-----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, MIuoFsBwMvF/gyzmP7h35KuPOJewit8rjl6HO210oVW8Pgbk/7oNYyrnOY33gZQL ao7amDHwlMy7pSaiSXYseQ== /in/edgar/work/20000814/0000040730-00-000107/0000040730-00-000107.txt : 20000921 0000040730-00-000107.hdr.sgml : 20000921 ACCESSION NUMBER: 0000040730-00-000107 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MOTORS CORP CENTRAL INDEX KEY: 0000040730 STANDARD INDUSTRIAL CLASSIFICATION: [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: 698859 BUSINESS ADDRESS: STREET 1: 300 RENAISSANCE CTR STREET 2: MAIL CODE: 482-C34-D71 CITY: DETROIT STATE: MI ZIP: 48265-3000 BUSINESS PHONE: 3135565000 MAIL ADDRESS: STREET 1: 300 RENAISSANCE CTR STREET 2: MAIL CODE: 482-C34-D71 CITY: DETROIT STATE: MI ZIP: 48265 10-Q 1 0001.txt GM SECOND QUARTER 2000 10-Q 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 June 30, 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 June 30, 2000, there were outstanding 536,479,786 shares of the issuer's $1-2/3 par value common stock and 873,431,745 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 and Six Months Ended June 30, 2000 and 1999 3 Consolidated Balance Sheets as of June 30, 2000, December 31, 1999, and June 30, 1999 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Part II - Other Information (Unaudited) Item 1. Legal Proceedings 22 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 6. Exhibits and Reports on Form 8-K 25 Signature 25 Exhibit 99 Hughes Electronics Corporation Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) 26 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 Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions Except Per Share Amounts) GENERAL MOTORS CORPORATION AND SUBSIDIARIES Total net sales and revenues $48,743 $45,067 $95,601 $87,502 ------ ------ ------ ------ Cost of sales and other expenses (Note 4) 38,127 35,955 75,312 69,764 Selling, general, and administrative expenses 5,423 4,534 10,236 8,375 Interest expense 2,358 1,794 4,586 3,639 ------- ------- ------- ------- Total costs and expenses 45,908 42,283 90,134 81,778 ------ ------ ------ ------ Income from continuing operations before income taxes and minority interests 2,835 2,784 5,467 5,724 Income tax expense 929 956 1,712 1,985 Equity income/(loss) and minority interests (155) (94) (221) (185) ----- ----- ----- ----- Income from continuing operations 1,751 1,734 3,534 3,554 Income from discontinued operations (Note 2) - 184 - 426 ----- ----- ----- ----- Net income 1,751 1,918 3,534 3,980 Dividends on preference stocks (27) (7) (56) (23) ----- ----- ----- ----- Earnings attributable to common stocks $1,724 $1,911 $3,478 $3,957 ====== ====== ====== ====== Basic earnings (losses) per share attributable to common stocks (Note 8) $1-2/3 par value Continuing operations $2.99 $2.71 $5.87 $5.44 Discontinued operations (Note 2) - 0.28 - 0.65 ----- ----- ----- ----- Earnings per share attributable to $1-2/3 par value $2.99 $2.99 $5.87 $6.09 ===== ===== ===== ===== Earnings per share attributable to Class H $(0.07) $(0.08) $(0.15) $(0.01) ====== ====== ====== ====== Earnings (losses) per share attributable to common stocks assuming dilution (Note 8) $1-2/3 par value Continuing operations $2.93 $2.66 $5.74 $5.33 Discontinued operations (Note 2) - 0.28 - 0.64 ----- ----- ----- ----- Earnings per share attributable to $1-2/3 par value $2.93 $2.94 $5.74 $5.97 == = = ===== ===== ===== ===== Earnings per share attributable to Class H $(0.07) $(0.08) $(0.15) $(0.01) ====== ====== ====== ====== Reference should be made to the notes to consolidated financial statements. - 3 - CONSOLIDATED STATEMENTS OF INCOME - concluded (Unaudited) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions) AUTOMOTIVE, COMMUNICATIONS SERVICES, AND OTHER OPERATIONS Total net sales and revenues $42,870 $40,117 $84,065 $77,640 ------ ------ ------ ------ Cost of sales and other expenses (Note 4) 36,260 34,353 71,581 66,510 Selling, general, and administrative expenses 4,032 3,402 7,539 6,162 ----- ----- ----- ------ Total costs and expenses 40,292 37,755 79,120 72,672 ------ ------ ------ ------ Interest expense 222 180 438 374 Net expense from transactions with Financing and Insurance Operations 172 66 311 160 ------ ------ ------ ------ Income from continuing operations before income taxes and minority interests 2,184 2,116 4,196 4,434 Income tax expense 698 720 1,240 1,508 Equity income/(loss) and minority interests (155) (87) (220) (170) ------ ------ ------ ------ Income from continuing operations 1,331 1,309 2,736 2,756 Income from discontinued operations (Note 2) - 184 - 426 ------ ------ ------ ------ Net income - Automotive, Communications Services, and Other Operations $1,331 $1,493 $2,736 $3,182 ===== ===== ===== ===== Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions) FINANCING AND INSURANCE OPERATIONS Total revenues $5,873 $4,950 $11,536 $9,862 ----- ----- ------ ----- Interest expense 2,136 1,614 4,148 3,265 Depreciation and amortization expense 1,483 1,275 3,006 2,547 Operating and other expenses 1,391 1,132 2,697 2,213 Provision for financing and insurance losses 384 327 725 707 ----- ----- ------ ----- Total costs and expenses 5,394 4,348 10,576 8,732 ----- ----- ------ ----- Net income from transactions with Automotive, Communications Services, and Other Operations (172) (66) (311) (160) ----- ----- ------ ----- Income before income taxes and minority interests 651 668 1,271 1,290 Income tax expense 231 236 472 477 Equity income/(loss) and minority interests - (7) (1) (15) ----- ----- ------ ----- Net income - Financing and Insurance Operations $420 $425 $798 $798 ==== ==== ==== ==== Reference should be made to the notes to consolidated financial statements. - 4 - CONSOLIDATED BALANCE SHEETS June 30, June 30, 2000 Dec. 31, 1999 (Unaudited) 1999 (Unaudited) ----------- ---- ----------- GENERAL MOTORS CORPORATION AND SUBSIDIARIES (Dollars in Millions) ASSETS Automotive, Communications Services, and Other Operations Cash and cash equivalents $9,441 $9,730 $11,997 Marketable securities 893 1,698 1,666 -------- ------- ------- Total cash and marketable securities 10,334 11,428 13,663 Accounts and notes receivable (less allowances) 5,968 5,093 6,349 Inventories (less allowances) (Note 3) 11,680 10,638 10,766 Equipment on operating leases (less accumulated depreciation) 5,973 5,744 6,394 Deferred income taxes and other current assets 9,678 9,006 6,232 ------- ------- ------- Total current assets 43,633 41,909 43,404 Equity in net assets of nonconsolidated associates 3,377 1,711 1,691 Property - net 33,436 32,779 31,509 Intangible assets - net 8,726 8,527 11,934 Deferred income taxes 13,456 15,277 18,297 Other assets 30,207 25,358 14,016 ------ ------ ------ Total Automotive, Communications Services, and Other Operations assets 132,835 125,561 120,851 Financing and Insurance Operations Cash and cash equivalents 692 712 2,694 Investments in securities 9,447 9,110 8,499 Finance receivables - net 85,782 80,627 74,305 Investment in leases and other receivables 37,883 36,407 33,451 Other assets 23,528 21,312 16,995 Net receivable from Automotive, Comm. Serv., and Other Operations 1,182 1,001 478 ------ ------ ------ Total Financing and Insurance Operations assets 158,514 149,169 136,422 ------- ------- ------- Total assets $291,349 $274,730 $257,273 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Automotive, Communications Services, and Other Operations Accounts payable (principally trade) $17,329 $17,254 $15,814 Loans payable 2,554 1,991 854 Accrued expenses 32,527 32,854 34,530 Net payable to Financing and Insurance Operations 1,182 1,001 478 ------ ------ ------ Total current liabilities 53,592 53,100 51,676 Long-term debt 8,518 7,415 7,408 Postretirement benefits other than pensions 33,931 34,166 34,317 Pensions 3,338 3,339 3,149 Other liabilities and deferred income taxes 17,279 17,426 17,928 -------- -------- -------- Total Automotive, Communications Services, and Other Operations liabilities 116,658 115,446 114,478 Financing and Insurance Operations Accounts payable 4,611 4,262 4,786 Debt 128,164 122,282 110,135 Other liabilities and deferred income taxes 12,161 11,282 10,852 -------- -------- -------- Total Financing and Insurance Operations liabilities 144,936 137,826 125,773 Minority interests 647 596 591 General Motors - obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures of General Motors (Note 5) Series D - 79 79 Series G 139 139 141 Stockholders' equity $1-2/3 par value common stock (issued, 536,912,451; 619,412,233 and 645,004,212 shares) (Notes 6 and 8) 895 1,033 1,075 Class H common stock (issued, 873,646,596; 411,345,561 and 404,921,520 shares) (Notes 6 and 8) 87 14 11 Capital surplus (principally additional paid-in capital) 19,668 13,794 15,533 Retained earnings 9,816 6,961 5,045 ------- ------- ------- Subtotal 30,466 21,802 21,664 Accumulated foreign currency translation adjustments (2,252) (2,033) (1,987) Net unrealized gains on securities 876 996 561 Minimum pension liability adjustment (121) (121) (4,027) ------ ------ ----- Accumulated comprehensive loss (1,497) (1,158) (5,453) ------- ------- ------- Total stockholders' equity 28,969 20,644 16,211 -------- -------- -------- Total liabilities and stockholders' equity $291,349 $274,730 $257,273 Reference should be made to the notes to consolidated financial statements. - 5 - CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six 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 $6,235 $3,283 $12,768 $8,539 Cash flows from investing activities Expenditures for property (3,791) (213) (3,019) (106) Investments in marketable securities - acquisitions (1,399) (11,823) (3,119) (10,620) Investments in marketable securities - liquidations 2,204 11,836 1,855 10,313 Mortgage servicing rights - acquisitions - (398) - (662) Mortgage servicing rights - liquidations - - - 4 Finance receivables - acquisitions - (108,780) - (90,613) Finance receivables - liquidations - 73,835 - 67,691 Proceeds from sales of finance receivables - 28,906 - 18,683 Operating leases - acquisitions (3,967) (8,883) (4,613) (8,201) Operating leases - liquidations 3,507 4,602 2,889 4,007 Investments in companies, net of cash acquired (Note 9) (1,554) - (2,558) (126) Net investing activity with Financing and Insurance Operations (998) - 75 - Other (371) 151 (876) 997 ------ ------- ------ ------ Net cash used in investing activities (6,369) (10,767) (9,366) (8,633) ------ ------- ------ ------ Cash flows from financing activities Net increase (decrease) in loans payable 488 2,127 (393) (5,642) Long-term debt-borrowings 3,417 12,619 2,433 15,248 Long-term debt-repayments (3,337) (8,098) (2,130) (7,230) Net financing activity with Automotive, Communications Services, and Other Operations - 998 - (75) Repurchases of common and preference stocks (417) - (1,868) - Proceeds from issuing common and preference stocks 356 - 1,833 - Cash dividends paid to stockholders (679) - (672) - ------ ------- ------ ------ Net cash (used in) provided by financing activities (172) 7,646 (797) 2,301 ------ ------- ------ ------ Effect of exchange rate changes on cash and cash equivalents (164) (1) (126) 3 Net transactions with Automotive/Financing Operations 181 (181) (338) 338 ------ ------- ------ ------ Net cash (used in) provided by continuing operations (289) (20) 2,141 2,548 Net cash provided by discontinued operations (Note 2) - - 128 - ------ ------- ------ ------ Net (decrease) increase in cash and cash equivalents (289) (20) 2,269 2,548 Cash and cash equivalents at beginning of the period 9,730 712 9,728 146 ------ ------- ------ ------ Cash and cash equivalents at end of the period $9,441 $692 $11,997 $2,694 ====== ==== ======= ======
Reference should be made to the notes to consolidated financial statements. - 6 - 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 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 $5.0 billion for the quarter ended June 30, 1999. Income from Delphi discontinued operations of $184 million for the quarter ended June 30, 1999 is reported net of income tax expense of $140 million. Delphi net sales (including sales to GM) included in discontinued operations totaled $12.5 billion for the six months ended June 30, 1999. Income from Delphi discontinued operations of $426 million for the six months ended June 30, 1999 is reported net of income tax expense of $314 million. Note 3. Inventories Inventories included the following for Automotive, Communications Services, and Other Operations (in millions): June 30, Dec. 31, June 30, 2000 1999 1999 --------- --------- --------- Productive material, work in process, and supplies $5,954 $5,505 $5,660 Finished product, service parts, etc. 7,609 7,023 7,008 ------ ------ ------ Total inventories at FIFO 13,563 12,528 12,668 Less LIFO allowance 1,883 1,890 1,902 ------- ------- ------- Total inventories (less allowances) $11,680 $10,638 $10,766 ====== ====== ====== - 7 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 4. Depreciation and Amortization Depreciation and amortization included in cost of sales and other expenses for Automotive, Communications Services, and Other Operations was as follows (in millions): Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- Depreciation $972 $1,068 $1,962 $2,071 Amortization of special tools 661 635 1,315 1,254 Amortization of intangible assets 81 48 152 79 ------ ----- ------ ------- Total $1,714 $1,751 $3,429 $3,404 ===== ===== ===== ===== Note 5. Preferred Securities of Subsidiary Trusts On May 2, 2000, GM redeemed the General Motors Capital Trust D's (Series D Trust) 8.67% Junior Subordinated Deferrable Interest Debentures, Series D, due July 1, 2012 causing the Series D Trust to redeem the approximately 3.1 million outstanding 8.67% Trust Originated Preferred Securitiessm (TOPrSsm) Series D, (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. Also, on May 2, 2000, GM 