UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
- -- 1934
For the quarterly period ended March 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
- --- 1934
For the transition period from to
--------------- -------------
Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 38-0572515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No . ---
As of March 31, 2000, there were outstanding 621,181,380 shares of the
issuer's $1-2/3 par value common stock and 138,437,233 shares of GM Class H
$0.10 par value common stock.
- 1 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
-------
Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and 1999 3
Consolidated Balance Sheets as of March 31, 2000,
December 31, 1999, and March 31, 1999 5
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Part II - Other Information (Unaudited)
Item 1. Legal Proceedings 31
Item 6. Exhibits and Reports on Form 8-K 32
Signature 32
Exhibit 99 Hughes Electronics Corporation Financial Statements and
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) 33
Exhibit 27 Financial Data Schedule (Unaudited)
(for Securities and Exchange Commission information only)
- 2 -
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
---------
2000 1999
---- ----
(Dollars in Millions
Except Per Share Amounts)
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Manufactured products sales and revenues $40,396 $36,620
Financing revenues 4,075 3,509
Other income (Note 10) 2,387 2,306
------- -------
Total net sales and revenues 46,858 42,435
------ ------
Cost of sales and other operating expenses,
exclusive of items listed below 33,465 30,666
Selling, general, and administrative expenses 4,786 3,822
Depreciation and amortization expense 3,238 2,724
Interest expense 2,228 1,845
Other expenses (Note 10) 509 438
------- -------
Total costs and expenses 44,226 39,495
Income from continuing operations before income taxes
and minority interests 2,632 2,940
Income tax expense 783 1,029
Minority interests 2 (14)
Losses of nonconsolidated associates (68) (77)
------ ------
Income from continuing operations 1,783 1,820
Income from discontinued operations (Note 2) - 242
------ ------
Net income 1,783 2,062
Dividends on preference stocks (29) (16)
------ ------
Earnings attributable to common stocks $1,754 $2,046
===== =====
Basic earnings (losses) per share attributable
to common stocks (Note 9)
$1-2/3 par value
Continuing operations $2.88 $2.73
Discontinued operations (Note 2) - 0.37
---- ----
Earnings per share attributable to $1-2/3 par value $2.88 $3.10
==== ====
(Losses) earnings per share attributable to Class H $(0.23) $0.20
==== ====
Diluted earnings (losses) per share attributable
to common stocks (Note 9)
$1-2/3 par value
Continuing operations $2.80 $2.68
Discontinued operations (Note 2) - 0.36
---- ----
Earnings per share attributable to $1-2/3 par value $2.80 $3.04
==== ====
(Losses) earnings per share attributable to Class H $(0.23) $0.19
==== ====
Reference should be made to the notes to consolidated financial statements.
- 3 -
CONSOLIDATED STATEMENTS OF INCOME - concluded
(Unaudited)
Three Months Ended
March 31,
---------
2000 1999
---- ----
(Dollars in Millions)
AUTOMOTIVE, COMMUNICATIONS SERVICES, AND OTHER OPERATIONS
Manufactured products sales and revenues $40,396 $36,620
Other income (Note 10) 799 903
------ ------
Total net sales and revenues 41,195 37,523
------ ------
Cost of sales and other operating expenses,
exclusive of items listed below 33,465 30,666
Selling, general, and administrative expenses 3,480 2,741
Depreciation and amortization expense 1,715 1,452
------ ------
Total operating costs and expenses 38,660 34,859
------ ------
Interest expense 216 194
Other expenses (Note 10) 168 58
Net expense from transactions with Financing and
Insurance Operations 139 94
------ ------
Income from continuing operations before income taxes
and minority interests 2,012 2,318
Income tax expense 542 788
Minority interests 3 (6)
Losses of nonconsolidated associates (68) (77)
------ ------
Income from continuing operations 1,405 1,447
Income from discontinued operations (Note 2) - 242
------ ------
Net income - Automotive, Communications Services,
and Other Operations $1,405 $1,689
===== =====
Three Months Ended
March 31,
---------
2000 1999
---- ----
(Dollars in Millions)
FINANCING AND INSURANCE OPERATIONS
Financing revenues $4,075 $3,509
Insurance, mortgage, and other income 1,588 1,403
----- -----
Total revenues and other income 5,663 4,912
----- -----
Interest expense 2,012 1,651
Depreciation and amortization expense 1,523 1,272
Operating and other expenses 1,306 1,081
Provisions for financing losses 107 119
Insurance losses and loss adjustment expenses 234 261
----- -----
Total costs and expenses 5,182 4,384
----- -----
Net income from transactions with Automotive,
Communications Services, and Other Operations (139) (94)
--- ----
Income before income taxes and minority interests 620 622
Income tax expense 241 241
Minority interests (1) (8)
--- ---
Net income - Financing and Insurance Operations $378 $373
=== ===
The above supplemental consolidating information is explained in Note 1.
