues of $105.6 million due primarily to outright sales and sales-type leases of satellite transponders during the first quarter of 2000. Operating Costs and Expenses. Operating costs and expenses grew to $1,765.6 million in 2000 from $938.8 million in 1999. Broadcast programming and other costs increased by $353.9 million in the first quarter of 2000 from the same period of 1999 due to increased costs for the new high-power DIRECTV subscribers and costs associated with the PRIMESTAR By DIRECTV and premium channel services. Costs of products sold increased by $62.1 million in the first quarter of 2000 from the first quarter of 1999 due to the increased sales of DIRECTV receiver systems. Selling, general and administrative expenses increased by $317.0 million during the first quarter of 2000 compared to the same period of 1999 due primarily to increased subscriber acquisition costs at the Direct-To-Home Broadcast segment to support the increase in subscribers, costs associated with the PRIMESTAR By DIRECTV business and increased customer service costs that resulted primarily from an increase in the number of customer service representatives. Depreciation and amortization increased by $93.8 million during the first quarter of 2000 compared to the first quarter of 1999 due primarily to acquisitions in 1999, discussed more fully in "Liquidity and Capital Resources - Acquisitions, Investments and Divestitures." EBITDA increased 57.1% for the first quarter of 2000 to $142.2 million and EBITDA margin was 8.3%, compared to EBITDA of $90.5 million and EBITDA margin of 9.9% in the first quarter of 1999. The increase in EBITDA resulted primarily from the increased revenues at the Satellite Services segment. The lower EBITDA margin was due primarily to the lower margins associated with the outright sales and sales-type leases at the Satellite Services segment. Operating Loss. The operating loss for the first quarter of 2000 was $62.5 million compared to an operating loss of $20.4 million in 1999. The increased operating loss resulted from the higher depreciation and amortization, which more than offset the improvement in EBITDA. Interest Income and Expense. Interest income declined to $3.9 million for the first quarter of 2000 compared to interest income of $13.6 million for the same period of 1999 due to a decrease in cash and cash equivalents. Interest expense increased to $44.9 million for the first quarter of 2000 from $6.9 million for the first quarter of 1999. The increase in interest expense resulted from an increase in debt and interest expense associated with liabilities for above-market programming contracts assumed in the acquisitions of PRIMESTAR and USSB. The changes in cash and cash equivalents and debt are discussed in more detail below under "Liquidity and Capital Resources." Other, Net. Other, net increased to an expense of $234.2 million for the first quarter of 2000 from an expense of $17.3 million in the same period of 1999. The increased expense in 2000 resulted from the SkyPerfecTV! transaction, discussed more fully in Note 8 to the financial statements and below in "Liquidity and Capital Resources - Acquisitions, Investments and Divestitures," and higher equity losses recorded for DIRECTV Japan that resulted from Hughes' increased investment during the third quarter of 1999. The total loss related to DIRECTV Japan for the first quarter of 2000, which includes the effects of the SkyPerfecTV! transaction and Hughes' share of DIRECTV Japan's operating losses, was about $230 million. Income Taxes. Hughes recognized a tax benefit of $221.8 million for the 2000 first quarter, compared to $13.4 million in the 1999 first quarter. The 2000 tax benefit reflects the tax benefit associated with the write-off of Hughes' historical investments in DIRECTV Japan and the higher pre-tax losses compared to 1999. Loss From Continuing Operations. Hughes reported a loss from continuing operations of $108.3 million for the 2000 first quarter, compared to $11.1 million for the same period of 1999. Discontinued Operations. Revenues for the satellite systems manufacturing businesses decreased to $515.0 million for the first quarter of 2000 from revenues of $627.8 million for the same period of 1999. Revenues, excluding intercompany transactions, were $389.1 million for 2000 and $533.4 million for 1999. The decrease in revenues was principally due to decreased activity associated with a contract with ICO Global Communications. The satellite systems manufacturing businesses reported operating income of $42.9 million for the first quarter of 2000 compared to an operating loss of $0.1 million for the first quarter of 1999. Operating income, excluding intercompany transactions, amounted to $41.7 million for 2000, compared to an operating loss of $21.6 million for 1999. The 1999 results included a one-time pre-tax charge of $81.0 million that resulted from the termination of the satellite system contract with APMT. - 46 - HUGHES ELECTRONICS CORPORATION