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 General Motors Capital Trust G's (Series G Trust) sole assets, are its 9.87% Junior Subordinated Deferrable Interest Debentures, Series G, due July 1, 2012 but redeemable, in whole or part, at GM's option on or after January 1, 2001, which have an aggregate principal amount of $131 million. - -------------------- sm "Trust Originated Preferred Securities" and "TOPrS" are service trademarks of Merrill Lynch & Co. Note 6. Capital Stock Transactions As part of GM's previously announced plans for a broad restructuring of its economic interest in Hughes, during the second quarter of 2000, GM completed an exchange offer in which GM repurchased 86 million shares of GM $1-2/3 par value common stock and issued 92 million shares of GM Class H common stock. In addition, on June 12, 2000, GM contributed approximately 54 million shares and approximately 7 million shares of GM Class H common stock to its U.S. Hourly-Rate Employees Pension Plan and VEBA trust, respectively. The total value of the contributions was approximately $5.6 billion. As a result of the exchange offer and employee-benefit plan contributions, the economic interest in Hughes attributable to GM $1-2/3 par value common stock decreased from approximately 62% to approximately 30%, and the economic interest in Hughes attributable to GM Class H common stock increased from approximately 38% to approximately 70%, on a fully diluted basis. On June 6, 2000, the GM Board declared a three-for-one stock split of the GM Class H common stock. The stock split was in the form of a 200% stock dividend, paid on June 30, 2000 to GM Class H common stockholders of record on June 13, 2000. All per share amounts and numbers of shares for all periods presented, as well as GM Class H common stock and capital surplus as of June 30, 2000, have been adjusted to reflect the stock split. Furthermore, as a result of this stock split, the voting and liquidation rights of the GM Class H common stock were reduced from 0.6 votes per share and 0.6 liquidation units per share, to 0.2 votes per share and 0.2 liquidation units per share in order to avoid dilution in the aggregate voting or liquidation rights of any class. The voting and liquidation rights of the GM $1-2/3 par value common stock remained at one vote per share and one liquidation unit per share. - 8 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 7. Comprehensive Income GM's total comprehensive income was as follows (in millions): Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- Net income $1,751 $1,918 $3,534 $3,980 Other comprehensive (loss)/income (425) 960 (339) 244 ------ ------ ------ ------ Total $1,326 $2,878 $3,195 $4,224 ===== ===== ===== ===== Note 8. 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 EPS 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 Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- Earnings (losses) attributable to common stocks $1-2/3 par value Continuing operations $1,762 $1,754 $3,549 $3,535 Discontinued operations - 184 - 426 ------ ------ ------ ------ Earnings attributable to $1-2/3 par value $1,762 $1,938 $3,549 $3,961 (Losses) attributable to Class H $(38) $(27) $(71) $(4) 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 Available Separate Consolidated Net Income (Loss) (ASCNI) of Hughes for the respective period. Losses attributable to GM Class H common stock for the three and six months ended June 30, 2000 and 1999, represent the ASCNI of Hughes. Losses used for computation of the ASCNI of Hughes are based on the separate consolidated net income (loss) 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 used for computation of the ASCNI of Hughes are 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 and six months ended June 30, 2000 and 1999 (563 million and 363 million for the second quarters of 2000 and 1999, respectively, and 488 million and 341 million for the six month periods ended June 30, 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 a 100% interest in the earnings of Hughes (Average Class H dividend base). The Average Class H dividend base was 1.3 billion and 1.2 billion for the second quarters of 2000 and 1999, respectively, and 1.3 billion and 1.2 billion for the six month periods ended June 30, 2000 and 1999, respectively. 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. GM immediately reduced its common shares outstanding used to calculate both basic and diluted EPS. GM settled this derivative trade with cash payments during December 1999 and the first six months of 2000, which decreased equity accordingly. These payments represented GM's obligation to deliver to the financial institution any difference in the notional value of such amount of shares, based on the trading prices of the shares on the various settlement dates. - 9 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 8. Earnings Per Share Attributable to Common Stocks (concluded) 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 June 30, 2000 Income (loss) from continuing operations $1,779 $(28) Less:Dividends on preference stocks 17 10 ------ -- Basic EPS Income (loss) from continuing operations attributable to common stockholders 1,762 590 $2.99 (38) 563 $(0.07) ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 12 - - ----- ---- ---- ---- Diluted EPS Adjusted income (loss) from continuing operations attributable to common stockholders $1,762 602 $2.93 $(38) 563 $(0.07) ===== === ==== == === ==== Three Months Ended June 30, 1999 Income (loss) from continuing operations $1,761 $(27) Less:Dividends on preference stocks 7 - ----- ---- Basic EPS Income (loss) from continuing operations attributable to common stockholders 1,754 648 $2.71 (27) 363 $(0.08) ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 12 - - ----- --- ---- ---- Diluted EPS Adjusted income (loss) from continuing operations attributable to common stockholders $1,754 660 $2.66 $(27) 363 $(0.08) ===== === ==== == === ==== Six Months Ended June 30, 2000 Income (loss) from continuing operations $3,587 $(53) Less:Dividends on preference stocks 38 18 ----- -- Basic EPS Income (loss) from continuing operations attributable to common stockholders 3,549 605 $5.87 (71) 488 $(0.15) ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 13 - - ----- --- -- --- Diluted EPS Adjusted income (loss) from continuing operations attributable to common stockholders $3,549 618 $5.74 $(71) 488 $(0.15) ===== === ==== == === ==== Six Months Ended June 30, 1999 Income (loss) from continuing operations $3,558 $(4) Less:Dividends on preference stocks 23 - ----- -- Basic EPS Income (loss) from continuing operations attributable to common stockholders 3,535 651 $5.44 (4) 341 $(0.01) ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 13 - - ----- --- -- --- Diluted EPS Adjusted income (loss) from continuing operations attributable to common stockholders $3,535 664 $5.33 $(4) 341 $(0.01) ===== === ==== = === ====
- 10 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 9. 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. 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 is 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. On July 24, 2000, GM finalized its previously announced strategic industrial alliance with Fiat S.p.A. (Fiat). As part of this alliance, GM acquired a 20% interest in Fiat Auto Holdings, B.V. (Fiat Auto), a new holding company that controls Fiat's automobile and light-commercial vehicle operations, except for Ferrari and Maserati for $2.4 billion. In addition, Fiat purchased for $2.4 billion approximately 32 million shares of GM $1-2/3 par value common stock, or approximately 5.6% of GM's $1-2/3 par value common stock outstanding as of July 24, 2000. 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 six months ended June 30, 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. Pro forma information related to the 2000 transactions would not be material to GM's results of operations, and therefore, is not presented. The pro forma information is as follows (in millions except per share amounts): Six months Ended June 30, 1999 -------------------- Total net sales and revenues $88,614 Income from continuing operations $3,551 Income from discontinued operations 426 ------ Net income $3,977 ===== Basic earnings (losses) per share attributable to common stocks $1-2/3 par value common stock Continuing operations $5.44 Discontinued operations 0.65 ---- Earnings per share attributable to $1-2/3 par value $6.09 ==== Earnings per share attributable to Class H $(0.02) ==== Earnings (losses) per share attributable to common stocks assuming dilution $1-2/3 par value common stock Continuing operations $5.33 Discontinued operations 0.64 ---- Earnings per share attributable to $1-2/3 par value $5.97 ==== Earnings per share attributable to Class H $(0.02) ==== - 11 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 9. Acquisitions, Investments, and Divestitures (concluded) 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 second half of 2000 and result in an after-tax gain in excess of $1.0 billion. However, if Hughes were to enter into a settlement of the China investigation (see Note 9 Contingencies to the Hughes financial statements, included in Exhibit 99 to this GM Form 10-Q) 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. GM does not expect this investigation to result in a material adverse effect upon Hughes' business. 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 IPO during the second half 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 an independent appraisal. The total loss related to DIRECTV Japan for the second quarter of 2000 and the six months ended June 30, 2000, including Hughes' share of DIRECTV Japan's operating losses was approximately $25 million and $255 million, respectively. The after-tax impact for the same periods was approximately $18 million and $67 million, respectively. Hughes will continue to record its share of DIRECTV Japan's operating losses during the remainder of 2000. Note 10. Contingent Matters Contingent Matters 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. 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 June 30, 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. Refer to Note 9 Contingencies to the Hughes financial statements, included in Exhibit 99 to this GM Form 10-Q for the period ended June 30, 2000 for information regarding Hughes' contingent matters. - 12 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 11. 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:
Total Other Total GMNA GME GMLAAM GMAP GMA Hughes Other Automotive GMAC Financing Financing ------ ----- ------ ----- ---- ------ ----- ---------- ---- --------- --------- (in millions) For the Three Months Ended June 30, 2000 Net sales and revenues: External customers $30,799 $6,908 $1,422 $740 $39,869 $2,251 $750 $42,870 $5,755 $118 $5,873 Intersegment (230) 234 (54) 50 - 9 (9) - - - - ------ ------ ----- ---- ------ ----- --- ------ ----- --- ----- Total net sales and revenues $30,569 $7,142 $1,368 $790 $39,869 $2,260 $741 $42,870 $5,755 $118 $5,873 ====== ===== ===== === ====== ===== === ====== ===== === ===== Interest income (a) $139 $114 $8 $3 $264 $19 $(126) $157 $539 $(126) $413 Interest expense $290 $107 $41 $1 $439 $58 $(275) $222 $2,027 $109 $2,136 Net income (loss) $1,411 $166 $10 $(123) $1,464 $(64)(c) $(69) $1,331 $395 $25 $420 Segment assets $87,397 $22,387 $4,463 $1,084 $115,331 $19,940 (d)$(2,436) $132,835 $157,482 $1,032 $158,514 For the Three Months Ended June 30, 1999 Net sales and revenues: External customers $29,012 $6,910 $1,165 $665 $37,752 $1,773 $592 $40,117 $4,901 $49 $4,950 Intersegment (191) 91 50 50 - 11 (11) - - - - ------ ----- ----- ---- ------ ----- --- ------- ----- -- ----- Total net sales and revenues $28,821 $7,001 $1,215 $715 $37,752 $1,784 $581 $40,117 $4,901 $49 $4,950 ====== ===== ===== === ====== ===== === ======= ====== == ===== Interest income (a) $308 $96 $9 $1 $414 $5 $(169) $250 $409 $(55) $354 Interest expense $296 $76 $20 $3 $395 $12 $(227) $180 $1,538 $76 $1,614 Net income (loss) $1,483 $187 $(38) $(81) $1,551 $(92)(c) $34 (b) $1,493 $391 $34 $425 Segment assets $74,642 $18,800 $4,139 $1,382 $98,963 $17,857 (d) $4,031 $120,851 $136,333 $89 $136,422
(a)Interest income is included in net sales and revenues from external customers. (b)The amount for Other includes income from discontinued operations related to Delphi of $184 million for the three months ended June 30, 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 $395 million and $416 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. - 13 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded (Unaudited) Note 11. Segment Reporting (concluded)
Total Other Total GMNA GME GMLAAM GMAP GMA Hughes Other Automotive GMAC Financing Financing ------ ----- ------ ----- ---- ------ ----- ---------- ---- --------- --------- (in millions) For the Six Months Ended June 30, 2000 Net sales and revenues: External customers $60,528 $13,478 $2,671 $1,523 $78,200 $4,358 $1,507 $84,065 $11,376 $160 $11,536 Intersegment (715) 498 87 130 - 20 (20) - - - - ------ ------ ----- ------ ------ ----- ----- ------ ------ --- ------ Total net sales and revenues $59,813 $13,976 $2,758 $1,653 $78,200 $4,378 $1,487 $84,065 $11,376 $160 $11,536 ====== ====== ===== ===== ====== ===== ===== ====== ====== === ====== Interest income (a) $262 $214 $14 $5 $495 $37 $(214) $318 $1,022 $(236) $786 Interest expense $556 $193 $62 $1 $812 $103 $(477) $438 $3,937 $211 $4,148 Net income (loss) $2,700 $387 $11 $(116) $2,982 $(141)(c) $(105) $2,736 $792 $6 $798 For the Six Months Ended June 30, 1999 Net sales and revenues: External customers $56,578 $13,119 $2,143 $1,275 $73,115 $3,399 $1,126 $77,640 $9,728 $134 $9,862 Intersegment (351) 159 105 87 - 20 (20) - - - - ------ ------ ----- ------ ------ ----- ----- ------ ----- ---- ----- Total net sales and revenues $56,227 $13,278 $2,248 $1,362 $73,115 $3,419 $1,106 $77,640 $9,728 $134 $9,862 ====== ====== ===== ===== ====== ===== ===== ====== ===== === ===== Interest income (a) $503 $198 $25 $4 $730 $19 $(329) $420 $822 $(94) $728 Interest expense $602 $153 $35 $7 $797 $19 $(442) $374 $3,051 $214 $3,265 Net income (loss) $2,904 $361 $(63) $(141) $3,061 $(14) (c) $135 (b) $3,182 $783 $15 $798
