-----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, OijO8Pb6f5oGLeJGrgBr7nx3ewc9QLsP/IhX0h640EODzzupSNjX8K6mjIRysddz GTxV3REcKHqR98Zio58yBA== /in/edgar/work/0000040730-00-500005/0000040730-00-500005.txt : 20001114 0000040730-00-500005.hdr.sgml : 20001114 ACCESSION NUMBER: 0000040730-00-500005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 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: 758178 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: 48265-3000 10-Q 1 0001.txt GM'S THIRD QUARTER 10-Q FOR 9-30-2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549-1004 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF - -- 1934 For the quarterly period ended September 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 September 30, 2000, there were outstanding 564,950,948 shares of the issuer's $1-2/3 par value common stock and 874,604,340 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 Nine Months Ended September 30, 2000 and 1999 3 Consolidated Balance Sheets as of September 30, 2000, December 31, 1999, and September 30, 1999 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 15 Part II - Other Information (Unaudited) Item 1. Legal Proceedings 22 Item 6. Exhibits and Reports on Form 8-K 23 Signature 23 Exhibit 99 Hughes Electronics Corporation Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) 24 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 Nine Months Ended September 30, September 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions Except Per Share Amounts) GENERAL MOTORS CORPORATION AND SUBSIDIARIES Total net sales and revenues $42,690 $42,794 $138,291 $130,296 ------ ------ ------- ------- Cost of sales and other expenses (Note 4) 33,678 34,555 108,888 104,261 Selling, general, and administrative expenses 5,266 4,736 15,604 13,169 Interest expense 2,480 1,985 7,066 5,624 ------- ------- --------- --------- Total costs and expenses 41,424 41,276 131,558 123,054 ------ ------ ------- ------- Income from continuing operations before income taxes and minority interests 1,266 1,518 6,733 7,242 Income tax expense 436 553 2,148 2,538 Equity income/(loss) and minority interests (1) (88) (222) (273) ----- ----- ------ ------ Income from continuing operations 829 877 4,363 4,431 Income from discontinued operations (Note 2) - - - 426 ----- ----- ------ ------ Net income 829 877 4,363 4,857 Dividends on preference stocks (27) (28) (83) (51) ---- ---- ------ ------ Earnings attributable to common stocks $802 $849 $4,280 $4,806 === === ===== ===== Basic earnings (losses) per share attributable to common stocks (Note 8) $1-2/3 par value Continuing operations $1.57 $1.35 $7.51 $6.79 Discontinued operations (Note 2) - - - 0.66 ---- ---- ---- ---- Earnings per share attributable to $1-2/3 par value $1.57 $1.35 $7.51 $7.45 ==== ==== ==== ==== Earnings per share attributable to Class H $(0.09) $(0.04) $(0.23) $(0.06) ==== ==== ==== ==== Earnings (losses) per share attributable to common stocks assuming dilution (Note 8) $1-2/3 par value Continuing operations $1.55 $1.33 $7.37 $6.67 Discontinued operations (Note 2) - - - 0.65 ---- ---- ---- ---- Earnings per share attributable to $1-2/3 par value $1.55 $1.33 $7.37 $7.32 ==== ==== ==== ==== Earnings per share attributable to Class H $(0.09) $(0.04) $(0.23) $(0.06) ==== ==== ==== ==== Reference should be made to the notes to consolidated financial statements. - 3 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - concluded (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions) AUTOMOTIVE, COMMUNICATIONS SERVICES, AND OTHER OPERATIONS Total net sales and revenues $36,602 $37,546 $120,667 $115,186 ------ ------ ------- ------- Cost of sales and other expenses (Note 4) 31,827 32,894 103,408 99,404 Selling, general, and administrative expenses 3,765 3,486 11,304 9,648 ------- ------- -------- -------- Total costs and expenses 35,592 36,380 114,712 109,052 ------ ------ ------- ------- Interest expense 210 223 648 597 Net expense from transactions with Financing and Insurance Operations 197 85 508 245 --- ---- ----- ----- Income from continuing operations before income taxes and minority interests 603 858 4,799 5,292 Income tax expense 193 291 1,433 1,799 Equity income/(loss) and minority interests 13 (80) (207) (250) ---- ---- ----- ----- Income from continuing operations 423 487 3,159 3,243 Income from discontinued operations (Note 2) - - - 426 ---- ---- ----- ----- Net income - Automotive, Communications Services, and Other Operations $423 $487 $3,159 $3,669 === === ===== ===== Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions) FINANCING AND INSURANCE OPERATIONS Total revenues $6,088 $5,248 $17,624 $15,110 ----- ----- ------ ------ Interest expense 2,270 1,762 6,418 5,027 Depreciation and amortization expense 1,474 1,371 4,480 3,918 Operating and other expenses 1,450 1,216 4,147 3,429 Provision for financing and insurance losses 428 324 1,153 1,031 ----- ----- ------ ------ Total costs and expenses 5,622 4,673 16,198 13,405 ----- ----- ------ ------ Net income from transactions with Automotive, Communications Services, and Other Operations 197 85 508 245 --- ---- ---- ----- Income before income taxes and minority interests 663 660 1,934 1,950 Income tax expense 243 262 715 739 Equity income/(loss) and minority interests (14) (8) (15) (23) --- --- --- ----- Net income - Financing and Insurance Operations $406 $390 $1,204 $1,188 === === ===== ===== Reference should be made to the notes to consolidated financial statements. - 4 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Sept. 30, Sept. 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 $9,351 $9,730 $12,056 Marketable securities 1,176 1,698 1,666 ------- ------- ------- Total cash and marketable securities 10,527 11,428 13,722 Accounts and notes receivable (less allowances) 5,975 5,093 5,480 Inventories (less allowances) (Note 3) 11,300 10,638 10,603 Equipment on operating leases (less accumulated depreciation) 5,980 5,744 6,244 Deferred income taxes and other current assets 9,489 9,006 7,494 ------- ------- ------- Total current assets 43,271 41,909 43,543 Equity in net assets of nonconsolidated associates 3,301 1,711 1,642 Property - net 34,036 32,779 31,761 Intangible assets - net 8,651 8,527 12,338 Deferred income taxes 13,202 15,277 17,139 Other assets 33,015 25,358 13,894 ------- ------- ------- Total Automotive, Comm. Serv., and Other Operations assets 135,476 125,561 120,317 Financing and Insurance Operations Cash and cash equivalents 912 712 328 Investments in securities 9,309 9,110 8,937 Finance receivables - net 87,534 80,627 76,449 Investment in leases and other receivables 37,551 36,407 35,837 Other assets 24,864 21,312 20,589 Net receivable from Automotive, Comm. Serv., and Other Operations 1,599 1,001 369 ------- ------- ------- Total Financing and Insurance Operations assets 161,769 149,169 142,509 ------- ------- ------- Total assets $297,245 $274,730 $262,826 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Automotive, Communications Services, and Other Operations Accounts payable (principally trade) $18,190 $17,254 $16,323 Loans payable 3,321 1,991 695 Accrued expenses 31,997 32,854 32,803 Net payable to Financing and Insurance Operations 1,599 1,001 369 ------ ------ ------ Total current liabilities 55,107 53,100 50,190 Long-term debt 8,245 7,415 7,880 Postretirement benefits other than pensions 34,376 34,166 34,455 Pensions 3,226 3,339 3,179 Other liabilities and deferred income taxes 16,088 17,426 18,170 ------- ------- ------- Total Automotive, Communications Services, and Other Operations liabilities 117,042 115,446 113,874 Financing and Insurance Operations Accounts payable 5,316 4,262 4,587 Debt 129,325 122,282 115,329 Other liabilities and deferred income taxes 13,238 11,282 11,607 ------- ------- ------- Total Financing and Insurance Operations liabilities 147,879 137,826 131,523 Minority interests 670 596 635 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 139 139 140 Stockholders' equity $1-2/3 par value common stock (issued, 565,371,465; 619,412,233 and 642,050,210 shares) (Notes 6 and 8) 943 1,033 1,071 Class H common stock (issued, 874,807,080; 411,345,561 and 405,587,898 shares) (Notes 6 and 8) 87 14 14 Capital surplus (principally additional paid-in capital) 21,818 13,794 15,282 Retained earnings 10,335 6,961 5,573 ------ ------- ------- Subtotal 33,183 21,802 21,940 Accumulated foreign currency translation adjustments (2,480) (2,033) (1,969) Net unrealized gains on securities 933 996 631 Minimum pension liability adjustment (121) (121) (4,027) ------ ------ ----- Accumulated other comprehensive loss (1,668) (1,158) (5,365) ------ ------- ------- Total stockholders' equity 31,515 20,644 16,575 ------- ------- ------- Total liabilities and stockholders' equity $297,245 $274,730 $262,826 ======== ======== ======== Reference should be made to the notes to consolidated financial statements. - 5 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ------------------------------------------------------- 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 $9,066 $4,746 $15,372 $9,883 Cash flows from investing activities Expenditures for property (6,314) (335) (4,721) (204) Investments in marketable securities - acquisitions (2,425) (18,198) (3,481) (16,089) Investments in marketable securities - liquidations 2,947 17,998 2,217 15,489 Mortgage servicing rights - acquisitions - (698) - (1,199) Mortgage servicing rights - liquidations - - - 34 Finance receivables - acquisitions - (140,295) - (139,165) Finance receivables - liquidations - 88,560 - 100,692 Proceeds from sales of finance receivables - 43,407 - 35,120 Operating leases - acquisitions (5,342) (12,147) (6,175) (13,948) Operating leases - liquidations 4,615 7,313 4,279 7,104 Investments in companies, net of cash acquired (Note 9) (3,911) - (2,885) (2,120) Net investing activity with Financing and Insurance Operations (998) - 75 - Other (558) 356 (831) 677 ------ ------ ------ ------ Net cash used in investing activities (11,986) (14,039) (11,522) (13,609) ------ ------ ------ ------ Cash flows from financing activities Net increase (decrease) in loans payable 1,255 1,121 (551) (7,601) Long-term debt-borrowings 4,130 19,450 5,414 21,672 Long-term debt-repayments (4,213) (11,482) (4,632) (10,536) Net financing activity with Automotive, Communications Services, and Other Operations - 998 - (75) Repurchases of common and preference stocks (652) - (2,149) - Proceeds from issuing common and preference stocks 2,778 - 1,905 - Cash dividends paid to stockholders (989) - (1,023) - ----- ------ ----- ----- Net cash provided by (used in) financing activities 2,309 10,087 (1,036) 3,460 ----- ------ ----- ----- Effect of exchange rate changes on cash and cash equivalents (365) 3 (167) 1 Net transactions with Automotive/ Financing Operations 597 (597) (447) 447 --- --- ----- --- Net cash (used in) provided by continuing operations (379) 200 2,200 182 Net cash provided by discontinued operations (Note 2) - - 128 - --- --- ----- --- Net (decrease) increase in cash and cash equivalents (379) 200 2,328 182 Cash and cash equivalents at beginning of the period 9,730 712 9,728 146 ----- --- ------ --- Cash and cash equivalents at end of the period $9,351 $912 $12,056 $328 ===== === ====== ===
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 $12.5 billion for the nine months ended September 30, 1999. Income from Delphi discontinued operations of $426 million for the nine months ended September 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): Sept. 30, Dec. 31, Sept. 30, 2000 1999 1999 ---------- --------- ---------- Productive material, work in process, and supplies $6,121 $5,505 $5,858 Finished product, service parts, etc. 7,062 7,023 6,647 ------ ------ ------- Total inventories at FIFO 13,183 12,528 12,505 Less LIFO allowance 1,883 1,890 1,902 ------- ------- ------- Total inventories (less allowances) $11,300 $10,638 $10,603 ====== ====== ====== - 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 Nine Months Ended September 30, September 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Depreciation $1,002 $1,004 $2,964 $3,075 Amortization of special tools 537 635 1,852 1,889 Amortization of intangible assets 57 78 209 157 ------ ------ ------ ------ Total $1,596 $1,717 $5,025 $5,121 ===== ===== ===== ===== Note 5. Preferred Securities of Subsidiary Trusts 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, were 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. During the nine months ended September 30, 2000, GM used $310 million to acquire approximately 5 million shares of GM $1-2/3 par value common stock under the Corporation's $1.4 billion stock repurchase program announced in March, 2000. GM also used approximately $97 million and $6 million to repurchase shares of GM $1-2/3 par value common stock and GM Class H common stock for certain employee benefit plans, respectively, during the nine months ended September 30, 2000. Note 7. Comprehensive Income GM's total comprehensive income was as follows (in millions): Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net income $829 $877 $4,363 $4,857 Other comprehensive (loss)/income (171) 88 (510) 332 --- ---- ------ ----- Total $658 $965 $3,853 $5,189 === === ===== ===== - 8 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) 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 Nine Months Ended September 30, September 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Earnings (losses) attributable to common stocks $1-2/3 