Income from discontinued operations, net of taxes was $26.4 million for the first quarter of 2000 compared to $84.1 million in the same period of 1999. The 1999 results included a one-time after-tax gain of $94.0 million from the settlement of a patent infringement case that was offset by the one-time after-tax charge of $49.0 million associated with the termination of the APMT contract. Direct-To-Home Broadcast Segment Direct-To-Home Broadcast segment first quarter 2000 revenues more than doubled to $1,173.8 million from $556.6 million in the first quarter of 1999, an increase of 110.9%. EBITDA in the first quarter of 2000 decreased to negative $9.2 million compared to positive EBITDA of $3.9 million in the first quarter of 1999. The operating loss for the segment increased to $126.0 million in the first quarter of 2000 from an operating loss of $23.4 million in the first quarter of 1999. United States. The DIRECTV U.S. businesses were the biggest contributor to the segment's revenue growth with revenues of $1,059 million for the first quarter of 2000, a 123.4% increase over last year's first quarter revenues of $474 million. The large increase in revenues resulted primarily from an increased number of subscribers, including the addition of 405,000 new subscribers in the United States since December 31, 1999, added revenues from the PRIMESTAR By DIRECTV and premium channel services and subscribers converted from PRIMESTAR By DIRECTV to the high-power DIRECTV service. As of March 31, 2000 the DIRECTV U.S. businesses had more than 8.3 million subscribers compared to about 4.8 million at March 31, 1999. Average monthly revenue per subscriber for the high-power business increased to $58 for the first quarter of 2000 from $47 for the same period in the prior year. This increase resulted from the addition of the premium channel services in May of 1999. In the first quarter of 2000, the DIRECTV U.S. businesses reported EBITDA of $31 million compared to EBITDA of $25 million in the first quarter of 1999. The first quarter 2000 operating loss for DIRECTV U.S. was $65 million compared with an operating profit of $5 million in the first quarter of 1999. The change in EBITDA resulted from the increased revenues that were partially offset by increased subscriber acquisition costs, added operating costs from the PRIMESTAR By DIRECTV and premium channel services and increased customer service costs that resulted primarily from an increase in the number of customer service representatives. The decrease in operating profit was principally due to increased amortization expense related to the PRIMESTAR and USSB acquisitions. Latin America. Revenues for the Latin America DIRECTV businesses increased 86.9% to $114 million in the first quarter of 2000 from $61 million in the first quarter of 1999. The increase in revenues reflects an increase in subscribers and the consolidation of the GGM and GLB businesses. Subscribers grew to 909,000 at the end of the first quarter of 2000 compared to 554,000 at the end of the first quarter of 1999. Average monthly revenue per subscriber decreased to $34 in the first quarter of 2000 from $35 in the first quarter of 1999. EBITDA was negative $38 million for the first quarter of 2000 compared to negative EBITDA of $20 million in the first quarter of 1999. The change in EBITDA resulted primarily from additional losses from the consolidation of GGM and GLB and higher marketing costs associated with the record subscriber growth. The Latin America DIRECTV businesses incurred an operating loss of $58 million in the first quarter of 2000 compared to $28 million in the first quarter of 1999. The increased operating loss resulted from the decline in EBITDA and higher depreciation and amortization expense that resulted from the GGM and GLB transactions. Satellite Services Segment Revenues for the Satellite Services segment in the first quarter of 2000 increased 54.6% to $299.1 million from $193.5 million in the same period in the prior year. This increase was primarily due to revenues from outright sales and sales-type lease transactions executed during the first quarter of 2000. Total sales and sales-type lease revenues were $99.1 million for the first quarter of 2000 as compared to $6.1 million of sales-type lease revenues for the same period in the prior year. Revenues from operating leases of transponders, satellite services and other were 66.9% of total revenues for the first quarter of 2000 and increased by 6.7% to $200.0 million from $187.4 million for the same period in the prior year. This increase was due primarily to increased available transponder capacity on new international satellites that were placed into service since the first quarter of 1999. EBITDA was $201.0 million for the first quarter of 2000, a 37.7% increase over the first quarter 1999 EBITDA of $146.0 million. The increase in EBITDA was due to the increase in revenues. EBITDA margin in the first quarter of 2000 was 67.2% compared to 75.5% in the