(a)Interest income is included in net sales and revenues from external customers. (b)The amount for Other includes income from discontinued operations related to Delphi of $426 million for the six months ended June 30, 1999. (c)The amount reported for Hughes excludes amortization of GM purchase accounting adjustments of approximately $11 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. * * * * * * - 14 - 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 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, Sweden, and Mexico which are not associated with GMAC. The following discussion of GM's reportable operating segments should be read in conjunction with Note 11 to the GM consolidated financial statements. 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. RESULTS OF OPERATIONS In the second quarter of 2000, GM's consolidated income from continuing operations totaled $1.8 billion or $2.93 per share of GM $1-2/3 par value common stock, which represents an increase of $17 million compared with $1.7 billion or $2.66 per share of GM $1-2/3 par value common stock in the second quarter of 1999. GM's consolidated income from continuing operations for the six months ended June 30, 2000 was $3.5 billion or $5.74 per share of GM $1-2/3 par value common stock, which represents a decrease of $20 million compared with $3.6 billion or $5.33 per share of GM $1-2/3 par value common stock for the six months ended June 30, 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 second quarter of 1999, including the income from discontinued operations, totaled $1.9 billion or $2.94 per share of GM $1-2/3 par value common stock. GM's net income for the six months ended June 30, 1999, including the income from discontinued operations, totaled $4.0 billion or $5.97 per share of GM $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. - 15 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Vehicle Unit Deliveries of Cars and Trucks - GMA Three Months Ended June 30, --------------------------- 2000 1999 ---- ---- GM as GM as a % of a % of Industry GM Industry Industry GM Industry -------- --- -------- -------- --- -------- (Units in Thousands) GMNA United States Cars 2,450 695 28.4% 2,398 727 30.3% Trucks 2,420 660 27.3% 2,338 669 28.6% ----- ----- ----- ----- Total United States 4,870 1,355 27.8% 4,736 1,396 29.5% Canada, Mexico, and Other 718 197 27.4% 686 193 28.1% ------ ----- ------ ----- Total GMNA 5,588 1,552 27.8% 5,422 1,589 29.3% GME 5,405 522 9.7% 5,359 539 10.1% GMLAAM 898 144 16.0% 792 126 16.0% GMAP 2,954 104 3.5% 2,818 104 3.7% ------ ----- ------ ----- Total Worldwide 14,845 2,322 15.6% 14,391 2,358 16.4% ====== ===== ====== ===== Six Months Ended June 30, --------------------------- 2000 1999 ---- ---- GM as GM as a % of a % of Industry GM Industry Industry GM Industry -------- --- -------- -------- --- -------- (Units in Thousands) GMNA United States Cars 4,677 1,339 28.6% 4,406 1,355 30.8% Trucks 4,685 1,299 27.7% 4,361 1,203 27.6% ----- ----- ----- ----- Total United States 9,362 2,638 28.2% 8,767 2,558 29.2% Canada, Mexico, and Other 1,314 355 27.0% 1,234 345 28.0% ----- ----- ----- ----- Total GMNA 10,676 2,993 28.0% 10,001 2,903 29.0% GME 10,952 1,046 9.6% 10,666 1,047 9.8% GMLAAM 1,776 282 15.9% 1,584 252 15.9% GMAP 6,314 221 3.5% 5,965 215 3.6% ------ ----- ------ ----- Total Worldwide 29,718 4,542 15.3% 28,216 4,417 15.7% ====== ===== ====== ===== Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ------ ------ ------ ------ (Units in Thousands) Wholesale Sales GMNA Cars 806 754 1,537 1,537 Trucks 770 783 1,528 1,502 ---- ----- ----- ----- Total GMNA 1,576 1,537 3,065 3,039 ----- ----- ----- ----- GME Cars 505 520 965 954 Trucks 34 36 73 71 ----- ----- ----- ----- Total GME 539 556 1,038 1,025 ----- ----- ----- ----- GMLAAM Cars 105 93 197 168 Trucks 49 43 92 90 ----- ----- ----- ----- Total GMLAAM 154 136 289 258 ----- ----- ----- ----- GMAP Cars 42 36 81 75 Trucks 53 62 130 116 ----- ----- ----- ----- Total GMAP 95 98 211 191 ----- ----- ----- ----- Total Worldwide 2,364 2,327 4,603 4,513 ===== ===== ===== ===== - 16 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMA Financial Review GMA reported income of $1.5 billion and a net margin of 3.7% on net sales and revenues of $39.9 billion for the second quarter of 2000 compared with income of $1.6 billion and a net margin of 4.1% on net sales and revenues of $37.8 billion for the prior year quarter. The decrease in net margin from the prior year quarter was primarily due to an increase in spending for product development activities, unfavorable product mix in Europe and North America, unfavorable currency exchange, and equity losses from Isuzu, partially offset by higher wholesale sales volumes and material cost savings. These factors also contributed to the decrease in income to $3.0 billion and a net margin of 3.8% on net sales and revenues of $78.2 billion for the six months ended June 30, 2000, compared with income of $3.1 billion and a net margin of 4.2% on net sales and revenues of $73.1 billion for the prior year six-month period. GMNA reported income of $1.4 billion for the second quarter of 2000 compared with $1.5 billion for the prior year quarter. The decrease in GMNA's second quarter 2000 income was primarily due to an increase in spending for product development activities, as well as unfavorable currency exchange and product mix, partially offset by material cost improvements and higher wholesale sales volumes. Income for the six months ended June 30, 2000 totaled $2.7 billion compared with $2.9 billion for the prior year six-month period. The decrease in income for the first six months of 2000 was primarily due to competitive pricing pressure, labor economics, and an increase in spending for product development activity, partially offset by material cost improvements and higher wholesale sales volumes. Net price, which 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, was essentially flat for the quarter. GME reported income of $166 million for the second quarter of 2000 compared with $187 million for the prior year quarter. The decrease in GME's second quarter 2000 income was primarily due to a decrease in wholesale sales volumes related to the work stoppage in Bochum, Germany, unfavorable product mix, and a shift in volumes within Europe from higher margin markets to lower margin markets. These decreases were partially offset by material cost improvements and structural cost reductions. Income for the six months ended June 30, 2000 totaled $387 million compared with $361 million for the prior year six-month period. The improvement in income for the first six months of 2000 was primarily due to material and structural cost improvements and higher wholesale sales volumes related to the Zafira and Corsa, partially offset by the unfavorable shift in market mix and increased pricing pressures. 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 $10 million for the second quarter of 2000 compared with a loss of $38 million for the prior year quarter. The increase in GMLAAM's second quarter 2000 earnings compared to second quarter 1999 results was primarily due to higher wholesale sales volumes and nominal price increases, partially offset by increased manufacturing costs in preparation for the start of production of the Celta at the Gravatai Plant in Brazil, as well as increased material and freight costs in Brazil driven by GM do Brasil's and its suppliers' exposure to hard currencies and inflationary factors. These factors, along with equity income improvements from several joint ventures in the region during the first three months of 2000 contributed to the increase in income for the six months ended June 30, 2000 to $11 million compared to a loss of $63 million for the prior year six-month period. GMAP reported a loss of $123 million for the second quarter of 2000 compared with a loss of $81 million for the prior year quarter. The increase in GMAP's second quarter 2000 losses compared to second quarter 1999 results was primarily due to increased equity losses at Isuzu resulting from the continued weakening of the Japanese commercial vehicle market, as well as the strengthening of the Japanese Yen, partially offset by continued strong performance in Australia by Holden. Losses for the six months ended June 30, 2000 totaled $116 million compared with losses of $141 million for the prior year six-month period. The decrease in losses for the first six-months of 2000 was primarily due to continued strong performance in Australia by Holden and improved equity earnings at Shanghai GM, partially offset by the increased equity losses at Isuzu. - 17 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Hughes Financial Review Hughes' net sales and revenues increased to $2.3 billion and $4.4 billion in the second quarter and first six months of 2000, respectively, compared to $1.8 billion and $3.4 billion for the comparable periods in 1999. The increase in net sales and revenues was primarily attributable to the growth in the DIRECTV businesses due to the addition of approximately 1,063,000 new subscribers in the United States and Latin America since December 31, 1999, and added revenues from the PRIMESTAR By DIRECTV and premium channel services. The 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 increase in net sales and revenues was Hughes Network Systems, which shipped nearly 2 million DIRECTV receiver systems during the first half of 2000 compared to approximately 1 million shipped in the same period in 1999, and the outright sales and sales-type leases of satellite transponders at PanAmSat in 2000. These increases were partially offset by a net decrease in contract sales at Hughes Space and Communications (HSC), the discontinuation of certain narrow band wireless product lines at Hughes Network Systems, and a $155 million pre-tax gain included in the first six months of 1999 related to the settlement of a patent infringement case. Hughes had a net loss of $69 million in the second quarter of 2000, compared with a net loss of $98 million in the second quarter of 1999. The 1999 results included a one-time pre-tax charge of $125 million at HSC related to increased development costs and schedule delays on several new product lines. Excluding the one-time charge, Hughes' net loss increased $47 million in the second quarter of 2000 compared to the second quarter of 1999. This change resulted from increased subscriber acquisition costs to support the increased subscriber growth at the Direct-To-Home businesses and increased depreciation and amortization expense that resulted from the 1999 acquisitions of PRIMESTAR, USSB, and Galaxy Brasil, Ltda. (GLB), partially offset by the profit from the sales-type lease transactions at PanAmSat. Hughes' net loss was $151 million for the first six months of 2000, compared with a net loss of $25 million for the same period in 1999. The increase in net loss for the first six months of 2000 was primarily due to increased subscriber acquisition costs at the Direct-To-home businesses and an increase in depreciation and amortization expense due to the acquisitions discussed above and the launch of new satellites since the second quarter of 1999. These increases in net loss were partially offset by an increase in Hughes' income tax benefit related to both the write-off of Hughes' historical investments in DIRECTV Japan and increased operating losses in 2000. The net loss for the first six months of 1999 included the $155 million pre-tax gain discussed above, partially offset by a pre-tax charge of $92 million resulting from the termination of a satellite systems contract with Asia-Pacific Mobile Telecommunications Satellite Pte. Ltd. and the $125 million pre-tax charge at HSC discussed above. GMAC Financial Review GMAC's revenue totaled $5.8 billion and $11.4 billion in the second quarter and first six months of 2000, respectively, compared to $4.9 billion and $9.7 billion for the comparable periods in 1999. The increase in revenue was mainly due to higher average retail, wholesale, operating lease, and other loan receivables balances which resulted primarily from strong GM sales levels and GM-sponsored special financing programs. In addition, revenue increased due to increases in mortgage servicing, processing, and investment fees. Other income increased due to a number of acquisitions, the most significant one being the acquisition of the asset-based lending and factoring business unit of The Bank of New York in July 1999. GMAC earned consolidated net income of $395 million, up from $391 million earned in the second quarter of 1999. Net income for the first six months of 2000 was $792 million, up 1% from the $783 million reported in the same period a year ago. The increase was primarily due to the continued growth in assets from automotive and other financing operations and higher investment and other income from insurance operations, partially offset by recent increases in borrowing costs and a slowdown in mortgage volumes due to rising interest rates. - 18 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES 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 June 30, 2000 totaled $13.3 billion compared with $14.4 billion at December 31, 1999 and $16.7 billion at June 30, 1999. The decrease from December 31, 1999 is primarily due to GM's purchase of 20% of Fuji Heavy Industries Ltd., and 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 were $6.9 billion at June 30, 