par value Continuing operations $878 $866 $4,424 $4,400 Discontinued operations - - - 426 ----- ----- --------- ------ Earnings attributable to $1-2/3 par value $878 $866 $4,424 $4,826 (Losses) attributable to Class H $(76) $(17) $(144) $(20) 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 nine months ended September 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 nine months ended September 30, 2000 and 1999 (874 million and 405 million for the third quarters of 2000 and 1999, respectively, and 618 million and 363 million for the nine month periods ended September 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 for the third quarters of 2000 and 1999, and 1.3 billion and 1.2 billion for the nine month periods ended September 30, 2000 and 1999, respectively. - 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 September 30, 2000 Income (loss) from continuing operations $889 $(60) Less:Dividends on preference stocks 11 16 ---- -- Basic EPS Income (loss) from continuing operations attributable to common stockholders 878 559 $1.57 (76) 874 $(0.09) ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 8 - - ---- ---- --- --- Diluted EPS Adjusted income (loss) from continuing operations attributable to common stockholders $878 567 $1.55 $(76) 874 $(0.09) === === ==== == === ==== Three Months Ended September 30, 1999 Income (loss) from continuing operations $886 $(9) Less:Dividends on preference stocks 20 8 --- -- Basic EPS Income (loss) from continuing operations attributable to common stockholders 866 641 $1.35 (17) 405 $(0.04) ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 11 - - --- --- -- --- Diluted EPS Adjusted income (loss) from continuing operations attributable to common stockholders $866 652 $1.33 $(17) 405 $(0.04) === === ==== == === ==== Nine Months Ended September 30, 2000 Income (loss) from continuing operations $4,472 $(109) Less:Dividends on preference stocks 48 35 ----- --- Basic EPS Income (loss) from continuing operations attributable to common stockholders 4,424 589 $7.51 (144) 618 $(0.23) ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 11 - - ----- --- --- --- Diluted EPS Adjusted income (loss) from continuing operations attributable to common stockholders $4,424 600 $7.37 $(144) 618 $(0.23) ===== === ==== === === ==== Nine Months Ended September 30, 1999 Income (loss) from continuing operations $4,444 $(13) Less:Dividends on preference stocks 44 7 ----- --- Basic EPS Income (loss) from continuing operations attributable to common stockholders 4,400 648 $6.79 (20) 363 $(0.06) ==== ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 12 - - ----- --- --- --- Diluted EPS Adjusted income (loss) from continuing operations attributable to common stockholders $4,400 660 $6.67 $(20) 363 $(0.06) ===== === ==== == === ====
- 10 - Version4 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 fourth 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. This investment is accounted for using the cost method of accounting. 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 nine months ended September 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): Nine Months Ended September 30, 1999 ------------------ Total net sales and revenues $131,623 Income from continuing operations $4,432 Income from discontinued operations 426 ----- Net income $4,858 ===== Basic earnings (losses) per share attributable to common stocks $1-2/3 par value common stock Continuing operations $6.80 Discontinued operations 0.66 ---- Earnings per share attributable to $1-2/3 par value $7.46 ==== Earnings per share attributable to Class H $(0.06) ==== Earnings (losses) per share attributable to common stocks assuming dilution $1-2/3 par value common stock Continuing operations $6.67 Discontinued operations 0.65 ---- Earnings per share attributable to $1-2/3 par value $7.32 ==== Earnings per share attributable to Class H $(0.06) ==== - 11 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 9. Acquisitions, Investments, and Divestitures (concluded) Divestitures On October 6, 2000, Hughes completed the sale, which was first announced on January 13, 2000, of its satellite systems manufacturing businesses to The Boeing Company (Boeing) for approximately $3.8 billion in cash, which will result in a fourth quarter 2000 after-tax gain in excess of $1.0 billion. The purchase price is subject to adjustment based upon the final closing net assets of the satellite manufacturing businesses compared to a target amount, which could require amounts to be paid to or received from Boeing. 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 publicly traded company in Japan that provides direct-to-home satellite broadcast services. 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 third quarter of 2000 and the nine months ended September 30, 2000, including Hughes' share of DIRECTV Japan's operating losses was approximately $3 million and $258 million, respectively. The after-tax impact for the same periods was approximately $2 million and $69 million, respectively. DIRECTV Japan ceased broadcasting on September 30, 2000 and is completing the migration of customers to SkyPerfecTV!. Note 10. Commitments and Contingent Matters Commitments On September 14, 2000, GM announced that it plans to invest approximately $600 million in Suzuki, which will increase its equity ownership in Suzuki from 10% to 20%, primarily with the issuance of new GM $1-2/3 par value common stock. This transaction is expected to be completed in early 2001. 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 September 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 September 30, 2000 for information regarding Hughes' contingent matters. - 12 - Version4 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 September 30, 2000 Net sales and revenues: External customers $26,566 $5,115 $1,471 $834 $33,986 $2,082 $534 $36,602 $6,067 $21 $6,088 Intersegment (395) 224 53 118 - 6 (6) - - - - ------ ----- ----- --- ------ ----- --- ------ ----- ---- ----- Total net sales and revenues $26,171 $5,339 $1,524 $952 $33,986 $2,088 $528 $36,602 $6,067 $21 $6,088 ====== ===== ===== === ====== ===== === ====== ===== == ===== Interest income (a) $157 $105 $5 $3 $270 $21 $(153) $138 $587 $(87) $500 Interest expense $323 $100 $15 $1 $439 $66 $(295) $210 $2,158 $112 $2,270 Net income (loss) $728 $(181) $31 $(10) $568 $(88)(b) $(57) $423 $401 $5 $406 Segment assets $91,585 $18,596 $4,580 $1,060 $115,821 $20,248 (c) $(593) $135,476 $160,254 $1,515 $161,769 For the Three Months Ended September 30, 1999 Net sales and revenues: External customers $27,322 $5,793 $1,135 $791 $35,041 $2,003 $502 $37,546 $5,203 $45 $5,248 Intersegment (756) 598 65 93 - (5) 5 - - - - ------ ----- ----- --- ------ ----- --- ------ ----- --- ----- Total net sales and revenues $26,566 $6,391 $1,200 $884 $35,041 $1,998 $507 $37,546 $5,203 $45 $5,248 ====== ===== ===== === ====== ===== === ====== ===== == ===== Interest income (a) $231 $115 $11 $2 $359 $2 $(196) $165 $456 $(76) $380 Interest expense $326 $89 $29 $2 $446 $52 $(275) $223 $1,667 $95 $1,762 Net income (loss) $671 $32 $(36) $(54) $613 $(30)(b) $(96) $487 $393 $(3) $390 Segment assets $74,773 $19,764 $3,908 $1,223 $99,668 $18,395 (c) $2,254 $120,317 $142,591 $(82) $142,509 (a)Interest income is included in net sales and revenues from external customers. (b)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. (c)The amount reported for Hughes excludes the unamortized GM purchase accounting adjustments of approximately $390 million and $411 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 Nine Months Ended September 30, 2000 Net sales and revenues: External customers $87,094 $18,593 $4,142 $2,357 $112,186 $6,440 $2,041 $120,667 $17,443 $181 $17,624 Intersegment (1,110) 722 140 248 - 26 (26) - - - - ------ ------ ----- ----- ------- ----- ----- ------- ------ --- ------ Total net sales and revenues $85,984 $19,315 $4,282 $2,605 $112,186 $6,466 $2,015 $120,667 $17,443 $181 $17,624 ====== ====== ===== ===== ======= ===== ===== ======= ====== === ====== Interest income (a) $418 $319 $19 $9 $765 $58 $(367) $456 $1,609 $(322) $1,287 Interest expense $879 $293 $77 $2 $1,251 $169 $(772) $648 $6,095 $323 $6,418 Net income (loss) $3,428 $206 $42 $(126) $3,550 $(229)(c) $(162) $3,159 $1,193 $11 $1,204 For the Nine Months Ended September 30, 1999 Net sales and revenues: External customers $83,900 $18,912 $3,278 $2,066 $108,156 $5,402 $1,628 $115,186 $14,931 $179 $15,110 Intersegment (1,107) 757 170 180 - 15 (15) - - - - ------ ------ ------ ----- ------- ----- ----- ------- ------ --- ------ - - ---------- Total net sales and revenues $82,793 $19,669 $3,448 $2,246 $108,156 $5,417 $1,613 $115,186 $14,931 $179 $15,110 ====== ====== ===== ===== ======= ===== ===== ======= ====== === ====== Interest income (a) $734 $313 $36 $6 $1,089 $21 $(525) $585 $1,278 $(170) $1,108 Interest expense $928 $242 $64 $9 $1,243 $71 $(717) $597 $4,718 $309 $5,027 Net income (loss) $3,575 $393 $(99) $(195) $3,674 $(44)(c) $39 (b) $3,669 $1,176 $12 $1,188 (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 nine months ended September 30, 1999. (c)The amount reported for Hughes excludes amortization of GM purchase accounting adjustments of approximately $16 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 (SEC). 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 third quarter of 2000, GM's consolidated income from continuing operations totaled $829 million or $1.55 per share of GM $1-2/3 par value common stock, which represents a decrease of $48 million compared with $877 million or $1.33 per share of GM $1-2/3 par value common stock in the third quarter of 1999. GM's consolidated income from continuing operations for the nine months ended September 30, 2000 was $4.4 billion or $7.37 per share of GM $1-2/3 par value common stock, which represents a decrease of $68 million compared with $4.4 billion or $6.67 per share of GM $1-2/3 par value common stock for the nine months ended September 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 nine months ended September 30, 1999, including the income from discontinued operations, totaled $4.9 billion or $7.32 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 September 30, ------------------------------------------------------ 2000 1999 ------------------------ ------------------------- GM as GM as a % of a % of Industry GM Industry Industry GM Industry -------- --- -------- -------- --- -------- (Units in Thousands) GMNA United States Cars 2,297 670 29.2% 2,286 675 29.5% Trucks 2,260 579 25.6% 2,210 623 28.2% ----- ------ ----- ------ Total United States 4,557 1,249 27.4% 4,496 1,298 28.9% Canada, Mexico, and Other 673 186 27.6% 637 168 26.4% ----- ------ ------ ------ Total GMNA 5,230 1,435 27.4% 5,133 1,466 28.6% GME 4,640 413 8.9% 4,924 483 9.8% GMLAAM 955 153 16.1% 919 149 16.2% GMAP 3,224 128 4.0% 3,020 121 4.0% ------ ----- ------ ----- Total Worldwide 14,049 2,129 15.2% 13,996 2,219 15.9% ====== ===== ====== ===== Nine Months Ended September 30, ----------------------------------------------------- 2000 1999 ------------------------- ------------------------ GM as GM as a % of a % of Industry GM Industry Industry GM Industry -------- --- -------- -------- --- -------- (Units in Thousands) GMNA United States Cars 6,974 2,009 28.8% 6,692 2,030 30.3% Trucks 6,942 1,878 27.1% 6,571 1,826 27.8% ------ ----- ------ ----- Total United States 13,916 3,887 27.9% 13,263 3,856 29.1% Canada, Mexico, and Other 1,989 541 27.2% 1,871 512 27.4% ------ ----- ------ ------ Total GMNA 15,905 4,428 27.8% 15,134 4,368 28.9% GME 15,544 1,459 9.4% 15,590 1,531 9.8% GMLAAM 2,735 436 15.9% 2,502 401 16.0% GMAP 9,646 349 3.6% 8,994 337 3.7% ------ ----- ------ ----- Total Worldwide 43,830 6,672 15.2% 42,220 6,637 15.7% ====== ===== ====== ===== Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2000 1999 2000 1999 ------ ------ ------ ------ (Units in Thousands) Wholesale Sales GMNA Cars 703 661 2,240 2,199 Trucks 625 680 2,153 2,181 ----- ----- ----- ----- Total GMNA 1,328 1,341 4,393 4,380 ----- ----- ----- ----- GME Cars 367 413 1,332 1,367 Trucks 29 33 102 104 ---- ---- ----- ----- Total GME 396 446 1,434 1,471 --- --- ----- ----- GMLAAM Cars 131 98 328 266 Trucks 50 43 142 133 --- --- --- --- Total GMLAAM 181 141 470 399 --- --- --- --- GMAP Cars 49 45 130 121 Trucks 85 76 215 191 --- --- --- --- Total GMAP 134 121 345 312 --- --- --- --- Total Worldwide 2,039 2,049 6,642 6,562 ===== ===== ===== ===== - 16 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMA Financial Review GMA reported income of $568 million and a net margin of 1.7% on net sales and revenues of $34.0 billion for the third quarter of 2000 compared with income of $613 million and a net margin of 1.7% on net sales and revenues of $35.0 billion for the prior year quarter. The decrease in income from the prior year quarter was primarily due to an increase in spending for product development activities, a decrease in wholesale sales volume, unfavorable product mix in Europe and North America, unfavorable net price and currency exchange, partially offset by material and structural cost savings. These factors were partially offset by an overall increase in wholesale sales volume for the nine months ended September 30, 2000 to contribute to the decrease in income to $3.6 billion and a net margin of 3.2% on net sales and revenues of $112.2 billion compared with income of $3.7 billion and a net margin of 3.4% on net sales and revenues of $108.2 billion for the prior year nine-month period. In September 2000, General Motors and the other founding partners of Covisint (DaimlerChrysler Corporation, Ford Motor Company, and Renault/Nissan) received requisite clearances from competition law authorities in the United States and the Republic of Germany to begin operations. Final agreements among the founding partners and their technology partners are being completed. Operations by the original equipment manufacturers and their suppliers are anticipated to begin in the fourth quarter of 2000 or early 2001. GMNA reported income of $728 million for the third quarter of 2000 compared with $671 million for the prior year quarter. The increase in GMNA's third quarter 2000 income was primarily due to manufacturing and material cost improvements, as well as improvements related to quality initiatives. These improvements were partially offset by decreased wholesale sales volume, unfavorable product mix largely due to the production ramp-up of two North American truck assembly plants, and an increase in spending for growth initiatives such as eGM, OnStar, TradeXchange and Order-To-Delivery. Income for the nine months ended September 30, 2000 totaled $3.4 billion compared with $3.6 billion for the prior year nine-month period. The decrease in income for the first nine months of 2000 was primarily due to competitive pricing pressure, labor economics, and an increase in spending for product development activities and growth initiatives, partially offset by material cost improvements. 