same period in 1999. This decline was due to lower margins associated with the outright sales and sales-type lease transactions in the first quarter of 2000. Excluding these sales and sales-type lease transactions, EBITDA for the first quarter of 2000 was $153 million or 75% of corresponding revenues. Operating profit was $127.3 million for the first quarter of 2000, an increase of $49.0 million over the first quarter of 1999. The increase in operating profit resulted from the increase in EBITDA partially offset by higher depreciation expense resulting from increased capital expenditures related to the satellite fleet. - 47 - HUGHES ELECTRONICS CORPORATION Network Systems Segment The Network Systems segment grew first quarter 2000 revenues by 57.9% to $364.5 million, versus $230.9 million in the first quarter of 1999. The higher revenues resulted from greater shipments of DIRECTV receiver equipment. Shipments of DIRECTV receiver equipment totaled 980,000 in the first quarter of 2000, compared to 190,000 units in the same period last year. The Network Systems segment reported EBITDA of $11.8 million for the first quarter of 2000, compared to negative EBITDA of $5.9 million in the first quarter of 1999. The Network Systems segment had an operating profit of $0.6 million in the first quarter of 2000, compared to an operating loss of $17.8 million in the first quarter of 1999. The increase in EBITDA and operating profit resulted primarily from increased sales of DIRECTV receiver equipment. Also affecting the change was a one-time first quarter 1999 pre-tax charge of $11.0 million resulting from the termination of the APMT contract. Eliminations and Other The elimination of revenues increased to $134.3 million in the first quarter of 2000 from $62.6 million in the first quarter of 1999 due primarily to increased purchases of receiver equipment from the Network Systems segment by DIRECTV for the conversion of the PRIMESTAR By DIRECTV medium-power subscribers to the high-power service. Also contributing to the change was increased manufacturing subsidies received by the Network Systems segment from the DIRECTV business that resulted from the increased DIRECTV receiver equipment shipments. Operating losses for "eliminations and other" increased to $64.4 million in the first quarter of 2000 from $57.5 million for the first quarter of 1999. The increase was primarily due to increased corporate expenditures related to employee benefits and administrative costs. Liquidity and Capital Resources Cash and cash equivalents were $232.5 million at March 31, 2000 compared to $238.2 million at December 31, 1999. Cash provided by operating activities was $7.9 million for the first quarter of 2000, compared to $85.4 million for the first quarter of 1999. The decrease in 2000 resulted primarily from changes in working capital items. Cash used in investing activities was $406.1 million in the three months ended March 31, 2000, and $629.5 million for the same period in 1999. The higher 1999 investing activities included the acquisition of the Tempo Satellite assets and the early buy-out of a satellite sale-leaseback at PanAmSat. Cash provided by financing activities was $463.9 million in the first quarter of 2000, compared to $92.1 million in the first quarter of 1999. The increase is primarily due to additional borrowings used to finance capital expenditures for satellites and property and equipment. Cash used in discontinued operations was $71.4 million in the first quarter of 2000, compared to $110.5 million in the first quarter of 1999. Liquidity Measurement. As a measure of liquidity, the current ratio (ratio of current assets to current liabilities) at March 31, 2000 and December 31, 1999 was 1.38 and 1.46, respectively. Working capital increased by $30.2 million to $1,246.1 million at March 31, 2000 from $1,215.9 million at December 31, 1999. Common Stock 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 on its common stock 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. Hughes expects to have significant cash requirements in the remainder of 2000 primarily due to capital expenditures of approximately $1.6 billion for satellites and property. In addition, Hughes expects to increase its investment in affiliated companies, primarily related to its international DIRECTV businesses. These cash requirements are expected to be funded from a combination of cash provided from operations, cash to be received upon completion of the Boeing transaction, amounts available under credit facilities and debt and equity offerings, as needed. Debt and Credit Facilities. Short-Term Borrowings. In October 1999, Hughes issued $500.0 million ($499.3 million net of unamortized discount) of floating rate notes to a group of institutional investors in a private placement. The notes bear interest at a variable rate which was 7.29% at March 31, 2000. Interest is payable quarterly and the notes are due and payable on October 23, 2000. Notes Payable. PanAmSat issued