Reference should be made to the notes to consolidated financial statements.
- 4 -
CONSOLIDATED BALANCE SHEETS
March 31, March 31,
2000 Dec. 31, 1999
GENERAL MOTORS CORPORATION AND SUBSIDIARIES (Unaudited) 1999 (Unaudited)
--------- ---- ---------
ASSETS (Dollars in Millions)
Automotive, Communications Services,
and Other Operations
Cash and cash equivalents $8,497 $9,730 $12,081
Marketable securities 1,948 1,698 1,137
------ ------ -------
Total cash and marketable securities 10,445 11,428 13,218
Accounts and notes receivable (less allowances) 5,552 5,093 4,686
Inventories (less allowances) (Note 3) 12,028 10,638 11,566
Net assets of discontinued operations (Note 2) - - 3,191
Equipment on operating leases (less
accumulated depreciation) 5,963 5,744 6,048
Deferred income taxes and other current assets 9,491 9,006 9,537
------ ------ ------
Total current assets 43,479 41,909 48,246
Equity in net assets of nonconsolidated
associates 2,158 1,711 1,659
Property - net (Note 4) 33,177 32,779 31,636
Intangible assets - net 8,808 8,527 10,170
Deferred income taxes 15,100 15,277 15,410
Other assets 25,372 25,358 13,565
------ ------ ------
Total Automotive, Communications Services,
and Other Operations assets 128,094 125,561 120,686
Financing and Insurance Operations
Cash and cash equivalents 910 712 502
Investments in securities 9,016 9,110 8,703
Finance receivables - net 84,581 80,627 73,839
Investment in leases and other receivables 37,350 36,407 32,707
Other assets 21,243 21,312 15,400
Net receivable from Automotive, Comm. Serv.,
and Other Operations 1,407 1,001 399
------- ------- -------
Total Financing and Insurance
Operations assets 154,507 149,169 131,490
------- ------- -------
Total assets $282,601 $274,730 $252,176
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive, Communications Services,
and Other Operations
Accounts payable (principally trade) $17,649 $17,254 $16,162
Loans payable 2,041 1,991 869
Accrued expenses 33,214 32,854 33,210
Net payable to Financing and
Insurance Operations 1,407 1,001 339
---- ------ ------
Total current liabilities 54,311 53,100 50,580
Long-term debt 8,587 7,415 7,011
Postretirement benefits other than
pensions (Note 5) 34,532 34,166 34,416
Pensions 3,395 3,339 3,761
Other liabilities and deferred income taxes 17,214 17,426 17,768
------- ------- -------
Total Automotive, Communications Services,
and Other Operations liabilities 118,039 115,446 113,536
Financing and Insurance Operations
Accounts payable 4,616 4,262 4,405
Debt 124,492 122,282 106,379
Other liabilities and deferred income taxes 12,202 11,282 10,395
------- ------- -------
Total Financing and Insurance
Operations liabilities 141,310 137,826 121,179
Minority interests 621 596 580
General Motors - obligated mandatorily
redeemable preferred securities of subsidiary
trusts holding solely junior subordinated
debentures of General Motors (Note 6)
Series D 79 79 79
Series G 139 139 141
Stockholders' equity
Preference stocks (Note 7) - - 1
$1-2/3 par value common stock
(issued, 621,602,927; 619,412,233
and 649,568,145 shares) (Note 9) 1,036 1,033 1,083
Class H common stock (issued,
138,512,612; 137,115,187 and
106,641,918 shares) 14 14 11
Capital surplus (principally additional
paid-in capital) 14,031 13,794 13,276
Retained earnings 8,404 6,961 8,703
------- ------- -------
Subtotal 23,485 21,802 23,074
Accumulated foreign currency translation
adjustments (2,115) (2,033) (1,782)
Net unrealized gains on securities 1,164 996 458
Minimum pension liability adjustment (121) (121) (5,089)
------ ------ -----
Accumulated other comprehensive loss (1,072) (1,158) (6,413)
------ ------ ------
Total stockholders' equity 22,413 20,644 16,661
------- ------- -------
Total liabilities and stockholders' equity $282,601 $274,730 $252,176
======= ======= =======
Reference should be made to the notes to consolidated financial statements.