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 slightly lower for the quarter at (0.3)%. GME reported a loss of $181 million for the third quarter of 2000 compared with income of $32 million for the prior year quarter. The decrease in GME's third quarter 2000 income was primarily due to the start-up of the Corsa, a shift in volume within Europe from higher margin markets to lower margin markets, increased pricing pressures, and a decrease in wholesale sales volume. These factors were partially offset by material cost improvements and structural cost reductions. Income for the nine months ended September 30, 2000 totaled $206 million compared with $393 million for the prior year nine-month period. The decrease in income for the first nine months of 2000 was primarily due to the unfavorable shift in market mix, increased pricing pressures, and the start-up of the Corsa, partially offset by material and structural cost improvements. During the third quarter 2000, the European parliament passed a directive requiring member states to adopt legislation regarding end-of-life vehicles and the responsibility of manufacturers 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 $31 million for the third quarter of 2000 compared with a loss of $36 million for the prior year quarter. The increase in GMLAAM's third quarter 2000 earnings compared to third quarter 1999 results was primarily due to higher wholesale sales volume and nominal price increases, partially offset by an increase in material costs due to continuous supplier cost pressures, a deterioration in product mix, and increased manufacturing costs due to increased depreciation, amortization, labor economics, and the start-up of the Celta at the Gravatai Plant in Brazil. The increase in income for the nine months ended September 30, 2000 to $42 million compared to a loss of $99 million for the prior year nine-month period is primarily due to the factors discussed above, partially offset by increased material and freight costs driven by GM do Brasil's and its suppliers' exposure to hard currencies and inflationary factors. GMAP reported a loss of $10 million for the third quarter of 2000 compared with a loss of $54 million for the prior year quarter. The decrease in GMAP's third quarter 2000 losses compared to third quarter 1999 results was primarily due to increased equity earnings at Isuzu resulting from material and logistics savings along with lower structural costs, and an increase in volume primarily at Thailand related to the new Zafira and in Australia by Holden. These increases were partially offset by start-up costs in Thailand related to the Zafira and a decrease in equity earnings at Shanghai GM due to lower volume and price pressures in China. Losses for the nine months ended September 30, 2000 totaled $126 million compared with losses of $195 million for the prior year nine-month period. The decrease in losses for the first nine months of 2000 was primarily due to continued strong performance at 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 $2.1 billion and $6.5 billion in the third quarter and first nine months of 2000, respectively, compared to $2.0 billion and $5.4 billion for the comparable periods in 1999. The increase in net sales and revenues in the third quarter of 2000 compared to the third quarter of 1999 was primarily attributable to the growth in the DIRECTV businesses due to the addition of approximately 1,639,000 net new subscribers in the United States and Latin America since December 31, 1999. This increase was partially offset by a decrease in net sales and revenues at Hughes Network Systems primarily due to lower sales of DIRECTV receiver equipment associated with the completion of the transition of the PRIMESTAR By DIRECTV subscribers to the high-power DIRECTV service. The increase in net sales and revenues for the first nine months of 2000 compared to the first nine months of 1999 was primarily attributable to the growth in the DIRECTV businesses due to the addition of net new subscribers discussed above 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. premium channel services were acquired in mid-1999. PanAmSat also contributed to the increase in net sales and revenues due primarily to increased revenues from outright sales and sales-type lease transactions executed during 2000. Hughes had a net loss of $88 million in the third quarter of 2000, compared with a net loss of $30 million in the third quarter of 1999. The increased net loss resulted primarily from increased marketing costs to support the increased subscriber growth at the Direct-To-Home businesses. Hughes' net loss was $229 million for the first nine months of 2000, compared with a net loss of $44 million for the same period in 1999. The increased net loss for the first nine months of 2000 was primarily due to higher marketing costs at the Direct-To-Home businesses and an increase in depreciation and amortization expense due to 1999 acquisitions and additions to satellites and property. The increased net loss was 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 nine-months of 1999 included a $155 million pre-tax gain related to the settlement of a patent infringement case, 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 a $125 million pre-tax charge at Hughes Space and Communications Systems related to increased development costs and schedule delays on several new product lines. Due to rapid consolidation in the media and telecommunications industries, GM is now considering alternative strategic transactions involving Hughes and other participants in those industries. Any such transaction might involve the separation of Hughes from General Motors. GM's objective in this effort is to maximize the enterprise value of Hughes for the long-term benefit of the holders of GM's Class H common stock and GM $1-2/3 par value common stock through a structure that maintains the financial strength of General Motors. No assurance can be given that any transaction will be agreed upon with any party or that other conditions, including any stockholder or regulatory approvals will be satisfied. GMAC Financial Review GMAC's revenue totaled $6.0 billion and $17.4 billion in the third quarter and first nine months of 2000, respectively, compared to $5.2 billion and $14.9 billion for the comparable periods in 1999. The growth was mainly due to higher average retail and other loan receivable balances, which resulted primarily from strong GM sales levels and continued GM-sponsored special financing programs. GMAC's revenue also increased due to an increase in asset earning rates compared to the same periods in 1999. GMAC earned record third quarter consolidated net income of $401 million, up from the previous record of $393 million earned in the third quarter of 1999. Net income for the first nine months of 2000 was $1.2 billion, up $17 million from the $1.2 billion reported in the same period a year ago. Higher asset levels were more than offset by the negative impact stemming from the higher level of market interest rates and the corresponding increased cost of funds over the past year. In addition, net income from mortgage operations increased quarter-over-quarter primarily as a result of an increase in mortgage servicing and processing fees due to significant growth in the servicing portfolio over the last twelve months and to the revaluation to fair value of mortgage servicing rights and retained interests in securities. Additionally, investment income increased due to an increase in GMAC Mortgage Group's international investment portfolio. These increases were partially offset by lower realized capital gains in the quarter. - 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 September 30, 2000 totaled $13.5 billion compared with $14.4 billion at December 31, 1999 and $16.7 billion at September 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, partially offset by improvements in managed working capital and an increase in debt. The total VEBA assets in the VEBA trust used to pre-fund part of GM's other postretirement benefits liability were $6.7 billion at September 30, 2000, compared to $6.3 billion at December 31, 1999 and $4.7 billion at September 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 $(1.0) billion at September 30, 2000, compared with $2.0 billion at December 31, 1999 and $5.1 billion at September 30, 1999. Long-term debt was $8.2 billion at September 30, 2000, compared to $7.4 billion at December 31, 1999 and $7.9 billion at September 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 31.6% at September 30, 2000, compared to 43.7% at December 31, 1999 and 57.2% at September 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 39.3% at September 30, 2000, compared to 49.6% at December 31, 1999 and 59.3% at September 30, 1999. Financing and Insurance Operations - ---------------------------------- At September 30, 2000, GMAC owned assets and serviced automotive receivables totaling $174.9 billion, $12.6 billion above December 31, 1999. The increase over year-end 1999 was principally the result of higher serviced retail receivables, commercial and other loan receivables, other assets, receivables with Automotive, Communications Services, and Other Operations, mortgage loans held for investment, mortgage lending receivables, mortgage servicing rights, and factored receivables. Automotive and Commercial finance receivables serviced by GMAC, including sold receivables, totaled $104.9 billion at September 30, 2000, $7.9 billion above December 31, 1999 levels. This increase was primarily a result of a $4.7 billion increase in serviced retail receivables and a $4.2 billion increase in commercial and other loan receivables. Continued GM-sponsored retail financing incentives contributed to the rise in serviced retail 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 and GMAC Business Credit. As of September 30, 2000, GMAC's total borrowings were $127.7 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 September 30, 2000 was 9.4:1, 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 $1.2 billion in retained earnings from net income for the first nine months of 2000. Book Value Per Share Book value per share of GM $1-2/3 par value common stock was $40.39 at September 30, 2000, compared with $27.02 at December 31, 1999 and $20.59 at September 30, 1999. Book value per share of GM Class H common stock was $8.08 at September 30, 2000, compared with $5.40 at December 31, 1999 and $4.12 at September 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 12.5% as of September 30, 2000. - 19 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES CASH FLOWS Automotive, Communications Services, and Other Operations - --------------------------------------------------------- Net cash provided by operating activities was $9.1 billion during the nine months ended September 30, 2000 compared with $15.4 billion for the prior year period. The decrease in net cash provided by operating activities during the first nine 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, forgiveness of accounts payable owed to Delphi in 1999, and decreases in accrued and other liabilities in 1999 due to an increase in North America sales incentives and customer deposits related to increased volume in the Rental Car Program. Net cash used in investing activities amounted to $12.0 billion during the nine months ended September 30, 2000 compared with $11.5 billion in the prior year period. The increase in net cash used in investing activities during the first nine months of 2000 was primarily attributable to a $2.4 billion investment in Fiat S.p.A. (Fiat), a $1.0 billion cash equity injection in GMAC, and increased capital expenditures, partially offset by a decrease in investments in marketable securities and operating leases. Net cash provided by financing activities was $2.3 billion during the nine months ended September 30, 2000 compared with net cash used of $1.0 billion in the prior year period. The increase in cash provided by financing activities during the first nine months of 2000 was primarily due to proceeds from issuing common stock related to the $2.4 billion investment in Fiat 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 $4.7 billion and $9.9 billion during the nine months ended September 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 and accounts receivable, partially offset by a decrease in the origination/purchases of mortgage loans. Net cash used for investing activities during the nine months ended September 30, 2000 totaled $14.0 billion, a $430 million 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, a net decrease in acquisitions of operating leases, and a decrease in investments in companies. Net cash provided by financing activities during the nine months ended September 30, 2000 totaled $10.1 billion, compared with cash provided of $3.5 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 August 1, 2000, the GM Board declared a quarterly cash dividend of $0.50 per share on GM $1-2/3 par value common stock, paid September 9, 2000, to holders of record as of August 11, 2000. The GM Board also declared a quarterly dividend on the Series G Depositary Shares of $0.57 per share, paid November 1, 2000, to holders of record on October 2, 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 November 1, 2000, to the holder of record on October 2, 2000. - 20 - GENERAL MOTORS CORPORATION AND SUBSIDIARIES Employment and Payrolls Worldwide employment at September 30, (in thousands) 2000 1999 ---- ---- GMNA 212 219 GME 90 82 GMLAAM 24 23 GMAP 11 10 GMAC 27 27 Hughes 18 18 Other 13 12 --- --- Total employees 395 391 === === Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2000 1999 2000 1999 ----- ------ ----- ------ Worldwide payrolls - (in billions) $5.2 $5.5 $16.6 $16.5 === === ==== ==== New Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS No. 