2000, compared to $6.3 billion at December 31, 1999 and $4.6 billion at June 30, 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. Net liquidity, calculated as cash and marketable securities less the total of loans payable and long-term debt, was $(738) million at June 30, 2000, compared with $2.0 billion at December 31, 1999 and $5.4 billion at June 30, 1999. Long-term debt was $8.5 billion at June 30, 2000, compared to $7.4 billion at December 31, 1999 and $7.4 billion at June 30, 1999. The ratio of long-term debt to long-term debt and GM's net assets of Automotive, Communications Services, and Other Operations was 35.4% at June 30, 2000, compared to 43.7% at December 31, 1999 and 55.9% at June 30, 1999. The ratio of long-term debt and short-term loans payable to the total of this debt and GM's net assets of Automotive, Communications Services, and Other Operations was 41.6% at June 30, 2000, compared to 49.6% at December 31, 1999 and 58.6% at June 30, 1999. Financing and Insurance Operations - ---------------------------------- At June 30, 2000, GMAC owned assets and serviced automotive receivables totaling $173.3 billion, $11.0 billion above December 31, 1999. The increase from year-end was principally the result of higher commercial and other loan receivables, serviced retail loan receivables, other assets, serviced wholesale loan receivables, operating lease assets, and due and deferred from receivable sales. These increases were partially offset by a decline in real estate mortgages held for sale. Automotive and commercial finance receivables serviced by GMAC, including sold receivables, totaled $104.5 billion at June 30, 2000, $7.6 billion above December 31, 1999 levels. This increase was primarily a result of a $3.1 billion increase in commercial and other loan receivables, a $2.7 billion increase in serviced retail loan receivables, and a $1.9 billion increase in serviced wholesale loan receivables. The change in commercial and other loan receivables was primarily attributable to increases in secured notes, as well as continued growth at GMAC Commercial Credit LLC. Continued GM-sponsored retail financing incentives contributed to the rise in serviced retail loan receivables. The increase in serviced wholesale loan receivables over year-end was a result of an overall increase in the number of units financed in the industry and higher penetration levels. As of June 30, 2000, GMAC's total borrowings were $126.7 billion, compared with $121.2 billion at December 31, 1999. The increased borrowings since December 31,1999 were used to fund increased asset levels. GMAC's ratio of consolidated debt to total stockholder's equity at June 30, 2000 was 9.6:1, compared to 10.9:1 at December 31, 1999. The decline was due to capital contributions from GM totaling $1.5 billion during the first quarter of 2000 and an increase of $792 million in retained earnings in the first six months of 2000. Book Value Per Share Book value per share of GM $1-2/3 par value common stock was $38.44 at June 30, 2000, compared with $27.02 at December 31, 1999 and $20.02 at June 30, 1999. Book value per share of GM Class H common stock was $7.69 at June 30, 2000, compared with $5.40 at December 31, 1999 and $4.00 at June 30, 1999. Book value per share was determined based on the liquidation rights of the various classes of common stock, adjusted to reflect the GM Class H common stock split. 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 four-quarter rolling-average RONA for continuing operations, excluding Hughes, was 13.1% as of June 30, 2000. - 19 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CASH FLOWS Automotive, Communications Services, and Other Operations - --------------------------------------------------------- Net cash provided by operating activities was $6.3 billion during the six months ended June 30, 2000 compared with $12.8 billion for the prior year period. The decrease in net cash provided by operating activities during the first six months of 2000 was primarily the result of decreases in operating liabilities. These decreases were primarily related to an extension of payment terms in the first quarter of 1999 and decreases in accrued and other liabilities in the first quarter of 2000. Net cash used in investing activities amounted to $6.4 billion during the six months ended June 30, 2000 compared with $9.4 billion in the prior year period. The decrease in net cash used in investing activities during the first six months 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. Net cash used in financing activities was $224 million during the next six months ended June 30, 2000 compared with $832 million in the prior year period. The decrease in cash used for financing activities during the first six months of 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, partially offset by the impact of the issuance of $1.5 billion of preference stock to America Online in 1999. Financing and Insurance Operations - ---------------------------------- Net cash provided by operating activities totaled $3.3 billion and $8.5 billion during the six months ended June 30, 2000 and 1999, respectively. The reduction in operating cash flow was primarily the result of a reduction in the proceeds from sales of mortgage loans and securities held for trading 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 six months ended June 30, 2000 totaled $10.8 billion, a $2.2 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, partially offset by increased proceeds from sales of finance receivables. Net cash provided by financing activities during the six months ended June 30, 2000 totaled $7.6 billion, compared with cash provided of $2.3 billion 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 GM $1-2/3 par value common stock based on the outlook and indicated capital needs of the business. On May 2, 2000, the GM Board declared a quarterly cash dividend of $0.50 per share on GM $1-2/3 par value common stock, paid June 10, 2000, to holders of record as of May 12, 2000. The GM Board also declared a quarterly dividend on the Series G Depositary Shares of $0.57 per share, paid August 1, 2000, to holders of record on July 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 August 1, 2000, to the holder of record on July 3, 2000. Employment and Payrolls Worldwide employment at June 30, (in thousands) 2000 1999 ---- ---- GMNA 218 226 GME 90 83 GMLAAM 24 22 GMAP 11 10 GMAC 27 26 Hughes 18 18 Other 13 12 ---- ---- Total employees 401 397 === === Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- Worldwide payrolls - (in billions) $5.8 $5.6 $11.4 $11.0 === === ==== ==== - 20 - 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. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133. This statement amends issues in SFAS No. 133 to ease implementation difficulties. The amendment includes permitting normal purchases and sales exceptions to be applied to contracts that meet certain net settlement provisions, redefining the risks that can be identified as the hedged risk, allowing a recognized foreign-currency-denominated asset or liability to be the hedged item in a fair value or cash flow hedge, and allowing certain intercompany derivatives to be designated as hedging instruments. 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. * * * * * * * - 21 - 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 June 30, 2000 or subsequent thereto, but before the filing of this report are summarized below: Other Matters Hughes Communications Galaxy, Inc. (HCGI) filed a lawsuit on March 22, 1991, against the U.S. Government based upon National Aeronautics and Space Administration's (NASA) breach of contract to launch ten satellites on the Space Shuttle. The U.S. Court of Federal Claims granted HCGI's Motion for Summary Judgment on the issue of liability on November 30, 1995. A trial was held on May 1, 1998 on the issue of damages. On June 30, 2000, a final judgment was entered for HCGI in the amount of $103 million. Both Hughes and the U.S. Government have the ability to appeal the final judgement. On July 13, 2000, HCGI filed its Notice to Appeal the Judgment to the U.S. Court of Appeals for the Federal Circuit. HCGI is appealing for a greater amount than was awarded. While we cannot be certain, we anticipate the appeal process to take one to two years. We have not established any contingent gain for this award. * * * With respect to the previously reported action against DIRECTV filed by General Electric Capital Corporation (GECC), a trial commenced on June 12, 2000. GECC presented evidence to the jury of damages of $157 million; DIRECTV sought damages from GECC of $45 million. On July 21, 2000, the jury returned a verdict in GECC's favor in the amount of $133 million. GECC may also seek attorneys' fees and penalty interest under Connecticut statute. Hughes and DIRECTV will appeal. GM does not believe that the litigation will ultimately have a material adverse impact on Hughes' results of operations or financial position. * * * Environmental Matters On June 16, 2000 the Michigan Department of Environmental Quality (MDEQ) proposed a settlement payment in excess of $100,000 for alleged violations of Federal and State air regulations at the Powertrain Saginaw Metal Casting Operations plant in Saginaw, Michigan. The alleged violations involved the lack of proper approvals and are not related to any degradation of the environment. GM is pursuing settlement discussions with MDEQ. * * * (b) Previously reported legal proceedings which have been terminated, either during the quarter ended June 30, 2000, or subsequent thereto, but before the filing of this report are summarized below: It was previously reported that in August, 1996, the California Air Resources Board (CARB) ordered General Motors to recall about 11,500 1992 MY "S" Trucks. The CARB claimed that the engines in these trucks, known by their emissions engine family designator as N3G4.3TBXEB2, exceeded the applicable new motor vehicle emissions standard for oxides of nitrogen (Nox). In addition to the ordered recall, the CARB threatened civil penalties up to $57 million. General Motors believed that it had valid defenses to all CARB's claims and had requested and been granted an administrative review of the penalties and recall order. General Motors' defenses included the failure of CARB's outside contractor test laboratory to comply with the Federal Test Procedure used to identify non-compliant engine families. On May 22, 2000, General Motors received a letter from CARB advising that the CARB "is withdrawing the recall order for engine family N3G4.3TBXEB2, ... based on our determination that discrepancies in the vehicle procurement process preclude reliance on the test data that is the basis for the subject recall." This successfully concluded this matter. * * * * * * - 22 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) The annual meeting of stockholders of the Registrant was held on June 6, 2000. At that meeting, the following matters were submitted to a vote of the stockholders of General Motors Corporation: 2000 General Motors Annual Meeting Final Voting Results (All classes of common stock) Proposal Voting Results - -------- -------------- Votes* Percent** ------- --------- Item No. 1 Nomination and Election of Directors The Judges subscribed and delivered a certificate reporting that the following nominees for directors had received the number of votes* set opposite their respective names. Percy N. Barnevik For 473,514,221 97.4% Withheld 12,500,265 2.6 John H. Bryan For 473,387,247 97.4 Withheld 12,627,239 2.6 Thomas E. Everhart For 474,999,970 97.7 Withheld 11,014,516 2.3 George M. C. Fisher For 473,615,611 97.4 Withheld 12,398,875 2.6 Nobuyuki Idei For 475,005,214 97.7 Withheld 11,009,272 2.3 Karen Katen For 475,151,878 97.8 Withheld 10,862,608 2.2 J. Willard Marriott, Jr. For 473,376,434 97.4 Withheld 12,638,052 2.6 Harry J. Pearce For 475,148,318 97.8 Withheld 10,866,168 2.2 Eckhard Pfeiffer For 473,303,101 97.4 Withheld 12,711,385 2.6 John F. Smith, Jr. For 475,126,468 97.8 Withheld 10,888,018 2.2 G. Richard Wagoner, Jr. For 475,186,444 97.8 Withheld 10,828,042 2.2 Lloyd D. Ward For 475,088,501 97.8 Withheld 10,925,985 2.2 Dennis Weatherstone For 475,068,161 97.7 Withheld 10,946,325 2.3 Item No. 2 A proposal of the Board For 480,516,944 98.9% of Directors that the Against 2,113,785 0.4 stockholders ratify the Abstain 3,383,757 0.7 selection of Deloitte & Touche LLP as independent public accountants for the year 2000. Item No. 3 A Board of Directors proposal For (a) 370,113,613 59.9% for approval of amendment Against (a) 111,390,614 18.0 to the Certificate of Abstain (a) 4,511,259 0.7 Incorporation of General Motors Corporation For (b) 53,963,209 65.0% to increase the number of Against (b) 8,679,958 10.4 authorized shares of Class H Abstain (b) 125,336 0.1 Common Stock of the Corporation from 600,000,000 shares to 3,600,000,000 shares.