five, seven, ten and thirty-year notes totaling $750.0 million in January 1998. The outstanding principal balances and interest rates for the five-, seven-, ten- and thirty-year notes as of March 31, 2000 were $200 million at 6.0%, $275 million at 6.125%, $150 million at 6.375% and $125 million at $6.875%, respectively. Principal on the notes is payable at maturity, while interest is payable semi-annually. - 48 - HUGHES ELECTRONICS CORPORATION In July 1999, in connection with the early buy-out of satellite sale-leasebacks, PanAmSat assumed $124.1 million of variable rate notes, of which $79.9 million was outstanding at March 31, 2000. The interest rate on the notes was 6.19% at March 31, 2000. The notes mature on various dates through January 2, 2002. Revolving Credit Facilities. Hughes has three unsecured revolving credit facilities totaling $1.6 billion, consisting of a $750.0 million multi-year facility, a $350.0 million 364-day facility, and a $500.0 million bridge facility. Borrowings under the facilities bear interest at various rates, based on a spread to the then-prevailing London Interbank Offered Rate. The multi-year credit facility provides for a commitment of $750.0 million through December 5, 2002. The 364-day facility provides for a commitment of $350.0 million through November 22, 2000. These facilities also provide backup capacity for Hughes' commercial paper program. The bridge facility provides for a commitment of $500.0 million through the earlier of November 22, 2000 or the receipt of proceeds from the issuance of any debt securities of Hughes in a public offering. The multi-year facility was fully drawn as of March 31, 2000, with borrowings bearing interest rates ranging from 6.92% to 6.94%. $200 million was outstanding under the 364-day facility as of March 31, 2000, bearing interest at rates ranging from 6.88% to 7.13%. No amounts were outstanding under the commercial paper program and bridge facilities at March 31, 2000. PanAmSat maintains a $500.0 million multi-year revolving credit facility that provides for short-term and long-term borrowings and a $500.0 million commercial paper program that provides for short-term borrowings. 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. No amounts were outstanding under either the multi-year revolving credit facility or the commercial paper program at March 31, 2000. At March 31, 2000, Hughes' 75% owned subsidiary, SurFin, had a total of $273.5 million outstanding under a $400.0 million unsecured revolving credit facility expiring in June 2002. The weighted average interest rate on these borrowings was 6.83% at March 31, 2000. Other. At March 31, 2000, GLB had a total of $21.1 million outstanding under variable rate notes bearing interest at various rates. The weighted average interest rate of the notes was 11.7% at March 31, 2000. Principal is payable in varying amounts at maturity in April and May 2002, and interest is payable monthly. Other long-term debt totaling $16.0 million at March 31, 2000, consisted primarily of notes bearing fixed rates of interest of 9.61% to 11.11%. Principal is payable at maturity in April 2007, while interest is payable semi-annually. Hughes has filed a shelf registration statement with the Securities and Exchange Commission with respect to an issuance of up to $2.0 billion of debt securities from time to time. No amounts have been issued as of March 31, 2000. Acquisitions, Investments and Divestitures. Acquisitions and Investments. On July 28, 1999, GLA acquired GLB, the exclusive distributor of DIRECTV services in Brazil, from Tevecap S.A. for approximately $114.0 million plus the assumption of debt. In connection with the transaction, Tevecap also sold its 10% equity interest in GLA to Hughes and The Cisneros Group of Companies, the remaining GLA partners, which increased Hughes' ownership interest in GLA to 77.8%. As part of the transaction, Hughes also increased its ownership interest in SurFin from 59.1% to 75.0%. The total consideration paid in the transactions amounted to approximately $101.1 million. On May 20, 1999, Hughes acquired by merger all of the outstanding capital stock of USSB, a provider of premium subscription television programming via the digital broadcasting system that it shared with DIRECTV. The total consideration of approximately $1.6 billion paid in July 1999, consisted of approximately $0.4 billion in cash and 22.6 million shares of GM Class H common stock. On April 28, 1999, Hughes completed the acquisition of PRIMESTAR's 2.3 million subscriber medium-power direct-to-home satellite business. The purchase price consisted of $1.1 billion in cash and 4.9 million shares of GM Class H common stock, for a total purchase price of $1.3 billion. As part of the agreement to acquire PRIMESTAR, Hughes agreed to purchase the high-power satellite assets, which consisted of an in-orbit satellite and a satellite which has not yet been launched, and related orbital frequencies of Tempo Satellite Inc., a wholly owned