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. GM has appointed a team to implement SFAS No. 133 on a global basis for the Corporation. This team has been implementing a SFAS No. 133 compliant risk management information system, globally educating both financial and non-financial personnel, inventorying embedded derivatives and addressing various other SFAS No. 133 related issues. GM will adopt SFAS No. 133 and the corresponding amendments under SFAS No. 138 on January 1, 2001. The SFAS No. 133 team is currently determining the impact of SFAS No. 133 on GM's consolidated results of operations and financial position, however, there are still open issues that need to be addressed before the impact can be fully measurable. This statement should have no impact on GM's consolidated cash flows. In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. This SAB provides guidance in applying generally accepted accounting principles to revenue recognition in financial statements. GM will comply with SAB 101 by the fourth quarter of 2000, as required. The adoption of SAB No. 101 is not expected to have a material impact on General Motor's consolidated financial statements. In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001, and is effective for the recognition and reclassification of collateral and disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. 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 September 30, 2000 or subsequent thereto, but before the filing of this report are summarized below: Environmental Matters General Motors received two Notices of Violation dated May 25, 2000 and August 23, 2000 from the Michigan Department of Environmental Quality alleging non-compliance at the Lansing Craft Centre with applicable clean air regulations. Enforcement officials stated during settlement negotiations that they expected to propose a penalty in excess of $100,000. General Motors is seeking to negotiate a resolution of this matter. * * * Other Matters As previously reported, 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. On October 6, 2000, Hughes completed the sale of its satellite manufacturing business to the Boeing Company. In that transaction, Hughes retained limited liability for certain possible fines and penalties and the financial consequences of debarment related to the business now owned by Boeing, should such sanctions be imposed by either the Department of Justice or State Department against the satellite manufacturing business. Hughes does not expect any sanctions imposed by the Department of Justice or State Department to have a material adverse effect on Hughes. * * * 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. The trial judge issued an order granting GECC $48.5 million in interest under Connecticut's offer-of-judgment statute. With this order, the total judgment to be entered in GECC's favor is $181.5 million. Hughes and DIRECTV plan to appeal. GM and Hughes do not believe that the litigation will ultimately have a material adverse impact on Hughes. * * * With respect to the previously reported action against the DIRECTV unit of Hughes filed by the National Rural Telecommunications Cooperative (NRTC) on June 3, 1999, NRTC stipulated on August 25, 2000 to dismiss without prejudices its claim seeking the right to distribute former United States Satellite Broadcasting Company, Inc. (USSB) programming services on a non-exclusive basis, however, the NRTC continues to pursue its claim for the right to distribute former USSB programming services on an exclusive basis and to recover revenues related thereto. * * * On September 7, 2000, a putative class action was commenced against DIRECTV, Inc., Thompson Consumer Electronics, Inc., Best Buy Co., Inc., Circuit City Stores, Inc. and Tandy Corporation, Inc. in federal court in Los Angeles. The named plaintiffs purport to represent a class of all consumers who purchased DIRECTV equipment and services at any time from March 1996 to September 1, 2000. The plaintiffs allege that the defendants have violated federal and California antitrust statutes by entering into agreements to exclude competition and force retailers to boycott competitors' products and services. The plaintiffs seek declaratory and injunctive relief, as well as unspecified damages, including treble damages. DIRECTV believes that the complaint is without merit and intends to vigorously defend against the allegations raised. * * * * * * - 22 - 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 24 27 Financial Data Schedule (Unaudited) (for Securities and Exchange Commission information only) (b) REPORTS ON FORM 8-K. Eight reports on Form 8-K, dated February 25, 2000 (filed September 27, 2000), March 13, 2000 (filed July 24, 2000), June 6, 2000 (filed July 18, 2000), July 25, 2000, August 16, 2000, August 24, 2000, September 14, 2000 and September 15, 2000 were filed during the quarter ended September 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 November 13, 2000 /s/Peter R. Bible - ---------------------- ---------------------------------------- (Peter R. Bible, Chief Accounting Officer) - 23 - EX-99 2 0002.txt HUGHES FINANCIAL INFORMATION FOR 3RD QTR 2000 EXHIBIT 99 HUGHES ELETRONICS 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 September Nine Months Ended 30, September 30, ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- (Dollars in Millions) Revenues Direct broadcast, leasing and other services............................ $1,485.5 $1,345.0 $4,523.3 $3,147.0 Product sales........................ 203.0 282.8 705.3 715.3 -------- -------- -------- -------- Total Revenues..................... 1,688.5 1,627.8 5,228.6 3,862.3 -------- -------- -------- -------- Operating Costs and Expenses Broadcast programming and other costs............................... 681.4 596.4 2,035.9 1,374.4 Cost of products sold................ 152.1 273.2 585.1 631.4 Selling, general and administrative expenses............................ 747.1 556.1 2,167.4 1,419.1 Depreciation and amortization........ 238.3 208.8 673.1 480.1 -------- -------- -------- -------- Total Operating Costs and Expenses.......................... 1,818.9 1,634.5 5,461.5 3,905.0 -------- -------- -------- -------- Operating Loss......................... (130.4) (6.7) (232.9) (42.7) Interest income........................ 7.1 2.6 15.3 20.8 Interest expense....................... (66.5) (51.7) (169.2) (71.0) Other, net............................. (11.9) (31.6) (294.4) (96.3) -------- -------- -------- -------- Loss From Continuing Operations Before Income Taxes and Minority Interests... (201.7) (87.4) (681.2) (189.2) Income tax benefit..................... (77.8) (36.8) (354.4) (59.7) Minority interests in net losses of subsidiaries.......................... 19.6 8.8 31.7 22.1 -------- -------- -------- -------- Loss from continuing operations........ (104.3) (41.8) (295.1) (107.4) Income from discontinued operations, net of taxes.......................... 10.5 6.9 50.3 47.9 -------- -------- -------- -------- Net Loss............................... (93.8) (34.9) (244.8) (59.5) Adjustments to exclude the effect of GM purchase accounting adjustments....... 5.3 5.3 15.9 15.9 -------- -------- -------- -------- Loss excluding the effect of GM purchase accounting adjustments....... (88.5) (29.6) (228.9) (43.6) Preferred stock dividends.............. (24.1) (24.7) (72.9) (26.3) -------- -------- -------- -------- Loss Used for Computation of Available Separate Consolidated Net Income (Loss)................................ $ (112.6) $ (54.3) $ (301.8) $ (69.9) ======== ======== ======== ======== Available Separate Consolidated Net Income (Loss) Average number of shares of General Motors Class H Common Stock outstanding (in millions) (Numerator)........................... 873.9 405.3 616.7 362.4 Average Class H dividend base (in millions) (Denominator)............... 1,297.8 1,286.7 1,296.5 1,244.1 Available Separate Consolidated Net Income (Loss)......................... $ (75.8) $ (17.1) $ (143.6) $ (20.4) ======== ======== ======== ========
- -------- Reference should be made to the Notes to Financial Statements. 24 HUGHES ELECTRONICS CORPORATION BALANCE SHEETS (Unaudited)
September 30, December 31, 2000 1999 ------------- ------------ (Dollars in Millions) ASSETS Current Assets Cash and cash equivalents......................... $ 178.4 $ 238.2 Accounts and notes receivable (less allowances)... 1,145.8 960.9 Contracts in process.............................. 130.1 155.8 Inventories....................................... 346.0 236.1 Net assets of discontinued operations............. 1,128.8 1,224.6 Deferred income taxes............................. 537.8 254.3 Prepaid expenses and other........................ 931.4 788.1 --------- --------- Total Current Assets.......................... 4,398.3 3,858.0 Satellites, net..................................... 4,229.6 3,907.3 Property, net....................................... 1,588.1 1,223.0 Net Investment in Sales-type Leases................. 227.5 146.1 Intangible Assets, net.............................. 7,207.7 7,406.0 Investments and Other Assets........................ 2,533.6 2,056.6 --------- --------- Total Assets.................................. $20,184.8 $18,597.0 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts payable.................................. $ 1,149.5 $ 1,062.2 Deferred revenues................................. 153.6 130.5 Short-term borrowings and current portion of long- term debt........................................ 1,133.9 555.4 Accrued liabilities and other..................... 1,113.6 894.0 --------- --------- Total Current Liabilities..................... 3,550.6 2,642.1 Long-Term Debt...................................... 1,956.9 1,586.0 Other Liabilities and Deferred Credits.............. 1,414.5 1,454.2 Deferred Income Taxes............................... 1,081.7 689.1 Commitments and Contingencies Minority Interests.................................. 574.3 544.3 Stockholder's Equity Capital stock and additional paid-in capital...... 9,939.7 9,809.5 Preferred stock................................... 1,495.1 1,487.5 Accumulated deficit............................... (402.1) (84.4) --------- --------- Subtotal Stockholder's Equity....................... 11,032.7 11,212.6 --------- --------- Accumulated Other Comprehensive Income (Loss) Minimum pension liability adjustment............ (7.3) (7.3) Accumulated unrealized gains on securities...... 592.4 466.0 Accumulated foreign currency translation adjustments.................................... (11.0) 10.0 --------- --------- Accumulated other comprehensive income............ 574.1 468.7 --------- --------- Total Stockholder's Equity.................... 11,606.8 11,681.3 --------- --------- Total Liabilities and Stockholder's Equity.... $20,184.8 $18,597.0 ========= =========