- 5 -
CONSOLIDATED BALANCE SHEETS - concluded
March 31, March 31,
2000 Dec. 31, 1999
(Unaudited) 1999 (Unaudited)
--------- ---- ---------
(Dollars in Millions)
AUTOMOTIVE, COMMUNICATIONS SERVICES, AND OTHER OPERATIONS
ASSETS
Cash and cash equivalents $8,497 $9,730 $12,081
Marketable securities 1,948 1,698 1,137
------- ------- -------
Total cash and marketable securities 10,445 11,428 13,218
Accounts and notes receivable (less allowances) 5,552 5,093 4,686
Inventories (less allowances) (Note 3) 12,028 10,638 11,566
Net assets of discontinued operations (Note 2) - - 3,191
Equipment on operating leases (less
accumulated depreciation) 5,963 5,744 6,048
Deferred income taxes and other current assets 9,491 9,006 9,537
------ ------ ------
Total current assets 43,479 41,909 48,246
Equity in net assets of nonconsolidated
associates 2,158 1,711 1,659
Property - net (Note 4) 33,177 32,779 31,636
Intangible assets - net 8,808 8,527 10,170
Deferred income taxes 15,100 15,277 15,410
Other assets 25,372 25,358 13,565
------- ------- -------
Total Automotive, Communications Services,
and Other Operations assets $128,094 $125,561 $120,686
======= ======= =======
LIABILITIES AND GM INVESTMENT
Accounts payable (principally trade) $17,649 $17,254 $16,162
Loans payable 2,041 1,991 869
Accrued expenses 33,214 32,854 33,210
Net payable to Financing and Insurance
Operations 1,407 1,001 339
------ ------ ------
Total current liabilities 54,311 53,100 50,580
Long-term debt 8,587 7,415 7,011
Postretirement benefits other than
pensions (Note 5) 34,532 34,166 34,416
Pensions 3,395 3,339 3,761
Other liabilities and deferred income taxes 17,214 17,426 17,768
------- ------- -------
Total Automotive, Communications Services,
and Other Operations liabilities 118,039 115,446 113,536
Minority interests 595 574 520
GM investment in Automotive, Communications
Services, and Other Operations 9,460 9,541 6,630
------- ------- -------
Total Automotive, Communications Services,
and Other Operations liabilities
and GM investment $128,094 $125,561 $120,686
======= ======= =======
March 31, March 31,
2000 Dec. 31, 1999
FINANCING AND INSURANCE OPERATIONS (Unaudited) 1999 (Unaudited)
--------- ---- ---------
(Dollars in Millions)
ASSETS
Cash and cash equivalents $910 $712 $502
Investments in securities 9,016 9,110 8,703
Finance receivables - net 84,581 80,627 73,839
Investment in leases and other receivables 37,350 36,407 32,707
Other assets 21,243 21,312 15,400
Net receivable from Automotive,
Communications Services,
and Other Operations 1,407 1,001 339
------- ------- -------
Total Financing and Insurance
Operations assets $154,507 $149,169 $131,490
======= ======= =======
LIABILITIES AND GM INVESTMENT
Accounts payable $4,616 $4,262 $4,405
Debt 124,492 122,282 106,379
Other liabilities and deferred income taxes 12,202 11,282 10,395
------- ------- -------
Total Financing and Insurance
Operations liabilities 141,310 137,826 121,179
Minority interests 26 22 60
GM investment in Financing and
Insurance Operations 13,171 11,321 10,251
------- ------- -------
Total Financing and Insurance Operations
liabilities and GM investment $154,507 $149,169 $131,490
======= ======= =======
The above supplemental consolidating information is explained in Note 1.