# - 23 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - concluded Proposal Voting Results - -------- -------------- Votes* Percent** ------- --------- Item No. 4 A stockholder proposal that the For 33,925,920 8.6% Board of Directors take Against 353,040,746 89.3 necesary steps to identify by Abstain 8,474,837 2.1 name and corporate title those executive officers who are contractually entitled to receive in excess of $250,000 annually. Item No. 5 A stockholder proposal to limit For 28,124,503 7.1% the director compensation based Against 358,405,204 90.6 on GM market share growth. Abstain 8,910,326 2.3 Item No. 6 A stockholder proposal to have For 26,541,991 6.7% the Board nominate at least two Against 358,601,282 90.7 candidates for each Board Abstain 10,296,762 2.6 position. Item No. 7 A stockholder proposal to adopt For 87,953,572 22.2% a cumulative voting policy. Against 287,744,153 72.8 Abstain 19,742,304 5.0 Item No. 8 A stockholder proposal to have For 77,349,626 19.6% independent directors on key Against 308,613,123 78.0 board committees. Abstain 9,477,280 2.4 Item No. 9 A stockholder proposal that For 49,903,173 12.6% GM's spin-off companies retain Against 335,974,209 85.0 GM's good corporate governance Abstain 9,562,647 2.4 standards. * Numbers represent the aggregate voting power of all votes cast as of June 6, 2000 with holders of GM $1-2/3 par value common stock casting one vote per share and holders of GM Class H common stock casting 0.6 vote per share, which represents the applicable voting power prior to the three-for-one stock split of the GM Class H common stock in the form of a 200% stock dividend, paid on June 30, 2000 to GM Class H common stockholders of record on June 13, 2000. ** Percentages represent the aggregate voting power of both classes of GM common stock cast for each item, except Item No. 3 [see (a) and (b) below]. # Adoption required approval by the holders of a majority of both classes of GM common stock voting together as a single class and the holders of GM Class H common stock voting separately as a single class. (a)On the basis of percentage of outstanding shares; holders of both classes of GM common stock voting together as a single class. (b)On the basis of percentage of outstanding shares; holders of GM Class H common stock voting separately as a single class. * * * * * * - 24 - 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 26 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 March 13, 2000 (filed April 19, 2000), April 13, 2000 (amendment filed April 18, 2000), April 27, 2000, May 2, 2000, May 4, 2000, May 9, 2000 (2 - exact duplicate), June 6, 2000, and June 12, 2000 were filed during the quarter ended June 30, 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 August 14, 2000 /s/Peter R. Bible - -------------------- ----------------- (Peter R. Bible, Chief Accounting Officer) - 25 - EX-99 2 0002.txt HUGHES SECOND QUARTER 2000 INFORMATION 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 Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions) Revenues Direct broadcast, leasing and other services $1,565.4 $1,060.9 $3,037.8 $1,802.0 Product sales 271.6 255.2 502.3 432.5 ------- ------- -------- -------- Total Revenues 1,837.0 1,316.1 3,540.1 2,234.5 ------- ------- ------- ------- Operating Costs and Expenses Broadcast programming and other costs 686.7 478.3 1,354.5 778.0 Cost of products sold 234.7 207.8 433.0 358.2 Selling, general and administrative expenses 736.0 505.7 1,420.3 863.0 Depreciation and amortization 224.6 153.2 434.8 271.3 ------- ------- ------- ------- Total Operating Costs and Expenses 1,882.0 1,345.0 3,642.6 2,270.5 ------- ------- ------- ------- Operating Loss (45.0) (28.9) (102.5) (36.0) Interest income 4.3 4.6 8.2 18.2 Interest expense (57.8) (12.4) (102.7) (19.3) Other, net (43.3) (34.1) (282.5) (64.7) ------- ------- ------- ------- Loss From Continuing Operations Before Income Taxes and Minority Interests (141.8) (70.8) (479.5) (101.8) Income tax benefit (54.8) (9.5) (276.6) (22.9) Minority interests in net losses of subsidiaries 4.5 6.8 12.1 13.3 ------- ------- ------- ------- Loss from continuing operations (82.5) (54.5) (190.8) (65.6) Income (Loss) from discontinued operations, net of taxes 13.4 (43.1) 39.8 41.0 ------- ------- ------- ------- Net Loss (69.1) (97.6) (151.0) (24.6) Adjustments to exclude the effect of GM purchase accounting adjustments 5.3 5.3 10.6 10.6 ------- ------ ------- ------ Loss excluding the effect of GM purchase accounting adjustments (63.8) (92.3) (140.4) (14.0) Preferred stock dividends (24.1) (1.6) (48.8) (1.6) ------- ------ ------- ------ Loss Used for Computation of Available Separate Consolidated Net Income (Loss) $(87.9) $(93.9) $(189.2) $(15.6) ====== ====== ======= ====== Available Separate Consolidated Net Income (Loss) Average number of shares of General Motors Class H Common Stock outstanding (in millions) (Numerator) 562.7 363.0 488.0 340.8 Average Class H dividend base (in millions) (Denominator) 1,297.0 1,244.7 1,295.8 1,222.5 Available Separate Consolidated Net Income (Loss) $(38.1) $(27.4) $(71.3) $(4.3) ====== ====== ====== ===== - ----------------- Reference should be made to the Notes to Financial Statements. - 26 - HUGHES ELECTRONICS CORPORATION BALANCE SHEETS June 30, 2000 December 31, ASSETS (Unaudited) 1999 ----------- ---- (Dollars in Millions) Current Assets Cash and cash equivalents $277.6 $238.2 Accounts and notes receivable (less allowances) 1,048.8 960.9 Contracts in process 148.3 155.8 Inventories 327.8 236.1 Net assets of discontinued operations 1,201.3 1,224.6 Deferred income taxes 536.6 254.3 Prepaid expenses and other 776.3 788.1 -------- -------- Total Current Assets 4,316.7 3,858.0 Satellites, net 4,096.1 3,907.3 Property, net 1,441.0 1,223.0 Net Investment in Sales-type Leases 262.5 146.1 Intangible Assets, net 7,271.2 7,406.0 Investments and Other Assets 2,336.8 2,056.6 -------- -------- Total Assets $19,724.3 $18,597.0 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts payable $1,044.7 $1,062.2 Deferred revenues 147.0 130.5 Short-term borrowings and current portion of long-term debt 850.8 555.4 Accrued liabilities and other 1,244.5 894.0 ------- -------- Total Current Liabilities 3,287.0 2,642.1 Long-Term Debt 1,916.5 1,586.0 Other Liabilities and Deferred Credits 1,431.9 1,454.2 Deferred Income Taxes 940.0 689.1 Commitments and Contingencies Minority Interests 592.2 544.3 Stockholder's Equity Capital stock and additional paid-in capital 9,915.1 9,809.5 Preferred stock 1,494.4 1,487.5 Retained deficit (284.2) (84.4) -------- -------- Subtotal Stockholder's Equity 11,125.3 11,212.6 -------- -------- Accumulated Other Comprehensive Income (Loss) Minimum pension liability adjustment (7.3) (7.3) Accumulated unrealized gains on securities 447.8 466.0 Accumulated foreign currency translation adjustments (9.1) 10.0 -------- -------- Accumulated other comprehensive income 431.4 468.7 -------- -------- Total Stockholder's Equity 11,556.7 11,681.3 -------- -------- Total Liabilities and Stockholder's Equity $19,724.3 $18,597.0 ======== ======== Reference should be made to the Notes to Financial Statements. - 27 - HUGHES ELECTRONICS CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, -------- 2000 1999 ---- ---- (Dollars in Millions) Cash Flows from Operating Activities Net Cash Provided by Continuing Operating Activities $147.3 $80.9 Cash Flows from Investing Activities Investment in companies, net of cash acquired (103.4) (1,779.2) Expenditures for property (405.1) (135.7) Increase in satellites (374.3) (376.2) 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 36.2 5.1 ------ -------- Net Cash Used in Investing Activities (798.0) (2,427.3) ------ -------- Cash Flows from Financing Activities Net increase in short-term borrowings and current portion of long-term debt 295.4 28.3 Long-term debt borrowings 3,426.5 2,422.0 Repayment of long-term debt (3,096.0) (1,961.1) Stock options exercised 47.9 42.8 Purchase and retirement of GM Class H common stock - (8.9) Net proceeds from issuance of preferred stock - 1,485.0 Preferred stock dividends paid to General Motors (46.8) - ------ -------- Net Cash Provided by Financing Activities 627.0 2,008.1 ------ -------- Net cash used in continuing operations (23.7) (338.3) Net cash provided by (used in) discontinued operations 63.1 (145.0) ------ -------- Net increase (decrease) in cash and cash equivalents 39.4 (483.3) Cash and cash equivalents at beginning of the period 238.2 1,342.0 ------ -------- Cash and cash equivalents at end of the period $277.6 $858.7 ===== ===== - ---------------- Reference should be made to the Notes to Financial Statements. - 28 - 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 and the Hughes Electronics Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed with the Securities and Exchange Commission ("SEC") on March 10, 2000 and May 15, 2000, respectively, and the Hughes Electronics Corporation Current Reports on Form 8-K, filed with the SEC through the date of this report. Certain prior period amounts have been reclassified to conform to the June 30, 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 (Loss) 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 provided by (used in) discontinued operations." See further discussion in Note 7. 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 June 30, December 31, 2000 1999 ---- ---- (Dollars in Millions) Productive material and supplies $62.7 $59.1 Work in process 126.4 67.0 Finished goods 138.7 110.0 ----- ----- Total $327.8 $236.1 ===== ===== Note 3. Comprehensive Loss Hughes' total comprehensive loss was as follows: Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions) Net loss $(69.1) $(97.6) $(151.0) $(24.6) Other comprehensive income (loss): Unrealized losses on securities (189.2) (8.9) (18.2) 0.4 Foreign currency translation adjustments 6.2 (1.1) (19.1) (4.6) ------ ------ ------ ------ Other comprehensive loss (183.0) (10.0) (37.3) (4.2) ------ ------ ------ ------ Total comprehensive loss $(252.1) $(107.6) $(188.3) $(28.8) ====== ====== ====== ====== - 29 - 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 (562.7 million and 363.0 million during the second 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 1,297.0 million and 1,244.7 million during the second 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). As part of GM's previously announced plans for a broad restructuring of its economic interest in Hughes, during the second quarter of 2000, GM completed an exchange offer in which GM repurchased 86 million shares of GM $1-2/3 par value common stock and issued 92 million shares of GM Class H common stock. In addition, on June 12, 2000, GM contributed approximately 54 million shares and approximately 7 million shares of GM Class H common stock to its U.S. Hourly-Rate Employees Pension Plan and VEBA trust, respectively. The GM Class H common stock issued as part of the exchange offer and employee benefit plan contributions have been included as part of the numerator for the computation of ASCNI since their date of issuance. On June 6, 2000, the GM Board declared a three-for-one stock split of the GM Class H common stock. The stock split was in the form of a 200% stock dividend, paid on June 30, 2000 to GM Class H common stockholders of record on June 13, 2000. As a result, the numbers of shares of GM Class H common stock presented for all periods have been adjusted to reflect the stock split. - 30 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) 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. Note 6. Short-Term Borrowings and Long-Term Debt Short-Term Borrowings and Current Portion of Long-Term Debt Interest Rates at June 30, December 31, June 30, 2000 2000 1999 ------------- ---- ---- (Dollars in Millions) Floating rate notes, net of unamortized discount 7.57% $499.6 $498.9 364-day revolving credit facility 7.71% 150.0 - Commercial paper 7.10% - 7.35% 167.9 - Current portion of long-term debt 6.88% 33.3 56.5 ------ ------ Total short-term borrowings and current portion of long-term debt $850.8 $555.4 ===== ===== Long-Term Debt Interest Rates at June 30, December 31, June 30, 2000 2000 1999 ------------- ---- ---- (Dollars in Millions) Notes payable 6.00% - 6.88% $829.8 $874.1 Revolving credit facilities 7.54% - 7.69% 881.0 727.9 Commercial paper 7.10% - 7.35% 200.0 - Other debt 9.61% - 12.75% 39.0 40.5 ------- ------- Total debt 1,949.8 1,642.5 Less current portion 33.3 56.5 ------- ------- Total long-term debt $1,916.5 $1,586.0 ======= ======= - 31 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 7. 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 shared with DIRECTV. The total consideration of approximately $1.6 billion, paid in July 1999, consisted of approximately $0.4 billion in cash and 67.8 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 14.7 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 June 30, 2000 was $76 million. 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 six months ended June 30, 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. Six Months Ended June 30, 1999 ------------- (Dollars in Millions) Total Revenues $3,204.5 Net Loss (30.3) Available Separate Consolidated Net Income (Loss) (6.7) 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, which is expected to complete an initial public offering during the second half 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 an independent appraisal. The total loss related to DIRECTV Japan for the second quarter of 2000 and the six months ended June 30, 2000, including Hughes' share of DIRECTV Japan's operating losses, was approximately $25 million and $255 million, respectively, and was recorded in "other, net." The after-tax impact for the same periods was approximately $18 million and $67 million, respectively. 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 second half 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. - 32 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 8. 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. Selected information for Hughes' operating segments follows:
Direct-To- Home Satellite Network Elimi- (Dollars in Millions) Broadcast Services Systems Other nations Total - --------------------- --------- -------- ------- ----- ------- ----- For the Three Months Ended: June 30, 2000 External Revenues $1,241.3 $286.1 $304.8 $4.8 - $1,837.0 Intersegment Revenues 10.9 36.2 67.0 2.2 $(116.3) - ------- ----- ----- --- ----- ------- Total Revenues $1,252.2 $322.3 $371.8 $7.0 $(116.3) $1,837.0 ------- ----- ----- --- ----- ------- Operating Profit (Loss) $(134.8) $139.8 $(17.1) $(31.2) $(1.7) $(45.0) June 30, 1999 External Revenues $869.3 $167.3 $277.0 $2.5 - $1,316.1 Intersegment Revenues 0.9 33.1 64.1 0.3 $(98.4) - ------- ----- ----- --- ----- ------- Total Revenues $870.2 $200.4 $341.1 $2.8 $(98.4) $1,316.1 ------- ----- ----- --- ----- ------- Operating Profit (Loss) $(73.1) $82.4 $9.7 $(35.3) $(12.6) $(28.9) For the Six Months Ended: June 30, 2000 External Revenues $2,408.0 $550.5 $573.8 $7.8 - $3,540.1 Intersegment Revenues 18.0 70.9 162.5 2.8 $(254.2) - ------- ----- ----- --- ----- ------- Total Revenues $2,426.0 $621.4 $736.3 $10.6 $(254.2) $3,540.1 ------- ----- ----- --- ----- ------- Operating Profit (Loss) $(260.8) $267.1 $(17.0) $(60.7) $(31.1) $(102.5) June 30, 1999 External Revenues $1,425.3 $327.0 $477.5 $4.7 - $2,234.5 Intersegment Revenues 1.5 66.9 94.5 0.8 $(163.7) - ------- ----- ----- --- ----- ------- Total Revenues $1,426.8 $393.9 $572.0 $5.5 $(163.7) $2,234.5 ------- ----- ----- --- ----- ------- Operating Profit (Loss) $(98.0) $160.7 $(8.2) $(47.1) $(43.4) $(36.0)
Note 9. 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. - 33 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 9. Contingencies - Continued 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. 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 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 were 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. A trial commenced on June 12, 2000 with GECC presenting evidence to the jury for damages of $157 million. DIRECTV sought damages from GECC of $45 million. On July 21, 2000, the jury returned a verdict in favor of GECC and awarded contract damages in the amount of $133 million. GECC may also seek attorneys' fees and penalty interest under Connecticut statute. Hughes and DIRECTV will appeal the jury verdict. As a result, Hughes and DIRECTV believe that it is reasonably possible that the jury verdict will be overturned and a new trial granted. Although it is not possible to predict the result of any eventual appeal in this case, Hughes does not believe that the litigation will ultimately have a material adverse impact on Hughes' results of operations or financial position. - 34 - HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--Continued (Unaudited) Note 9. Contingencies - Concluded 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. 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 paid, in the second quarter of 2000, all pre-petition amounts due to Hughes related to the ICO contracts. 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. 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 Communications Galaxy, Inc. ("HCGI") filed a lawsuit on March 22, 1991 against the U.S. Government based upon National Aeronautics and Space Administration's breach of contract to launch ten satellites on the Space Shuttle. The U.S. Court of Federal Claims granted HCGI's Motion for Summary Judgment on the issue of liability on November 30, 1995. A trial was held on May 1, 1998 on the issue of damages. On June 30, 2000, a final judgment was entered in favor of HCGI in the amount of $103 million. Both Hughes and the U.S. Government have the ability to appeal the final judgment. As a result of the uncertainty regarding the outcome of this matter, no amount has been recorded in the financial statements of Hughes to reflect the award. On July 13, 2000, HCGI filed a notice to appeal the judgment with the U.S. Court of Appeals for the Federal Circuit. HCGI is appealing for a greater amount than was awarded. Final resolution of this issue could result in a gain that would be material to Hughes. 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 June 30, 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. - 35 - HUGHES ELECTRONICS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY DATA Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions) Statement of Operations Data: (Unaudited) Total revenues $1,837.0 $1,316.1 $3,540.1 $2,234.5 Total operating costs and expenses 1,882.0 1,345.0 3,642.6 2,270.5 ------- ------- ------- ------- Operating loss (45.0) (28.9) (102.5) (36.0) Interest, net (53.5) (7.8) (94.5) (1.1) Other, net (43.3) (34.1) (282.5) (64.7) Income tax benefit (54.8) (9.5) (276.6) (22.9) Minority interests in net losses of subsidiaries 4.5 6.8 12.1 13.3 ------- ------- ------- ------- Loss from continuing operations (82.5) (54.5) (190.8) (65.6) Income (loss) from discontinued operations, net of taxes 13.4 (43.1) 39.8 41.0 ------- ------- ------- ------- Net loss $(69.1) $(97.6) $(151.0) $(24.6) ====== ====== ======= ====== Other Data: EBITDA $179.6 $124.3 $332.3 $235.3 EBITDA Margin 9.8% 9.4% 9.4% 10.5% Depreciation and amortization $224.6 $153.2 $434.8 $271.3 Capital expenditures $365.1 $265.8 $779.4 $653.2 June 30, 2000 December 31, (Unaudited) 1999 --------- ------ Balance Sheet Data: (Dollars in Millions) Cash and cash equivalents $277.6 $238.2 Total current assets 4,316.7 3,858.0 Total assets 19,724.3 18,597.0 Total current liabilities 3,287.0 2,642.1 Long-term debt 1,916.5 1,586.0 Minority interests 592.2 544.3 Total stockholder's equity $11,556.7 $11,681.3 - -------------------- Certain prior period amounts have been reclassified to conform to the June 30, 2000 presentation. 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 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. - 36 - HUGHES ELECTRONICS CORPORATION SUMMARY DATA - Concluded (Unaudited) Selected Segment Data Elimi- Direct-To- nations Home Satellite Network and (Dollars in Millions) Broadcast Services Systems Other Total - --------------------- --------- -------- ------- ----- ------- For the Three Months Ended: June 30, 2000 Total Revenues $1,252.2 $322.3 $371.8 $(109.3) $1,837.0 - ----------------------------------------------------------------------------- Operating Profit (Loss) $(134.8) $139.8 $(17.1) $(32.9) $(45.0) Operating Profit Margin N/A 43.4% N/A N/A N/A EBITDA $(14.0) $221.4 $0.8 $(28.6) $179.6 EBITDA Margin N/A 68.7% 0.2% N/A 9.8% - ----------------------------------------------------------------------------- Depreciation and Amortization $120.8 $81.6 $17.9 $4.3 $224.6 Capital Expenditures 219.1(1) 50.2(2) 94.2(3) 1.6 365.1 - ----------------------------------------------------------------------------- June 30, 1999 Total Revenues $870.2 $200.4 $341.1 $(95.6) $1,316.1 - ----------------------------------------------------------------------------- Operating Profit (Loss) $(73.1) $82.4 $9.7 $(47.9) $(28.9) Operating Profit Margin N/A 41.1% 2.8% N/A N/A EBITDA $(11.5) $150.9 $29.5 $(44.6) $124.3 EBITDA Margin N/A 75.3% 8.6% N/A 9.4% - ----------------------------------------------------------------------------- Depreciation and Amortization $61.6 $68.5 $19.8 $3.3 $153.2 Capital Expenditures 78.2(1) 135.4(2) 70.6(3) (18.4) 265.8 - ----------------------------------------------------------------------------- For the Six Months Ended: June 30, 2000 Total Revenues $2,426.0 $621.4 $736.3 $(243.6) $3,540.1 - ----------------------------------------------------------------------------- Operating Profit (Loss) $(260.8) $267.1 $(17.0) $(91.8) $(102.5) Operating Profit Margin N/A 43.0% N/A N/A N/A EBITDA $(23.2) $422.4 $17.6 $(84.5) $332.3 EBITDA Margin N/A 68.0% 2.4% N/A 9.4% - ----------------------------------------------------------------------------- Depreciation and Amortization $237.6 $155.3 $34.6 $7.3 $434.8 Capital Expenditures 387.1(1) 208.2(2) 161.8(3) 22.3 779.4 - ----------------------------------------------------------------------------- June 30, 1999 Total Revenues $1,426.8 $393.9 $572.0 $(158.2) $2,234.5 - ----------------------------------------------------------------------------- Operating Profit (Loss) $(98.0) $160.7 $(8.2) $(90.5) $(36.0) Operating Profit Margin N/A 40.8% N/A N/A N/A EBITDA $(9.1) $296.9 $30.7 $(83.2) $235.3 EBITDA Margin N/A 75.4% 5.4% N/A 10.5% - ----------------------------------------------------------------------------- Depreciation and Amortization $88.9 $136.2 $38.9 $7.3 $271.3 Capital Expenditures 155.8(1) 475.2(2) 72.8(3) (50.6) 653.2 - ----------------------------------------------------------------------------- Certain prior period amounts have been reclassified to conform to the June 30, 2000 presentation. (1)Includes expenditures related to satellites amounting to $24.1 million, $22.5 million, $35.7 million and $75.5 million, respectively. (2)Includes expenditures related to satellites amounting to $31.1 million, $125.9 million, $177.1 million and $315.6 million, respectively. Also included in the first six months of 1999 is $141.3 million related to the early buy-out of satellite sale-leaseback. (3)Includes expenditures related to satellites amounting to $70.8 million, $46.9 million, $124.5 million and $46.9 million, respectively. - 37 - 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 Hughes Electronics Corporation Annual Report on Form 10-K for the year ended December 31, 1999 and the Hughes Electronics Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed with the Securities and Exchange Commission ("SEC") on March 10, 2000 and May 15, 2000, respectively, and the Hughes Electronics Corporation Current Reports on Form 8-K, filed with the SEC through the date of this report. In addition, the following discussion excludes the purchase accounting adjustments related to General Motor'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 generally 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 by 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 7 to the financial statements and "Liquidity and Capital Resources - Acquisitions, Investments and Divestitures," below, for further discussion of these transactions. - 38 - HUGHES ELECTRONICS CORPORATION In the fourth quarter of 1999, DIRECTV U.S. began providing local broadcast network services and as of June 30, 2000 was providing those services to 27 U.S. markets. DIRECTV U.S. expects to add an additional 8 markets by late September 2000, bringing the total markets receiving local channels to 35. The Latin America DIRECTV businesses are comprised of Galaxy Latin America, LLC ("GLA"), Hughes' 77.8% 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, which is expected to complete an initial public offering during the second half of 2000. In connection with the agreement, Hughes acquired an ownership interest in SkyPerfecTV!. See Note 7 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"), which 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 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. In April of 2000, PanAmSat commenced service of the Galaxy XI satellite, which provides expansion and backup services for PanAmSat's Galaxy(R) cable neighborhood customers, and successfully launched Galaxy IVR, a replacement satellite for Galaxy IV. Also during the second quarter of 2000, PanAmSat completed the planned retirement of the SBS 4 satellite. On July 28, 2000, PanAmSat successfully launched PAS-9, which will deliver premium broadcast, Internet and data services throughout North and South America, the Caribbean and Europe. These activities 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 and 2001. - 39 - HUGHES ELECTRONICS CORPORATION Results of Operations Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Revenues. Revenues for the second quarter of 2000 increased 39.6% to $1,837.0 million, compared with $1,316.1 million in the second quarter of 1999. The Direct-To-Home Broadcast segment contributed to the overall change with an increase in revenues of $382.0 million over the second quarter of 1999 that resulted from an increased number of subscribers in the United States and Latin America and added revenues from the PRIMESTAR By DIRECTV and premium channel services. Also contributing to the overall increase in revenues was the Network Systems segment, which shipped about 913,000 DIRECTV receiver systems during the second quarter of 2000 compared to about 495,000 units shipped in the same period last year. The Satellite Services segment also reported an increase in revenues of $121.9 million primarily due to sales-type leases of satellite transponders during the second quarter of 2000. Operating Costs and Expenses. Operating costs and expenses grew to $1,882.0 million in 2000 from $1,345.0 million in 1999. Broadcast programming and other costs increased by $208.4 million in the second quarter of 2000 from the same period of 1999 due to increased costs for the new high-power DIRECTV subscribers, costs associated with the PRIMESTAR By DIRECTV and premium channel services and costs associated with the sales-type leases of satellite transponders. Costs of products sold increased by $26.9 million in the second quarter of 2000 from the second quarter of 1999 primarily due to the increased sales of DIRECTV receiver systems. Selling, general and administrative expenses increased by $230.3 million during the second 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 and costs associated with the PRIMESTAR By DIRECTV business. Depreciation and amortization increased by $71.4 million during the second quarter of 2000 compared to the second quarter of 1999 due primarily to acquisitions in 1999, discussed more fully in "Liquidity and Capital Resources - Acquisitions, Investments and Divestitures." EBITDA increased 44.5% for the second quarter of 2000 to $179.6 million and EBITDA margin was 9.8%, compared to EBITDA of $124.3 million and EBITDA margin of 9.4% in the second quarter of 1999. The increase in EBITDA resulted primarily from the increased revenues at the Satellite Services segment partially offset by a decrease in EBITDA at the Hughes Network Systems segment due to its increased expenditures for the development of the `AOL Plus Powered by DirecPC' broadband product and lower revenues resulting from the discontinuation of certain narrowband wireless product lines. Operating Loss. The operating loss for the second quarter of 2000 was $45.0 million compared to an operating loss of $28.9 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 slightly to $4.3 million for the second quarter of 2000 compared to