- -------- Reference should be made to the Notes to Financial Statements. 25 HUGHES ELECTRONICS CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, -------------------- 2000 1999 --------- --------- (Dollars in Millions) Cash Flows from Operating Activities Net Cash Provided by (Used in) Continuing Operating Activities.......................................... $ 316.0 $ (106.1) Cash Flows from Investing Activities Investment in companies, net of cash acquired.......... (347.3) (2,314.4) Investment in convertible bonds........................ -- (238.1) Expenditures for property.............................. (654.3) (258.1) Increase in satellites................................. (551.1) (517.8) Early buy-out of satellite under sale and leaseback.... -- (245.4) Proceeds from disposal of property..................... 12.8 5.1 Proceeds from sale of investments...................... 41.5 -- Proceeds from insurance claims......................... 36.2 10.7 --------- --------- Net Cash Used in Investing Activities................ (1,462.2) (3,558.0) --------- --------- Cash Flows from Financing Activities Net increase in short-term borrowings and current portion of long-term debt............................. 578.5 85.7 Long-term debt borrowings.............................. 3,973.3 5,221.6 Repayment of long-term debt............................ (3,602.4) (4,171.0) Stock options exercised................................ 63.7 47.3 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....... (72.9) (1.6) --------- --------- Net Cash Provided by Financing Activities............ 940.2 2,658.1 --------- --------- Net cash used in continuing operations................... (206.0) (1,006.0) Net cash provided by (used in) discontinued operations... 146.2 (177.8) --------- --------- Net decrease in cash and cash equivalents................ (59.8) (1,183.8) Cash and cash equivalents at beginning of the period..... 238.2 1,342.0 --------- --------- Cash and cash equivalents at end of the period........... $ 178.4 $ 158.2 ========= =========
- -------- Reference should be made to the Notes to Financial Statements. 26 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 Reports on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000, filed with the Securities and Exchange Commission ("SEC") on March 10, 2000, May 15, 2000 and August 14, 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 September 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 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
September 30, December 31, 2000 1999 ------------- ------------ (Dollars in Millions) Productive material and supplies..................... $ 68.7 $ 59.1 Work in process...................................... 132.9 67.0 Finished goods....................................... 144.4 110.0 ------ ------ Total.............................................. $346.0 $236.1 ====== ======
27 HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) Note 3. Comprehensive Income (Loss) Hughes' total comprehensive income (loss) was as follows:
Three Months Nine Months Ended Ended September 30, September 30, -------------- --------------- 2000 1999 2000 1999 ------ ------ ------- ------ (Dollars in Millions) Net loss....................................... $(93.8) $(34.9) $(244.8) $(59.5) Other comprehensive income (loss): Unrealized gains on securities............... 144.6 138.2 126.4 138.6 Foreign currency translation adjustments..... (1.9) 17.8 (21.0) 13.2 ------ ------ ------- ------ Other comprehensive income................... 142.7 156.0 105.4 151.8 ------ ------ ------- ------ Total comprehensive income (loss).......... $ 48.9 $121.1 $(139.4) $ 92.3 ====== ====== ======= ======
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 stock 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 (873.9 million and 405.3 million during the third 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 1,297.8 million and 1,286.7 million during the third 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 28 HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) 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. 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 effect equivalent 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. 29 HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) Note 6. Short-Term Borrowings and Long-Term Debt Short-Term Borrowings and Current Portion of Long-Term Debt
Interest Rates at September 30, September 30, December 31, 2000 2000 1999 ------------- ------------- ------------ (Dollars in Millions) Floating rate notes, net of unamortized discount................ 7.96% $ 499.9 $498.9 364-day revolving credit facility.... 7.55% 250.0 -- Commercial paper..................... 7.00%--7.47% 339.4 -- Other debt........................... 7.00%--10.00% 23.4 -- Current portion of long-term debt.... 6.88% 21.2 56.5 -------- ------ Total short-term borrowings and current portion of long-term debt... $1,133.9 $555.4 ======== ======
Long-Term Debt
Interest Rates at September 30, September 30, December 31, 2000 2000 1999 ------------- ------------- ------------ (Dollars in Millions) Notes payable.......................... 6.00%--6.88% $ 817.7 $ 874.1 Revolving credit facilities............ 7.49%--7.53% 1,127.6 727.9 Other debt............................. 9.61%--11.90% 32.8 40.5 -------- -------- Total debt........................... 1,978.1 1,642.5 Less current portion................... 21.2 56.5 -------- -------- Total long-term debt................. $1,956.9 $1,586.0 ======== ========
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. 30 HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) 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. Since DIRECTV's acquisition of PRIMESTAR, DIRECTV converted a total of approximately 1.5 million customers to its high power service. The PRIMESTAR By DIRECTV service ceased operations, as planned, on September 30, 2000. The amount of accrued exit costs remaining at September 30, 2000 was $50 million, which primarily represents the remaining obligation on certain contracts. 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 nine months ended September 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.
Nine Months Ended September 30, 1999 ------------------ (Dollars in Millions) Total Revenues.............................................. $4,652.3 Net Loss.................................................... (65.2) Available Separate Consolidated Net Income (Loss)........... (23.7)
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 publicly traded company in Japan that provides direct-to-home satellite broadcast services. 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 third quarter of 2000 and the nine months ended September 30, 2000, including Hughes' share of DIRECTV Japan's operating losses, was approximately $3 million and $258 million, respectively, and was recorded in "other, net." The after-tax impact for the same periods was approximately $2 million and $69 million, respectively. DIRECTV Japan ceased broadcasting on September 30, 2000 and is completing the migration of customers to SkyPerfectTV!. 31 HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) Note 7. Acquisitions, Investments and Divestitures--Concluded 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 financial results for the satellite systems manufacturing businesses are treated as discontinued operations for all periods presented herein. See further discussion in Note 10. 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. The Network Systems segment is a provider of satellite-based private business networks and broadband Internet access, and a supplier of DIRECTV receiving equipment (set-top boxes and dishes). Other includes the corporate office and other entities. Selected information for Hughes' operating segments follows:
Direct- To- Home Satellite Network Broadcast Services Systems Other Eliminations Total --------- --------- -------- ------ ------------ -------- (Dollars in Millions) For the Three Months Ended: September 30, 2000 External Revenues....... $1,284.7 $164.8 $ 234.3 $ 4.7 -- $1,688.5 Intersegment Revenues... 6.8 34.5 49.7 2.0 $ (93.0) -- -------- ------ -------- ------ ------- -------- Total Revenues.......... $1,291.5 $199.3 $ 284.0 $ 6.7 $ (93.0) $1,688.5 -------- ------ -------- ------ ------- -------- Operating Profit (Loss)................. $ (150.1) $ 52.0 $ 1.6 $(18.3) $ (15.6) $ (130.4) September 30, 1999 External Revenues....... $1,143.7 $176.3 $ 305.8 $ 2.0 -- $1,627.8 Intersegment Revenues... 0.9 34.4 120.4 0.3 $(156.0) -- -------- ------ -------- ------ ------- -------- Total Revenues.......... $1,144.6 $210.7 $ 426.2 $ 2.3 $(156.0) $1,627.8 -------- ------ -------- ------ ------- -------- Operating Profit (Loss)................. $ (60.2) $ 98.2 $ 31.3 $(37.4) $ (38.6) $ (6.7) For the Nine Months Ended: September 30, 2000 External Revenues....... $3,692.7 $715.3 $ 808.1 $ 12.5 -- $5,228.6 Intersegment Revenues... 24.8 105.4 212.2 4.8 $(347.2) -- -------- ------ -------- ------ ------- -------- Total Revenues.......... $3,717.5 $820.7 $1,020.3 $ 17.3 $(347.2) $5,228.6 -------- ------ -------- ------ ------- -------- Operating Profit (Loss)................. $ (410.9) $319.1 $ (15.4) $(79.0) $ (46.7) $ (232.9) September 30, 1999 External Revenues....... $2,569.0 $503.3 $ 783.3 $ 6.7 -- $3,862.3 Intersegment Revenues... 2.4 101.3 214.9 1.1 $(319.7) -- -------- ------ -------- ------ ------- -------- Total Revenues.......... $2,571.4 $604.6 $ 998.2 $ 7.8 $(319.7) $3,862.3 -------- ------ -------- ------ ------- -------- Operating Profit (Loss)................. $ (158.2) $258.9 $ 23.1 $(84.5) $ (82.0) $ (42.7)
32 HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) 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. 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 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. 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. 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. On August 25, 2000, the NRTC stipulated to dismiss without prejudice its claim seeking the right to distribute former USSB programming services on a non-exclusive basis, however, the NRTC continues to pursue its claim for the right to distribute former USSB programming services on an exclusive basis and to recover revenues related thereto. 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 agreement it has with the NRTC. 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. 33 HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) 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. The trial judge issued an order granting GECC $48.5 million in interest under Connecticut's offer-of-judgment statute. With this order, the total judgment to be entered in GECC's favor is $181.5 million. 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. 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. On October 6, 2000, Hughes completed the sale of its satellite manufacturing business to Boeing. In that transaction, Hughes retained limited liability for certain possible fines and penalties and the financial consequences of debarment related to the business now owned by Boeing, should such sanctions be imposed by either the Department of Justice or State Department against the satellite manufacturing businesses. Hughes does not expect any sanctions imposed by the Department of Justice or State Department to have a material adverse effect on Hughes. 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. 34 HUGHES ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) 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. On September 7, 2000, a putative class action was commenced against DIRECTV, Inc., Thomson Consumer Electronics, Inc., Best Buy Co., Inc., Circuit City Stores, Inc. and Tandy Corporation, Inc. in federal court in Los Angeles. The named plaintiffs purport to represent a class of all consumers who purchased DIRECTV equipment and services at any time from March 1996 to September 1, 2000. The plaintiffs allege that the defendants have violated federal and California antitrust statutes by entering into agreements to exclude competition and force retailers to boycott competitors' products and services. The plaintiffs seek declaratory and injunctive relief, as well as unspecified damages, including treble damages. 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 Communications Galaxy, Inc. ("HCGI") filed a lawsuit on March 22, 1991 against the U.S. Government based upon the 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 September 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. Note 10. Subsequent Event On October 6, 2000, Hughes completed the sale of its satellite systems manufacturing businesses to Boeing for $3.75 billion in cash, which will result in a fourth quarter 2000 after-tax gain in excess of $1 billion. The purchase price is subject to adjustment based upon the final closing net assets of the satellite manufacturing businesses compared to a target amount, which could require amounts to be paid to or received from Boeing. In October of 2000, Hughes utilized a portion of the proceeds to repay about $1.8 billion of borrowings, which represented all amounts outstanding on the floating rate notes, the commercial paper program and 364-day and multi-year revolving credit facilities. 35 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY DATA
Three Months Ended September Nine Months Ended 30, September 30, ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- (Dollars in Millions) Statement of Operations Data: Total revenues........................ $1,688.5 $1,627.8 $5,228.6 $3,862.3 Total operating costs and expenses.... 1,818.9 1,634.5 5,461.5 3,905.0 -------- -------- -------- -------- Operating loss........................ (130.4) (6.7) (232.9) (42.7) Interest, net......................... (59.4) (49.1) (153.9) (50.2) Other, net............................ (11.9) (31.6) (294.4) (96.3) Income tax benefit.................... (77.8) (36.8) (354.4) (59.7) Minority interests in net losses of subsidiaries......................... 19.6 8.8 31.7 22.1 -------- -------- -------- -------- Loss from continuing operations....... (104.3) (41.8) (295.1) (107.4) Income from discontinued operations, net of taxes......................... 10.5 6.9 50.3 47.9 -------- -------- -------- -------- Net loss............................ $ (93.8) $ (34.9) $ (244.8) $ (59.5) ======== ======== ======== ======== Other Data: EBITDA................................ $ 107.9 $ 202.1 $ 440.2 $ 437.4 EBITDA Margin......................... 6.4% 12.4% 8.4% 11.3% Depreciation and amortization......... $ 238.3 $ 208.8 $ 673.1 $ 480.1 Capital expenditures.................. $ 426.0 $ 492.2 $1,205.4 $1,145.4