Reference should be made to the notes to consolidated financial statements.
- 6 -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
------ ------
(Dollars in Millions)
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Net cash provided by operating activities $6,104 $15,094
Cash flows from investing activities
Expenditures for property (1,805) (1,384)
Investments in marketable securities
- acquisitions (6,828) (7,553)
Investments in marketable securities
- liquidations 6,981 6,344
Mortgage servicing rights - acquisitions (178) (327)
Mortgage servicing rights - liquidations - -
Finance receivables - acquisitions (51,978) (42,969)
Finance receivables - liquidations 35,252 31,921
Proceeds from sales of finance receivables 12,248 7,375
Operating leases - acquisitions (6,655) (5,898)
Operating leases - liquidations 3,502 3,129
Investments in companies, net of
cash acquired (Note 11) (154) (514)
Other 146 (170)
----- ------
Net cash used in investing activities (9,469) (10,046)
----- ------
Cash flows from financing activities
Net decrease in loans payable (589) (5,231)
Long-term debt - borrowings 8,940 7,970
Long-term debt - repayments (5,610) (3,980)
Repurchases of common and preference stocks (132) (979)
Proceeds from issuing common and preference
stocks 156 284
Cash dividends paid to stockholders (339) (343)
----- -----
Net cash provided by (used in) financing
activities 2,426 (2,279)
----- -----
Effect of exchange rate changes on cash and
cash equivalents (96) (188)
------ ------
Net cash (used in) provided by
continuing operations (1,035) 2,581
Net cash provided by discontinued
operations (Note 2) - 128
----- -----
Net (decrease) increase in cash and
cash equivalents (1,035) 2,709
Cash and cash equivalents at beginning
of the period 10,442 9,874
------ ------
Cash and cash equivalents at end of the period $9,407 $12,583
===== ======
Reference should be made to the notes to consolidated financial statements.
- 7 -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - concluded
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
Automotive, Financing Automotive, Financing
Comm.Serv. and Comm.Serv. and
and Other Insurance and Other Insurance
--------- --------- --------- ---------
(Dollars in Millions)
Net cash provided by operating activities $2,449 $3,655 $9,188 $5,906
Cash flows from investing activities
Expenditures for property (1,702) (103) (1,345) (39)
Investments in other marketable securities
- acquisitions (970) (5,858) (1,813) (5,740)
Investments in other marketable securities
- liquidations 720 6,261 1,077 5,267
Mortgage servicing rights - acquisitions - (178) - (327)
Mortgage servicing rights - liquidations - - - -
Finance receivables - acquisitions - (51,978) - (42,969)
Finance receivables - liquidations - 35,252 - 31,921
Proceeds from sales of finance receivables - 12,248 - 7,375
Operating leases - acquisitions (2,174) (4,481) (2,465) (3,433)
Operating leases - liquidations 1,763 1,739 1,281 1,848
Investments in companies, net of
cash acquired (Note 11) (154) - (514) -
Net investing activity with Financing and
Insurance Operations (998) - 75 -
Other (291) 437 (1,162) 992
----- ----- ----- -----
Net cash used in investing activities (3,806) (6,661) (4,866) (5,105)
----- ----- ----- -----
Cash flows from financing activities
Net decrease in loans payable (25) (564) (485) (4,746)
Long-term debt - borrowings 1,186 7,754 411 7,559
Long-term debt - repayments (1,033) (4,577) (320) (3,660)
Net financing activity with Automotive,
Communications Services,
and Other Operations - 998 - (75)
Repurchases of common and preference stocks (132) - (979) -
Proceeds from issuing common and
preference stocks 156 - 284 -
Cash dividends paid to stockholders (339) - (343) -
--- ----- ----- ---
Net cash (used in) provided by