interest income of $4.6 million for the same period of 1999. Interest expense increased to $57.8 million for the second quarter of 2000 from $12.4 million for the second quarter of 1999. The higher 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 $43.3 million for the second quarter of 2000 from an expense of $34.1 million in the same period of 1999. The increased expense in 2000 resulted primarily from higher losses recorded on equity method investments. Income Taxes. Hughes recognized an income tax benefit of $54.8 million for the 2000 second quarter, compared to $9.5 million in the 1999 second quarter. The 2000 tax benefit reflects the higher pre-tax losses compared to 1999. Loss From Continuing Operations. Hughes reported a loss from continuing operations of $82.5 million for the 2000 second quarter, compared to $54.5 million for the same period of 1999. Discontinued Operations. Revenues for the satellite systems manufacturing businesses increased to $556.6 million for the second quarter of 2000 from revenues of $551.1 million for the same period of 1999. Revenues, excluding intercompany transactions, were $412.1 million for the second quarter of 2000 and $459.9 million for the same period of 1999. The decrease in revenues, excluding intercompany transactions, was principally due to lower commercial satellite sales on existing contracts with customers such as ICO Global Communications and Thuraya Satellite Telecommunications Company. - 40 - HUGHES ELECTRONICS CORPORATION The satellite systems manufacturing businesses reported operating income of $35.4 million for the second quarter of 2000 compared to an operating loss of $112.3 million for the second quarter of 1999. Operating income, excluding intercompany transactions, amounted to $21.3 million for the second quarter of 2000, compared to an operating loss of $76.2 million for 1999. The increase in operating income for the second quarter of 2000 compared to the same period in 1999, excluding intercompany transactions, was due to a one-time charge of $125.0 million in 1999 that resulted from increased development costs and schedule delays on several new product lines. Operating income declined in 2000 compared to the same period of 1999, excluding the one-time charge, due to the lower revenues, discussed above. Income from discontinued operations, net of taxes was $13.4 million for the second quarter of 2000 compared to a loss from discontinued operations of $43.1 million in the same period of 1999. Direct-To-Home Broadcast Segment Direct-To-Home Broadcast segment second quarter 2000 revenues increased 43.9% to $1,252.2 million from $870.2 million in the second quarter of 1999. The Direct-To-Home Broadcast segment had negative EBITDA of $14.0 million in the second quarter of 2000 compared with negative EBITDA of $11.5 million in the second quarter of 1999. The operating loss for the segment increased to $134.8 million in the second quarter of 2000 from an operating loss of $73.1 million in the second quarter of 1999. United States. The DIRECTV U.S. businesses were the biggest contributors to the segment's revenue growth with revenues of $1,129 million for the second quarter of 2000, a 45.1% increase over last year's second quarter revenues of $778 million. The large increase in revenues resulted primarily from an increased number of high-power DIRECTV subscribers and added revenues from the PRIMESTAR By DIRECTV and premium channel services. As of June 30, 2000 the DIRECTV U.S. businesses had approximately 8.7 million subscribers compared to about 7.4 million at June 30, 1999. DIRECTV U.S. added 452,000 net new subscribers to its high-power DIRECTV service, a 24.2% increase over the 364,000 net new subscribers added in the second quarter of 1999. In addition, 430,000 subscribers were transitioned from the PRIMESTAR By DIRECTV medium-power service to the high-power service during the second quarter of 2000. Average monthly revenue per subscriber for the high-power business was approximately $58 for the second quarters of 2000 and 1999. In the second quarter of 2000, the DIRECTV U.S. businesses reported EBITDA of $26 million compared to EBITDA of $13 million in the second quarter of 1999. The second quarter 2000 operating loss for DIRECTV U.S. was $67 million compared with an operating loss of $39 million in the second quarter of 1999. The increase in EBITDA resulted from higher margins from record subscriber growth and contributions from the PRIMESTAR By DIRECTV medium-power and premium channel services. The decrease in operating profit was principally due to increased amortization of goodwill and intangibles that resulted from the PRIMESTAR and USSB acquisitions. Latin America. Revenues for the Latin America DIRECTV businesses increased 58.4% to $122 million in the second quarter of 2000 from $77 million in the second quarter of 1999. The increase in revenues reflects an increase in subscribers and the consolidation of GLB. Subscribers grew to 1,010,000 at the end of the second quarter of 2000 compared to 601,000 at the end of the second quarter of 1999. Latin America DIRECTV added 101,000 net new subscribers in the second quarter of 2000, a 114.9% increase over the 47,000 net new subscribers added in the same period last year. Average monthly revenue per subscriber decreased to $34 in the second quarter of 2000 from $36 in the second quarter of 1999. EBITDA was negative $40 million for the second quarter of 2000 compared to negative EBITDA of $18 million in the second quarter of 1999. The change in EBITDA resulted primarily from additional losses from the consolidation of GLB and higher marketing costs associated with the record subscriber growth. The Latin America DIRECTV businesses incurred an operating loss of $68 million in the second quarter of 2000 compared to $27 million in the second quarter of 1999. The increased operating loss resulted from the decline in EBITDA and higher depreciation of fixed assets and amortization of goodwill that resulted from the GLB transaction. Satellite Services Segment Revenues for the Satellite Services segment in the second quarter of 2000 increased 60.8% to $322.3 million from $200.4 million in the same period in the prior year. This increase was primarily due to revenues from sales-type lease transactions executed during the second quarter of 2000. Total sales-type lease revenues were $129.6 million for the second quarter of 2000 as compared to $6.0 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 59.8% of total revenues for the second quarter of 2000 and decreased by 0.9% to $192.7 million from $194.4 million for the same period in the prior year. - 41 - HUGHES ELECTRONICS CORPORATION EBITDA was $221.4 million for the second quarter of 2000, a 46.7% increase over the second quarter 1999 EBITDA of $150.9 million. The increase in EBITDA was due to the increase in revenues discussed above. EBITDA margin in the second quarter of 2000 was 68.7% compared to 75.3% in the same period in 1999. This decline was due to lower margins associated with sales-type lease transactions, direct costs of operating new satellites placed into service and increased selling, general and administrative expenses. Excluding these sales-type lease transactions, EBITDA for the second quarter of 2000 was $138 million or 70% of corresponding revenues. Operating profit was $139.8 million for the second quarter of 2000, an increase of $57.4 million over the second quarter of 1999. The increase in operating profit resulted from the increase in EBITDA partially offset by higher depreciation expense related to satellites placed into service since the second quarter of 1999. Network Systems Segment The Network Systems segment grew second quarter 2000 revenues by 9.0% to $371.8 million, versus $341.1 million in the second quarter of 1999. The higher revenues resulted from greater shipments of DIRECTV receiver equipment. Shipments of DIRECTV receiver equipment totaled 913,000 units in the second quarter of 2000, compared to 495,000 units in the same period last year. This increase was partially offset by lower revenues due to the discontinuation of certain narrowband wireless product lines. The Network Systems segment reported EBITDA of $0.8 million for the second quarter of 2000, compared to EBITDA of $29.5 million in the second quarter of 1999. The Network Systems segment had an operating loss of $17.1 million in the second quarter of 2000, compared to an operating profit of $9.7 million in the second quarter of 1999. The decrease in EBITDA and operating profit resulted primarily from increased expenditures for the development of the `AOL Plus Powered by DirecPC' broadband product and lower revenues due to the discontinuation of certain narrowband wireless product lines. Eliminations and Other The elimination of revenues increased to $109.3 million in the second quarter of 2000 from $95.6 million in the second 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. Operating losses for "eliminations and other" decreased to $32.9 million in the second quarter of 2000 from $47.9 million for the second quarter of 1999 primarily due to lower margins on intercompany sales. Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Revenues. Revenues for the six months ended June 30, 2000 increased 58.4% to $3,540.1 million compared with $2,234.5 million for the six months ended June 30, 1999. The Direct-To-Home Broadcast segment contributed to the overall change with an increase in revenues of $999.2 million over the first six months of 1999 that resulted from an increased number of subscribers, including the addition of about 1,063,000 new subscribers in the United States and Latin America since December 31, 1999 and added revenues from the PRIMESTAR By DIRECTV and premium channel services. Also contributing to the overall increase in revenues was the Network Systems segment, which shipped about 1,893,000 DIRECTV receiver systems during the first six months of 2000 compared to about 685,000 units shipped in the same period last year. The Satellite Services segment also reported an increase in revenues of $227.5 million due primarily to revenues from outright sales and sales-type lease transactions executed during the first six months of 2000. Operating Costs and Expenses. Operating costs and expenses grew to $3,642.6 million in 2000 from $2,270.5 million in 1999. Broadcast programming and other costs increased by $576.5 million in the first six months of 2000 from the same period in 1999 due to increased costs for the new high-power DIRECTV subscribers, costs associated with the PRIMESTAR By DIRECTV and premium channel services and costs associated with new outright sales and sales-type leases of satellite transponders at the Satellite Services segment. Costs of products sold increased by $74.8 million for the first six months of 2000 from the first six months of 1999 mainly due to increased sales of DIRECTV receiver systems. Selling, general and administrative expenses increased by $557.3 million during the first six months 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 and costs associated with the PRIMESTAR By DIRECTV business. Depreciation and amortization increased by $163.5 million during the first six months of 2000 compared to the first six months of 1999 primarily due to acquisitions in 1999, discussed more fully in "Liquidity and Capital Resources - Acquisitions, Investments and Divestitures." - 42 - HUGHES ELECTRONICS CORPORATION EBITDA increased 41.2% for the six months ended June 30, 2000 to $332.3 million and EBITDA margin was 9.4%, compared to EBITDA of $235.3 million and EBITDA margin of 10.5% in the same period of 1999. The increase in EBITDA was primarily attributable to the outright sales and sales-type leases at the Satellite Service segment. The lower EBITDA margin was mainly attributable to the increased marketing costs associated with the record subscriber growth at the Direct-To-Home Broadcast segment in the United States and Latin America, and the lower margins associated with the Satellite Service segment's outright sales and sales-type leases. Operating Loss. The operating loss for the first six months of 2000 was $102.5 million compared to an operating loss of $36.0 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 $8.2 million for the first six months of 2000 compared to interest income of $18.2 million for the same period of 1999 due to a decrease in cash and cash equivalents. Interest expense increased to $102.7 million for the first six months of 2000 from $19.3 million for the first six months of 1999. The higher 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 $282.5 million for the first six months of 2000 from an expense of $64.7 million in the same period of 1999. The increased expense in 2000 resulted from the SkyPerfecTV! transaction, discussed more fully in note 7 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 six months of 2000, which includes the effects of the SkyPerfecTV! transaction and Hughes' share of DIRECTV Japan's operating losses, was about $255 million. Income Taxes. Hughes recognized a tax benefit of $276.6 million for the first six months of 2000, compared to $22.9 million in the first six months of 1999. The 2000 tax benefit reflects the tax benefit associated with the write-off of Hughes' historical investment in DIRECTV Japan and the higher pre-tax losses compared to 1999. Loss from Continuing Operations. Hughes reported a loss from continuing operations of $190.8 million for the six months ended June 30, 2000, compared to $65.6 million for the same period of 1999. Discontinued Operations. Revenues for the satellite systems manufacturing businesses decreased to $1,071.6 million for the first six months of 2000 from revenues of $1,178.9 million for the same period of 1999. Revenues, excluding intercompany transactions, were $801.2 million for the first six months of 2000 and $993.3 million for the same period of 1999. The decrease in revenues was principally due to lower commercial satellite sales on existing contracts with customers such as ICO Global Communications and Thuraya Satellite Telecommunications Company. The satellite systems manufacturing businesses reported operating income of $78.9 million for the first six months of 2000 compared to operating income of $42.6 million for the first six months of 1999. Operating income, excluding intercompany transactions, amounted to $63.5 million for the first six months of 2000, compared to operating income of $57.2 million for 1999. The 1999 results included a one-time pre-tax charge of $178.0 million before intercompany transactions and $125.0 million after intercompany transactions, that resulted from increased development costs and schedule delays on several new product lines, partially offset by a $154.6 million pre-tax gain related to the settlement of a patent infringement case. Income from discontinued operations, net of taxes, was $39.8 million for the first six months of 2000, compared to $41.0 million in the same period of 1999. Direct-To-Home Broadcast Segment Direct-To-Home Broadcast segment revenues for the first six months of 2000 increased 70.0% to $2,426.0 million from $1,426.8 million for the first six months of 1999. The Direct-To-Home Broadcast segment had negative EBITDA of $23.2 million in the first six months of 2000 compared with negative EBITDA of $9.1 million in the first six months of 1999. The operating loss for the segment increased to $260.8 million in the first six months of 2000 from an operating loss of $98.0 million in the first six months of 1999. - 43 - HUGHES ELECTRONICS CORPORATION United States. The DIRECTV U.S. businesses were the biggest contributors to the segment's revenue growth with revenues of $2,188 million for the first six months of 2000, a 74.8% increase over last year's revenues for the first six months of 1999 of $1,252 million. The large increase in revenues resulted primarily from an increased number of high-power DIRECTV subscribers and added revenues from the PRIMESTAR By DIRECTV and premium channel services. As of June 30, 2000 the DIRECTV U.S. businesses had approximately 8.7 million subscribers compared to about 7.4 million at June 30, 1999. DIRECTV U.S. added 857,000 net new subscribers to its high-power DIRECTV service in the first six months of 2000, a 28.3% increase over the 668,000 net new subscribers added in the first six months of 1999. In addition, 705,000 subscribers were transitioned from the PRIMESTAR By DIRECTV medium-power service to the high-power service during the first six months of 2000. Average monthly revenue per subscriber for the high-power business was $58 for the six months ended June 30, 2000 and $47 for the same period in the prior year. The increase in the average monthly revenue per subscriber resulted primarily from premium channel services. For the first six months of 2000, the DIRECTV U.S. businesses reported EBITDA of $57 million compared to EBITDA of $37 million for the first six months of 1999. The operating loss for the first six months of 2000 for DIRECTV U.S. was $133 million compared with $34 million for the same period in 1999. The increase in EBITDA resulted from higher margins from record subscriber growth and contributions from the PRIMESTAR By DIRECTV medium-power and premium channel services. The increase in operating loss was principally due to increased amortization of goodwill and intangibles that resulted from the PRIMESTAR and USSB acquisitions. Latin America. Revenues for the Latin America DIRECTV businesses increased 71.0% to $236 million in the first half of 2000 from $138 million in the first half of 1999. The increase in revenues reflects an increase in subscribers and the consolidation of the GGM and GLB businesses. Subscribers grew to 1,010,000 at June 30, 2000 compared to 601,000 at June 30, 1999. Latin America DIRECTV added 206,000 net new subscribers in the first six months of 2000, a 76.1% increase over the 117,000 net new subscribers added in the first six months of 1999. Average monthly revenue per subscriber decreased to $34 in the first six months of 2000 from $36 in the first six months of 1999. EBITDA was a negative $78 million for the first six months of 2000 compared to negative EDITDA of $40 million for the first six months 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 $127 million in the first six months of 2000 compared to $57 million in the first six months of 1999. The increased operating loss resulted from the decline in EBITDA and higher depreciation of fixed assets and amortization of goodwill that resulted from the GGM and GLB transactions. Satellite Services Segment Revenues for the Satellite Services segment in the first half of 2000 increased 57.8% to $621.4 million from $393.9 million in the same period in the prior year. This increase was primarily due to revenues associated with outright sales and sales-type lease transactions executed during the first six months of 2000. Revenues associated with outright sales and sales-type leases of transponders were $228.7 million for the first six months of 2000 as compared to $12.1 million for the same period in the prior year. Revenues from operating leases of transponders, satellite services and other were 63.2% of total revenues for the first six months of 2000 and increased by 2.9% to $392.7 million from $381.8 million for the same period in the prior year. EBITDA was $422.4 million for the first half of 2000, a 42.3% increase over the first half of 1999 EBITDA of $296.9 million. The increase in EBITDA was due to the increase in revenues discussed above. EBITDA margin for the first six months of 2000 was 68.0% compared to 75.4% in the same period in 1999. The decline in EBITDA margin was due to lower margins associated with the outright sales and sales-type lease transactions executed during the first six months of 2000. Excluding these outright sales and sales-type lease transactions, EBITDA for the first six months of 2000 was $291 million or 72% of corresponding revenues. Operating profit was $267.1 million for the first half of 2000, an increase of $106.4 million over the first half of 1999. The increase in operating profit resulted from the increase in EBITDA partially offset by higher depreciation expense related to additional satellites placed into service since the second quarter of 1999. Network Systems Segment The Network Systems segment grew revenues for the first half of 2000 by 28.7% to $736.3 million, versus $572.0 million in the first half of 1999. The higher revenues resulted from greater shipments of DIRECTV receiver equipment. Shipments of DIRECTV receiver equipment totaled 1,893,000 units for the first six months of 2000, compared to 685,000 units in the same period last year. This increase in revenues was partially offset by lower revenues due to the discontinuation of certain narrowband wireless product lines. - 44 - HUGHES ELECTRONICS CORPORATION The Network Systems segment reported EBITDA of $17.6 million for the first six months of 2000, compared to EBITDA of $30.7 million for the first six months of 1999. The Network Systems segment had an operating loss of $17.0 million in the first half of 2000, compared to an operating loss of $8.2 million in the first half of 1999. The decrease in EBITDA and operating profit resulted primarily from increased expenditures for the development of the `AOL Plus Powered by DirecPC' broadband product and lower revenues due to the discontinuation of certain narrowband wireless product lines, partially offset by the 1999 $11.0 million charge related to the termination of the APMT contract. Eliminations and Other The elimination of revenues increased to $243.6 million in the first six months of 2000 from $158.2 million in the first six months 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. Operating losses from "eliminations and other" increased to $91.8 million in the first six months of 2000 from $90.5 million in the first six months of 1999 primarily due to higher corporate expenditures offset by lower margins on intercompany sales. Liquidity and Capital Resources Cash and cash equivalents were $277.6 million at June 30, 2000 compared to $238.2 million at December 31, 1999. Cash provided by operating activities was $147.3 million for the first six months of 2000, compared to $80.9 million for the first six months of 1999. The increase in 2000 resulted from higher EBITDA, primarily attributable to higher outright sales and sales-type leases, partially offset by changes in working capital and other long-term assets. Cash used in investing activities was $798.0 million in the six months ended June 30, 2000, and $2,427.3 million for the same period in 1999. The higher investing activities in 1999 resulted from increased investments in companies, net of cash acquired, which included the acquisitions of PRIMESTAR, USSB and the Tempo Satellite assets. Cash provided by financing activities was $627.0 million in the first six months of 2000, compared to $2,008.1 million in the first six months of 1999. The decrease is primarily due to the 1999 net proceeds from the issuance of preferred stock related to the AOL investment in Hughes. Cash provided by discontinued operations was $63.1 million in the first six months of 2000, compared to cash used in discontinued operations of $145.0 million in the first six months of 1999. The change in 2000 from 1999 resulted primarily from decreased cash requirements for working capital. Liquidity Measurement. As a measure of liquidity, the current ratio (ratio of current assets to current liabilities) at June 30, 2000 and December 31, 1999 was 1.31 and 1.46, respectively. Working capital decreased by $186.2 million to $1,029.7 million at June 30, 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 $1.25 billion for satellites and property and planned increases in subscriber acquisition costs for the Direct-To-Home businesses. 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 ($499.6 million net of unamortized discount at June 30, 2000) of floating rate notes to a group of institutional investors in a private placement. The notes bear interest at a variable rate which was 7.57% at June 30, 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 June 30, 2000 were $200 million at 6.00%, $275 million at 6.13%, $150 million at 6.38% and $125 million at 6.88%, respectively. Principal on the notes is payable at maturity, while interest is payable semi-annually. - 45 - 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 $79.8 million was outstanding at June 30, 2000. The interest rate on the notes was 6.88% at June 30, 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 Offer 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. 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. These facilities also provide backup capacity for Hughes' $1.1 billion commercial paper program. Commercial paper outstanding under the program bears interest at various rates, based on a spread to the then-prevailing market rate. $550.0 million was outstanding under the multi-year facility as of June 30, 2000, with borrowings bearing interest rates ranging from 7.62% to 7.69%. $150.0 million was outstanding under the 364-day facility as of June 30, 2000, bearing an interest rate of 7.71%. $367.9 million was outstanding under the commercial paper program, with borrowings bearing interest rates ranging from 7.10% to 7.35%. No amounts were outstanding under the bridge facility at June 30, 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 June 30, 2000. At June 30, 2000, Hughes' 75% owned subsidiary, SurFin, had a total of $331.0 million outstanding under a $400.0 million unsecured revolving credit facility expiring in June 2002. The weighted average interest rate on these borrowings was 7.54% at June 30, 2000. Other. At June 30, 2000, GLB had a total of $19.6 million outstanding under variable rate notes. The weighted average interest rate of the notes was 11.40% at June 30, 2000. Principal is payable in varying amounts at maturity in April and May 2002, with interest payable monthly. Other long-term debt outstanding at June 30, 2000 included $19.4 million of notes bearing fixed rates of interest of 9.61% to 12.75%. Principal on the notes is payable in varying amounts at maturity through April 2007, with interest payable quarterly. 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 June 30, 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%. 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 67.8 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 14.7 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. - 46 - 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 an independent appraisal. The total loss related to DIRECTV Japan for the second quarter of 2000 and the six months ended June 30, 2000, including Hughes' share of DIRECTV Japan's operating losses, was approximately $25 million and $255 million, respectively, and was recorded in "other, net." The after-tax impact for the same periods was approximately $18 million and $67 million, respectively. 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 second half 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. - 47 - EX-27 3 0003.txt SECOND QUARTER 2000 FDS
5 This schedule contains summary financial information extracted from General Motors Corporation June 30, 2000 Consolidated Financial Statements and is qualified in its entirety by reference to Second Quarter 2000 Form 10-Q. 0000040730 General Motors Corporation 1,000,000 U.S. Dollars 6-MOS Dec-31-2000 Jan-01-2000 Jun-30-2000 1 10,133 10,340 91,570 0 11,680 43,633 67,643 34,207 291,349 53,592 139,236 139 0 982 27,987 291,349 84,065 95,601 75,312 85,548 0 238 4,586 5,467 1,712 3,534 0 0 0 3,534 5.87 5.74
-----END PRIVACY-ENHANCED MESSAGE-----