September 30, December 31, 2000 1999 ------------- ------------ (Dollars in Millions) Balance Sheet Data: Cash and cash equivalents............................ $ 178.4 $ 238.2 Total current assets................................. 4,398.3 3,858.0 Total assets......................................... 20,184.8 18,597.0 Total current liabilities............................ 3,550.6 2,642.1 Long-term debt....................................... 1,956.9 1,586.0 Minority interests................................... 574.3 544.3 Total stockholder's equity........................... $11,606.8 $11,681.3
- -------- Certain prior period amounts have been reclassified to conform to the September 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 SUMMARY DATA--Concluded Selected Segment Data
Direct- To- Home Satellite Network Eliminations Broadcast Services Systems and Other Total --------- --------- -------- ------------ -------- (Dollars in Millions) For the Three Months Ended: September 30, 2000 Total Revenues.......... $1,291.5 $199.3 $ 284.0 $ (86.3) $1,688.5 -------- ------ -------- ------- -------- Operating Profit (Loss)................. $ (150.1) $ 52.0 $ 1.6 $ (33.9) $ (130.4) Operating Profit Margin................. N/A 26.1% 0.6% N/A N/A EBITDA.................. $ (17.7) $135.5 $ 16.8 $ (26.7) $ 107.9 EBITDA Margin........... N/A 68.0% 5.9% N/A 6.4% -------- ------ -------- ------- -------- Depreciation and Amortization........... $ 132.4 $ 83.5 $ 15.2 $ 7.2 $ 238.3 Capital Expenditures.... 262.0 (1) 109.4 (2) 79.2 (3) (24.6) 426.0 -------- ------ -------- ------- -------- September 30, 1999 Total Revenues.......... $1,144.6 $210.7 $ 426.2 $(153.7) $1,627.8 -------- ------ -------- ------- -------- Operating Profit (Loss)................. $ (60.2) $ 98.2 $ 31.3 $ (76.0) $ (6.7) Operating Profit Margin................. N/A 46.6% 7.3% N/A N/A EBITDA.................. $ 55.1 $169.0 $ 49.8 $ (71.8) $ 202.1 EBITDA Margin........... 4.8% 80.2% 11.7% N/A 12.4% -------- ------ -------- ------- -------- Depreciation and Amortization........... $ 115.3 $ 70.8 $ 18.5 $ 4.2 $ 208.8 Capital Expenditures.... 97.6 (1) 347.8 (2) 38.4 (3) 8.4 492.2 -------- ------ -------- ------- -------- For the Nine Months Ended: September 30, 2000 Total Revenues.......... $3,717.5 $820.7 $1,020.3 $(329.9) $5,228.6 -------- ------ -------- ------- -------- Operating Profit (Loss)................. $ (410.9) $319.1 $ (15.4) $(125.7) $ (232.9) Operating Profit Margin................. N/A 38.9% N/A N/A N/A EBITDA.................. $ (40.9) $557.9 $ 34.4 $(111.2) $ 440.2 EBITDA Margin........... N/A 68.0% 3.4% N/A 8.4% -------- ------ -------- ------- -------- Depreciation and Amortization........... $ 370.0 $238.8 $ 49.8 $ 14.5 $ 673.1 Capital Expenditures.... 649.1 (1) 317.6 (2) 241.0 (3) (2.3) 1,205.4 -------- ------ -------- ------- -------- September 30, 1999 Total Revenues.......... $2,571.4 $604.6 $ 998.2 $(311.9) $3,862.3 -------- ------ -------- ------- -------- Operating Profit (Loss)................. $ (158.2) $258.9 $ 23.1 $(166.5) $ (42.7) Operating Profit Margin................. N/A 42.8% 2.3% N/A N/A EBITDA.................. $ 46.0 $465.9 $ 80.5 $(155.0) $ 437.4 EBITDA Margin........... 1.8% 77.1% 8.1% N/A 11.3% -------- ------ -------- ------- -------- Depreciation and Amortization........... $ 204.2 $207.0 $ 57.4 $ 11.5 $ 480.1 Capital Expenditures.... 253.4 (1) 823.0 (2) 111.2 (3) (42.2) 1,145.4 -------- ------ -------- ------- --------
- -------- Certain prior period amounts have been reclassified to conform to the September 30, 2000 presentation. (1) Includes expenditures related to satellites amounting to $37.5 million, $13.6 million, $73.2 million and $89.1 million, respectively. (2) Includes expenditures related to satellites amounting to $81.7 million, $93.2 million, $258.8 million and $408.8 million, respectively. Also included in the third quarter and first nine months of 1999 are $228.2 million and $369.5 million, respectively, related to the early buy-out of satellite sale-leasebacks. (3) Includes expenditures related to satellites amounting to $68.7 million, $28.0 million, $193.2 million and $74.9 million, respectively. 37 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 Reports on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000, filed with the Securities and Exchange Commission ("SEC") on March 10, 2000, May 15, 2000 and August 14, 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"). The transaction closed on October 6, 2000. 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 38 Company, Inc. ("USSB"), a provider of premium subscription programming services, in May 1999. 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. In the fourth quarter of 1999, DIRECTV U.S. began providing local broadcast network services and as of September 30, 2000 was providing those services to 35 U.S. markets. DIRECTV U.S. expects to add an additional 6 markets by the end of the year, bringing the total to 41 markets representing over 60 million households or 60% of television households. 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 by Hughes in February 1999; and Galaxy Brasil, Ltda. ("GLB"), the exclusive distributor of DIRECTV in Brazil, which was acquired by GLA 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 publicly traded company in Japan that provides direct-to-home satellite broadcast services. In connection with the agreement, Hughes acquired an ownership interest in SkyPerfecTV!. DIRECTV Japan ceased broadcasting on September 30, 2000, and is completing the migration of customers to 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 introduced the NET-36 service in the United States in October of 2000 and expects to begin generating revenues from the service in 2001. The Network Systems segment consists of Hughes Network Systems ("HNS"), which is a provider of satellite-based private business networks and broadband Internet access, and a supplier of DIRECTV(TM) receiving equipment (set-top boxes and dishes). 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(R) 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(TM) 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 39 $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. During the third quarter of 2000, PanAmSat's Galaxy VIII-i satellite experienced a failure of its primary propulsion system, and is now operating on its back-up system, which shortened the satellites projected remaining operational life from 12 years to about 24 months. The decrease in useful life will result in about $5 million per month of additional depreciation beginning in the fourth quarter of 2000. PanAmSat expects to replace Galaxy VIII-i in 2001 with Galaxy IIIC, which is currently under construction, a full year before the end of Galaxy VIII-i's operational life. Results of Operations Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999 Revenues. Revenues for the third quarter of 2000 increased 3.7% to $1,688.5 million, compared with $1,627.8 million in the third quarter of 1999. The Direct-To-Home Broadcast segment contributed to the overall change with an increase in revenues of $146.9 million over the third quarter of 1999 that resulted from an increase in the number of subscribers in the United States and Latin America partially offset by lower revenues from the PRIMESTAR By DIRECTV medium-power service. The increased revenues at the Direct-To-Home segment was offset by decreased revenues at the Network Systems and Satellite Services segments. The Network Systems segment reported decreased revenues of $142.2 million primarily due to lower sales of DIRECTV receiver equipment associated with the completion of the transition of PRIMESTAR By DIRECTV subscribers to the high-power DIRECTV service. The Network Systems segment shipped about 470,000 DIRECTV receiver systems during the third quarter of 2000 compared to about 730,000 units shipped in the same period last year. The Satellite Services segment reported decreased revenues of $11.4 million primarily due to the 1999 third quarter revenues including a one-time customer payment of about $15 million associated with the termination of a direct-to-home video services agreement in India. Operating Costs and Expenses. Operating costs and expenses grew to $1,818.9 million in 2000 from $1,634.5 million in 1999. Broadcast programming and other costs increased by $85.0 million in the third quarter of 2000 from the same period of 1999 due to increased costs for the new high-power DIRECTV subscribers. Costs of products sold decreased by $121.1 million in the third quarter of 2000 from the third quarter of 1999 primarily due to the decreased sales of DIRECTV receiver systems. Selling, general and administrative expenses increased by $191.0 million during the third quarter of 2000 compared to the same period of 1999 due primarily to higher marketing costs at the Direct-To- Home Broadcast segment resulting from increased subscriber growth. Depreciation and amortization increased by $29.5 million during the third quarter of 2000 compared to the third quarter of 1999 due primarily to additional capital expenditures since September 30, 1999. 40 EBITDA. EBITDA decreased 46.6% for the third quarter of 2000 to $107.9 million and EBITDA margin was 6.4%, compared to EBITDA of $202.1 million and EBITDA margin of 12.4% in the third quarter of 1999. The decrease in EBITDA resulted primarily from higher marketing costs associated with the record Direct-To-Home Broadcast segment subscriber growth in both the United States and Latin America and lower revenues from the PRIMESTAR By DIRECTV medium-power service, decreased revenues and higher operating costs at the Satellite Services segment and decreased EBITDA at the Network Systems segment resulting from reduced revenues and increased expenses associated with the upcoming launch of new DirecPC services. Operating Loss. The operating loss for the third quarter of 2000 was $130.4 million compared to an operating loss of $6.7 million in 1999. The increased operating loss resulted from the decrease in EBITDA and higher depreciation expense. Interest Income and Expense. Interest income increased to $7.1 million for the third quarter of 2000 compared to interest income of $2.6 million for the same period of 1999. Interest expense increased to $66.5 million for the third quarter of 2000 from $51.7 million for the third quarter of 1999. The higher interest expense resulted from increased borrowings. The changes in cash and cash equivalents and debt are discussed in more detail below under "Liquidity and Capital Resources." Other, Net. Other, net decreased to an expense of $11.9 million for the third quarter of 2000 from an expense of $31.6 million in the same period of 1999. The decreased expense in 2000 resulted primarily from unexpected shareholder contributions of about $22 million to help fund the costs to exit the DIRECTV Japan business. Income Taxes. Hughes recognized an income tax benefit of $77.8 million for the 2000 third quarter, compared to $36.8 million in the 1999 third 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 $104.3 million for the 2000 third quarter, compared to $41.8 million for the same period of 1999. Discontinued Operations. Revenues for the satellite systems manufacturing businesses decreased to $499.5 million for the third quarter of 2000 from revenues of $508.6 million for the same period of 1999. Revenues, excluding intercompany transactions, were $378.4 million for the third quarter of 2000 and $362.8 million for the same period of 1999. The satellite systems manufacturing businesses reported operating income of $29.4 million for the third quarter of 2000 compared to operating income of $30.4 million for the third quarter of 1999. Operating income, excluding intercompany transactions, amounted to $16.7 million for the third quarter of 2000, compared to operating income of $5.7 million for 1999. Income from discontinued operations, net of taxes was $10.5 million for the third quarter of 2000 compared to income from discontinued operations of $6.9 million in the same period of 1999. Direct-To-Home Broadcast Segment Direct-To-Home Broadcast segment third quarter 2000 revenues increased 12.8% to $1,291.5 million from $1,144.6 million in the third quarter of 1999. The Direct-To-Home Broadcast segment had negative EBITDA of $17.7 million in the third quarter of 2000 compared with positive EBITDA of $55.1 million in the third quarter of 1999. The operating loss for the segment increased to $150.1 million in the third quarter of 2000 from an operating loss of $60.2 million in the third quarter of 1999. United States. The DIRECTV U.S. businesses were the biggest contributors to the segment's revenue growth with revenues of $1,154 million for the third quarter of 2000, a 9.7% increase over last year's third 41 quarter revenues of $1,052 million. The increase in revenues resulted primarily from an increased number of high-power DIRECTV subscribers