subsidiary of TCI Satellite Entertainment Inc. The purchase price for the Tempo Satellite assets consisted of $500 million in cash, $150 million paid on March 10, 1999 and the remaining $350 million paid on June 4, 1999. In February 1999, Hughes acquired an additional ownership interest in GGM, a Latin America local operating company which is the exclusive distributor of DIRECTV in Mexico, from Grupo MVS, S.R.L. de C.V. Hughes' equity ownership represents 49.0% of the voting equity and all of the non-voting equity of GGM. In October 1998, Hughes acquired from Grupo MVS an additional 10.0% interest in GLA, increasing Hughes' ownership interest to 70.0%. Hughes also acquired an additional 19.8% interest in SurFin, a company providing financing of subscriber receiver equipment for certain local operating companies located in Latin America and Mexico, increasing Hughes' ownership percentage from 39.3% to 59.1%. The aggregate purchase price for these transactions was $197.0 million in cash. - 49 - HUGHES ELECTRONICS CORPORATION The financial information included herein reflects the acquisitions discussed above from their respective dates of acquisition. The acquisitions were accounted for by the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the net assets acquired has been recorded as goodwill. Divestitures. On March 1, 2000, Hughes announced that the operations of DIRECTV Japan would be discontinued and that its subscribers would have the opportunity to migrate during 2000 to SkyPerfecTV!. In connection with the agreement, Hughes acquired an approximate 6.6% interest in SkyPerfecTV!. As a result of the transaction, in the first quarter of 2000 Hughes wrote off its investment and accrued for the estimated costs to exit the DIRECTV Japan business. The principal components of the accrued exit costs include estimated subscriber migration and termination costs and costs to terminate certain leases, programming agreements and other long-term contractual commitments. These one-time charges were offset by the estimated fair value of the SkyPerfecTV! interest acquired. The fair value of the SkyPerfecTV! interest recorded was estimated based upon a preliminary independent appraisal, which is expected to be completed within three to six months. Accordingly, the final amount of the fair value of the SkyPerfecTV! investment recorded may be different from the amount reflected herein. The total loss related to DIRECTV Japan for the first quarter of 2000, including Hughes' share of DIRECTV Japan's operating losses, was about $230 million and was recorded in "other, net." The after-tax impact was about $49 million. Hughes will continue to record its share of DIRECTV Japan's operating losses during the remainder of 2000. On January 13, 2000, Hughes announced that it had reached an agreement to sell its satellite systems manufacturing businesses to Boeing for $3.75 billion in cash. The transaction, which is subject to regulatory approval, is expected to close in the third quarter of 2000 and result in an after-tax gain in excess of $1 billion. The financial results for the satellite systems manufacturing businesses are treated as discontinued operations for all periods presented herein. Security Ratings On January 14, 2000, subsequent to the announced sale of Hughes' satellite systems manufacturing businesses to Boeing, Standard and Poor's Rating Services ("S&P") and Moody's Investors Service ("Moody's") each affirmed its respective debt ratings for Hughes. S&P maintained its BBB - minus credit rating, which indicates the issuer has adequate capacity to pay interest and repay principal. S&P maintained the short-term corporate credit and commercial paper ratings at A-3. S&P revised its outlook to positive from negative. Moody's confirmed Hughes' Baa2 long-term credit and P-2 commercial paper ratings. While the outlook remains negative, Moody's ended its review for possible downgrade. The Baa2 rating for senior debt indicates adequate likelihood of interest and principal payment and principal security. The P-2 commercial paper rating is the second highest rating available and indicates that the issuer has a strong ability for repayment relative to other issuers. Debt ratings by the various rating agencies reflect each agency's opinion of the ability of issuers to repay debt obligations as they come due. 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. - 50 - EX-27 3 FDS -- FOR MARCH 31, 2000
5 This schedule contains summary financial information extracted from General Motors Corporation March 31, 2000 Consolidatd Financial Statements and is qualified in its entirety by reference to First Quarter 2000 Form 10-Q 0000040730 General Motors Corporation 1,000,000 U.S. Dollars 3-MOS Dec-31-2000 Jan-1-2000 Mar-31-2000 1 9,407 10,964 90,133 0 12,028 43,479 67,187 34,010 282,601 54,311 135,120 218 0 1,050 21,363 282,601 40,396 46,858 33,465 41,489 509 107 2,228 2,632 783 1,783 0 0 0 1,783 2.88 2.80
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