partially offset by lower revenues from the PRIMESTAR By DIRECTV medium-power service. In the third quarter of 1999, DIRECTV U.S. benefited from revenues on the entire Primestar By DIRECTV subscriber base; however, in the third quarter of 2000, revenues resulting from the Primestar By DIRECTV service were lower due to subscriber churn and those subscribers located in National Rural Telecommunications Cooperative ("NRTC") territories that converted to the high-power DIRECTV service. The DIRECTV businesses receive only a small percentage of revenues from customers in NRTC territories. As of September 30, 2000, the DIRECTV U.S. businesses had approximately 9.0 million subscribers compared to about 7.7 million at September 30, 1999. DIRECTV U.S. added 450,000 net new subscribers to its high-power DIRECTV service, a 6.4% increase over the 423,000 net new subscribers added in the third quarter of 1999. In addition, about 300,000 subscribers were transitioned from the PRIMESTAR By DIRECTV medium-power service to the high-power service during the third quarter of 2000. Average monthly revenue per subscriber for the high-power business was approximately $58 for the third quarters of 2000 and 1999. In the third quarter of 2000, the DIRECTV U.S. businesses reported EBITDA of $36 million compared to EBITDA of $86 million in the third quarter of 1999. The third quarter 2000 operating loss for DIRECTV U.S. was $62 million compared with an operating loss of $7 million in the third quarter of 1999. The decrease in EBITDA and operating profit primarily resulted from higher marketing costs associated with the record subscriber growth. Latin America. Revenues for the Latin America DIRECTV businesses increased 78.9% to $136 million in the third quarter of 2000 from $76 million in the third quarter of 1999. The increase in revenues reflects an increase in subscribers. Subscribers grew to 1,136,000 at the end of the third quarter of 2000 compared to 668,000 at the end of the third quarter of 1999. Latin America DIRECTV added 126,000 net new subscribers in the third quarter of 2000, an 88.1% increase over the 67,000 net new subscribers added in the same period last year. Average monthly programming revenue per subscriber increased to $36 in the third quarter of 2000 from $35 in the third quarter of 1999. EBITDA was negative $50 million for the third quarter of 2000 compared to negative EBITDA of $24 million in the third quarter of 1999. The change in EBITDA resulted primarily from additional losses from higher marketing costs associated with the record subscriber growth. The Latin America DIRECTV businesses incurred an operating loss of $85 million in the third quarter of 2000 compared to $47 million in the third quarter of 1999. The increased operating loss resulted from the decline in EBITDA and higher depreciation expense. Satellite Services Segment Revenues for the Satellite Services segment in the third quarter of 2000 decreased $11.4 million to $199.3 million from $210.7 million in the same period in the prior year. This decrease was primarily due to the 1999 third quarter revenue including a one time customer payment of about $15 million associated with the termination of a direct-to-home video services agreement in India. Total sales-type lease revenues were $8.5 million for the third quarter of 2000 as compared to $5.8 million for the same period in the prior year. Revenues from operating leases of transponders, satellite services and other were 95.7% of total revenues for the third quarter of 2000 and decreased by 6.9% to $190.8 million from $204.9 million for the same period in the prior year. EBITDA was $135.5 million for the third quarter of 2000, a 19.8% decrease over the third quarter 1999 EBITDA of $169.0 million. EBITDA margin in the third quarter of 2000 was 68.0% compared to 80.2% in the same period in 1999. The decrease in EBITDA and EBITDA margin was due to the decrease in revenues discussed above, increased direct operating costs and selling, general and administrative costs that resulted from the continued satellite fleet expansion and expenses associated with the new NET-36 broadband Internet 42 initiative. Operating profit was $52.0 million for the third quarter of 2000, a decrease of $46.2 million from the third quarter of 1999. The decrease in operating profit resulted from the decrease in EBITDA and higher depreciation expense related to satellites placed into service since the third quarter of 1999. Network Systems Segment The Network Systems segment's third quarter 2000 revenues decreased by 33.4% to $284.0 million, versus $426.2 million in the third quarter of 1999. The lower revenues resulted from decreased shipments of DIRECTV receiver equipment associated with the completion of the transition of PRIMESTAR By DIRECTV subscribers to the high-power DIRECTV service and the elimination of DIRECTV equipment subsidies. Shipments of DIRECTV receiver equipment totaled 470,000 units in the third quarter of 2000, compared to 730,000 units in the same period last year. The decrease in revenues was also due to the discontinuation of certain narrowband wireless businesses and lower revenues in the mobile satellite product line. The Network Systems segment reported EBITDA of $16.8 million for the third quarter of 2000, compared to EBITDA of $49.8 million in the third quarter of 1999. The Network Systems segment had an operating profit of $1.6 million in the third quarter of 2000, compared to an operating profit of $31.3 million in the third quarter of 1999. The decreased EBITDA and operating profit resulted primarily from the reduced revenues discussed above, and increased expenses associated with the upcoming launch of new DirecPC services, including AOL Plus Powered by DirecPC. These reductions were offset by a $21 million one-time EBITDA gain that resulted from successful negotiations with certain narrowband wireless customers for receivables previously written-off. Eliminations and Other The elimination of revenues decreased to $86.3 million in the third quarter of 2000 from $153.7 million in the third quarter of 1999 due primarily to decreased purchases of receiver equipment from the Network Systems segment by DIRECTV due to the completion of the transition of PRIMESTAR By DIRECTV medium- power subscribers to the high-power DIRECTV service and the elimination of DIRECTV equipment subsidies from the Direct-To-Home Broadcast segment. Operating losses for "eliminations and other" decreased to $33.9 million in the third quarter of 2000 from $76.0 million for the third quarter of 1999 primarily due to the completion of the transition of PRIMESTAR By DIRECTV medium-power subscribers to the high-power service, the elimination of DIRECTV equipment subsidies and lower margins on intercompany sales. Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999 Revenues. Revenues for the nine months ended September 30, 2000 increased 35.4% to $5,228.6 million compared with $3,862.3 million for the nine months ended September 30, 1999. The Direct-To-Home Broadcast segment contributed to the overall change with an increase in revenues of $1,146.1 million over the first nine months of 1999 that resulted from the addition of about 1,639,000 net 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 Satellite Services segment also reported an increase in revenues of $216.1 million due primarily to increased revenues from outright sales and sales-type lease transactions executed during 2000. Operating Costs and Expenses. Operating costs and expenses grew to $5,461.5 million in 2000 from $3,905.0 million in 1999. Broadcast programming and other costs increased by $661.5 million in the first nine months of 2000 from the same period in 1999 due to higher costs that result from increased high-power DIRECTV subscribers, costs associated with the PRIMESTAR By DIRECTV and premium channel services and increased costs associated with new outright sales and sales-type leases of satellite transponders at the Satellite Services segment. Costs of products sold decreased by $46.3 million for the first nine months of 2000 from the 43 first nine months of 1999 mainly due to the completion of several contracts at the Network Systems segment. Selling, general and administrative expenses increased by $748.3 million during the first nine months of 2000 compared to the same period of 1999 due primarily to higher marketing costs at the Direct- To-Home Broadcast segment resulting from increased subscriber growth in both the United States and Latin America. Depreciation and amortization increased by $193.0 million during the first nine months of 2000 compared to the first nine months of 1999 primarily due to 1999 acquisitions, discussed more fully in "Liquidity and Capital Resources--Acquisitions, Investments and Divestitures." EBITDA. EBITDA for the first nine months of 2000 was $440.2 million and EBITDA margin was 8.4%, compared to EBITDA of $437.4 million and EBITDA margin of 11.3% in the same period of 1999. The slight increase in EBITDA was primarily attributable to the increased outright sales and sales-type leases at the Satellite Service segment offset by increased losses at the Direct-To-Home Broadcast segment due to higher subscriber acquisition costs. The lower EBITDA margin was mainly attributable to increased losses at the Direct-To-Home Broadcast segment 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 nine months of 2000 was $232.9 million compared to an operating loss of $42.7 million in 1999. The increased operating loss resulted from the higher depreciation and amortization, which more than offset the slight improvement in EBITDA. Interest Income and Expense. Interest income declined to $15.3 million for the first nine months of 2000 compared to $20.8 million for the same period of 1999 due to a decrease in cash and cash equivalents. Interest expense increased to $169.2 million for the first nine months of 2000 from $71.0 million for the first nine months of 1999. The higher interest expense resulted from increased borrowings and interest expense associated with liabilities for above-market programming contracts assumed in the acquisitions of PRIMESTAR and USSB. 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 $294.4 million for the first nine months of 2000 from an expense of $96.3 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 nine months of 2000, which includes the effects of the SkyPerfecTV! transaction and Hughes' share of DIRECTV Japan's operating losses, was about $258 million. Income Taxes. Hughes recognized a tax benefit of $354.4 million for the first nine months of 2000, compared to $59.7 million in the first nine 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 $295.1 million for the nine months ended September 30, 2000, compared to $107.4 million for the same period of 1999. Discontinued Operations. Revenues for the satellite systems manufacturing businesses decreased to $1,571.1 million for the first nine months of 2000 from revenues of $1,687.5 million for the same period of 1999. Revenues, excluding intercompany transactions, were $1,179.6 million for the first nine months of 2000 and $1,356.1 million for the same period of 1999. The satellite systems manufacturing businesses reported operating income of $108.3 million for the first nine months of 2000 compared to operating income of $73.0 million for the first nine months of 1999. Operating income, excluding intercompany transactions, amounted to $80.2 million for the first nine months of 2000, compared to operating income of $62.9 million for 1999. The 1999 results included a one-time pre-tax 44 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 $50.3 million for the first nine months of 2000, compared to $47.9 million in the same period of 1999. Direct-To-Home Broadcast Segment Direct-To-Home Broadcast segment revenues for the first nine months of 2000 increased 44.6% to $3,717.5 million from $2,571.4 million for the first nine months of 1999. The Direct-To-Home Broadcast segment had negative EBITDA of $40.9 million in the first nine months of 2000 compared with positive EBITDA of $46.0 million in the first nine months of 1999. The operating loss for the segment increased to $410.9 million in the first nine months of 2000 from an operating loss of $158.2 million in the first nine months of 1999. United States. The DIRECTV U.S. businesses were the biggest contributors to the segment's revenue growth with revenues of $3,342 million for the first nine months of 2000, a 45.1% increase over last year's revenues for the first nine months of 1999 of $2,304 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 September 30, 2000 the DIRECTV U.S. businesses, including the Primestar By DIRECTV service, had approximately 9.0 million subscribers compared to about 7.7 million at September 30, 1999. DIRECTV U.S. added 1,307,000 net new subscribers to its high-power DIRECTV service in the first nine months of 2000, a 19.8% increase over the 1,091,000 net new subscribers added in the first nine months of 1999. In addition, about 1 million subscribers were transitioned from the PRIMESTAR By DIRECTV medium-power service to the high-power service during the first nine months of 2000. Average monthly revenue per subscriber for the high-power business was $58 for the nine months ended September 30, 2000 and $51 for the same period in the prior year. The increase in the average monthly revenue per subscriber resulted primarily from the premium channel services acquired in May 1999. For the first nine months of 2000, the DIRECTV U.S. businesses reported EBITDA of $93 million compared to EBITDA of $123 million for the first nine months of 1999. The operating loss for the first nine months of 2000 for DIRECTV U.S. was $195 million compared with $41 million for the same period in 1999. The decrease in EBITDA resulted from increased losses due to subscriber acquisition costs associated with the record subscriber growth. The increased operating loss was principally due to the decrease in EBITDA discussed above and increased amortization of goodwill and intangibles that resulted from the PRIMESTAR and USSB acquisitions. Latin America. Revenues for the Latin America DIRECTV businesses increased 73.8% to $372 million in the first nine months of 2000 from $214 million in the first nine months of 1999. The increase in revenues reflects an increase in subscribers and the consolidation of the GLB business. Subscribers grew to 1,136,000 at September 30, 2000, compared to 668,000 at September 30, 1999. Latin America DIRECTV added 332,000 net new subscribers in the first nine months of 2000, an 80.4% increase over the 184,000 net new subscribers added in the first nine months of 1999. Average monthly programming revenue per subscriber increased to $36 in the first nine months of 2000 from $35 in the first nine months of 1999. EBITDA was a negative $128 million for the first nine months of 2000 compared to negative EDITDA of $64 million for the first nine 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 $212 million in the first nine months of 2000 compared to $104 million in the first nine 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. 45 Satellite Services Segment Revenues for the Satellite Services segment in the first nine months of 2000 increased 35.7% to $820.7 million from $604.6 million in the same period in the prior year. This increase was primarily due to increased revenues associated with outright sales and sales-type lease transactions executed during the first nine months of 2000. Revenues associated with outright sales and sales-type leases of transponders were $237.2 million for the first nine months of 2000 as compared to $17.9 million for the same period in the prior year. Revenues from operating leases of transponders, satellite services and other were 71.1% of total revenues for the first nine months of 2000 and decreased by 0.6% to $583.5 million from $586.7 million for the same period in the prior year. EBITDA was $557.9 million for the first nine months of 2000, a 19.8% increase over EBITDA of $465.9 million for the first nine months of 1999. The higher EBITDA was due to the increased revenues discussed above. EBITDA margin for the first nine months of 2000 was 68.0% compared to 77.1% in the same period in 1999. The decline in EBITDA margin was due to lower margins associated with increased outright sales and sales-type lease transactions executed during the first nine months of 2000 and higher operating costs resulting from PanAmSat's continued satellite fleet expansion and costs associated with the NET-36 initiative. Excluding the outright sales and sales- type lease transactions, EBITDA for the first nine months of 2000 was $425 million or 71% of corresponding revenues. Operating profit was $319.1 million for the first nine months of 2000, an increase of $60.2 million over the first nine months 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 third quarter of 1999. Network Systems Segment The Network Systems segment grew revenues for the first nine months of 2000 by 2.2% to $1,020.3 million, versus $998.2 million in the first nine months of 1999. The slight increase in revenues resulted from greater shipments of DIRECTV receiver equipment. Shipments of DIRECTV receiver equipment totaled 2,363,000 units for the first nine months of 2000, compared to 1,415,000 units in the same period last year. This increase in revenues was partially offset by lower revenues from the discontinuation of certain narrowband wireless product lines. The Network Systems segment reported EBITDA of $34.4 million for the first nine months of 2000, compared to EBITDA of $80.5 million for the first nine months of 1999. The Network Systems segment had an operating loss of $15.4 million in the first nine months of 2000, compared to an operating profit of $23.1 million in the first nine months of 1999. The decrease in EBITDA and operating profit resulted primarily from increased costs associated with the upcoming launch of new DirecPC services, including AOL Plus Powered by DirecPC and lower revenues due to the discontinuation of certain narrowband wireless businesses, partially offset by the $11.0 million charge in 1999 that resulted from the termination of the APMT contract. Eliminations and Other The elimination of revenues increased to $329.9 million in the first nine months of 2000 from $311.9 million in the first nine 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" decreased to $125.7 million in the first nine months of 2000 from $166.5 million in the first nine months of 1999 due primarily to lower margins on intercompany sales. 46 Liquidity and Capital Resources Cash and cash equivalents were $178.4 million at September 30, 2000 compared to $238.2 million at December 31, 1999. Cash provided by operating activities was $316.0 million for the first nine months of 2000, compared to cash used in operating activities of $106.1 million for the first nine months of 1999. The increase in 2000 resulted from higher income from continuing operations excluding non-cash adjustments, such as depreciation and amortization, the loss resulting from the write-off of Hughes' investment in DIRECTV Japan and deferred taxes, offset by increased working capital requirements for continuing operations. Cash used in investing activities was $1,462.2 million in the nine months ended September 30, 2000, and $3,558.0 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, the Tempo Satellite assets and GLB. Cash provided by financing activities was $940.2 million in the first nine months of 2000, compared to $2,658.1 million in the first nine 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 $146.2 million in the first nine months of 2000, compared to cash used in discontinued operations of $177.8 million in the first nine 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 September 30, 2000 and December 31, 1999 was 1.24 and 1.46, respectively. Working capital decreased by $368.2 million to $847.7 million at September 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 as much as $800 million 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 received upon the completion of the Boeing transaction and amounts available under credit facilities, as needed. Debt and Credit Facilities. Short-Term Borrowings. In October 1999, Hughes issued $500.0 million ($499.9 million net of unamortized discount at September 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 7.96% at September 30, 2000. The notes were repaid 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 September 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. 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 $67.7 million was outstanding at September 30, 2000. The interest rate on the notes was 6.88% at September 30, 2000. The notes mature on various dates through January 2, 2002. 47 Revolving Credit Facilities. As of September 30, 2000, Hughes had 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. In October 2000, Hughes elected to terminate the bridge facility, as provided for under the terms of the agreement. These facilities also provide backup liquidity for Hughes' $1.1 billion commercial paper program. Commercial paper outstanding under the program bears interest at various rates, based on market rates prevailing at the time each commercial paper instrument is placed. $750.0 million was outstanding under the multi-year facility as of September 30, 2000, with borrowings bearing an interest rate of 7.53%. $250.0 million was outstanding under the 364-day facility as of September 30, 2000, bearing an interest rate of 7.55%. $339.4 million was outstanding under the commercial paper program, with borrowings bearing interest at rates ranging from 7.00% to 7.47%. No amounts were outstanding under the bridge facility at September 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. 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 September 30, 2000. At September 30, 2000, Hughes' 75% owned subsidiary, SurFin, had a total of $377.6 million outstanding under a $400.0 million unsecured revolving credit facility expiring in June 2002. The weighted average interest rate on these borrowings was 7.49% at September 30, 2000. Other. At September 30, 2000, GLB had a total of $16.8 million outstanding under variable rate notes. The weighted average interest rate of the notes was 11.90% at September 30, 2000. Principal is payable in varying amounts at maturity in April and May 2002, with interest payable monthly. Other short-term and long-term debt outstanding at September 30, 2000 included $39.4 million of notes bearing fixed rates of interest of 7.00% to 11.11%. Principal on the notes is payable in varying amounts at maturity from November 2000 to April 2007. 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 September 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 Darlene Investments, LLC, 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 48 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. 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. DIRECTV Japan ceased broadcasting on September 30, 2000 and is completing the migration of customers to SkyPerfectTV!. On October 6, 2000, Hughes completed the sale of its satellite systems manufacturing businesses to Boeing for $3.75 billion in cash, which will result in a fourth quarter 2000 after-tax gain in excess of $1 billion. The purchase price is subject to adjustment based upon the final closing net assets of the satellite manufacturing businesses compared to a target amount, which could require amounts to be paid to or received from Boeing. In October of 2000, Hughes utilized a portion of the proceeds to repay about $1.8 billion of borrowings, which represented all amounts outstanding on the floating rate notes, the commercial paper program and 364-day and multi-year revolving credit facilities. New Accounting Standards. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS No. 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. Hughes has appointed a team to implement SFAS No. 133. This team has been implementing SFAS No. 133 policies and procedures for identifying and tracking derivatives, educating both financial and non-financial personnel, inventorying embedded derivatives and addressing various other SFAS No. 133 related issues. Hughes will adopt SFAS No. 133 and the corresponding amendments under SFAS No. 138 on January 1, 2001. Hughes is currently determining the impact of SFAS No. 133 on Hughes' results of operations and financial position. This statement should have no impact on Hughes' consolidated cash flows. 49 In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. This SAB provides guidance in applying generally accepted accounting principles to revenue recognition in financial statements. Hughes will comply with SAB 101 by the fourth quarter of 2000, as required. The adoption of SAB No. 101 is not expected to have a material impact on Hughes' financial statements. Security Ratings Hughes' current long-term credit ratings are Baa2 and BBB-, with its short- term credit and commercial paper ratings at P-2 and A-3, as rated by Moody's Investor Services ("Moody's") and Standard and Poor's Rating Services ("S&P"), respectively. On September 21, 2000, subsequent to the announcement that GM was exploring strategic alternatives involving Hughes, S&P re-affirmed its BBB- and A-3 debt ratings for Hughes and revised its outlook from positive to developing. Previously, in January 2000, subsequent to the announced sale of Hughes' satellite systems operations to The Boeing Company, Moody's and S&P each affirmed their respective debt ratings for Hughes. At that time, Moody's maintained its negative outlook but ended its review for possible downgrade while S&P revised its outlook to positive from negative. 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. With respect to Moody's, the Baa2 rating for senior debt indicates adequate likelihood of interest and principal payment and principal security. The P-2 commercial paper rating, the second highest rating available, indicates that the issuer has a strong ability for repayment relative to other issuers. For S&P, the BBB- rating indicates the issuer has adequate capacity to pay interest and repay principal. In general, lower ratings result in higher borrowing costs. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating. 50 EX-27 3 0003.txt SUMMARY OF THIRD QUARTER 2000 INFORMATION
5 This schedule contains summary financial information extracted from General Motors Corporation September 30, 2000 Consolidated Financial Statements and is qualified in its entirety by reference to Third Quarter 2000 Form 10-Q. 0000040730 General Motors Corporation 1,000,000 U.S. Dollars 9-MOS Dec-31-2000 Jan-01-2000 Sep-30-2000 1 10,263 10,485 93,509 0 11,300 43,271 66,488 34,727 297,245 55,107 140,891 139 0 1,030 30,485 297,245 120,667 138,291 108,888 124,492 0 373 7,066 6,733 2,148 4,363 0 0 0 4,363 7.51 7.37
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