financing activities (187) 3,611 (1,432) (922)
--- ----- ----- ---
Effect of exchange rate changes on cash and
cash equivalents (95) (1) (188) -
Net transactions with Automotive/
Financing Operations 406 (406) (477) 477
----- --- ----- ---
Net cash (used in) provided by
continuing operations (1,233) 198 2,225 356
Net cash provided by discontinued
operations (Note 2) - - 128 -
----- --- ----- ---
Net (decrease) increase in cash
and cash equivalents (1,233) 198 2,353 356
Cash and cash equivalents at
beginning of the period 9,730 712 9,728 146
----- --- ------ ---
Cash and cash equivalents at
end of the period $8,497 $910 $12,081 $502
===== === ====== ===
The above supplemental consolidating information is explained in Note 1.
Reference should be made to the notes to consolidated financial statements.
- 8 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of only normal recurring items), which are necessary for a fair presentation
have been included. The results for interim periods are not necessarily
indicative of results which may be expected for any other interim period or for
the full year. For further information, refer to the December 31, 1999
consolidated financial statements and notes thereto included in General Motors
Corporation's (the "Corporation" or "GM") 1999 Annual Report on Form 10-K, and
all other GM, Hughes Electronics Corporation and Subsidiaries (Hughes), and
General Motors Acceptance Corporation and Subsidiaries (GMAC) filings with the
Securities and Exchange Commission.
GM presents separate supplemental consolidating financial information for the
following businesses: (1) Automotive, Communications Services, and Other
Operations which consists of the design, manufacturing, and marketing of cars,
trucks, locomotives, and heavy duty transmissions and related parts and
accessories, as well as the operations of Hughes; and (2) Financing and
Insurance Operations which consists primarily of GMAC, which provides a broad
range of financial services, including consumer vehicle financing, full-service
leasing and fleet leasing, dealer financing, car and truck extended service
contracts, residential and commercial mortgage services, vehicle and
homeowners' insurance, and asset-based lending. Transactions between businesses
have been eliminated in the Corporation's consolidated statements of income.
Certain amounts for 1999 were reclassified to conform with the 2000
classifications.
Note 2. Discontinued Operations
On February 5, 1999, Delphi Automotive Systems Corporation (Delphi)
completed an initial public offering (IPO) of 100 million shares of its common
stock, which represented 17.7% of its outstanding common shares. On April 12,
1999, the GM Board of Directors (GM Board) approved the complete separation of
Delphi from GM by means of a spin-off (which was tax-free to GM and its
stockholders for U.S. federal income tax purposes). On May 28, 1999, GM
distributed to holders of its $1-2/3 par value common stock 80.1% of the
outstanding shares of Delphi, which resulted in 0.69893 shares of Delphi common
stock being distributed for each share of GM $1-2/3 par value common stock
outstanding on the record date of May 25, 1999. In addition, GM contributed the
remaining 2.2% of Delphi shares (around 12.4 million shares), to a Voluntary
Employee Beneficiary Association (VEBA) trust established by GM to fund benefits
to its hourly retirees.
The financial data related to GM's investment in Delphi through May 28, 1999
is classified as discontinued operations for all periods presented.
Delphi net sales (including sales to GM) included in discontinued operations
totaled $7.5 billion for the three months ended March 31, 1999. Income from
Delphi discontinued operations of $242 million for the three months ended March
31, 1999 is reported net of income tax expense of $174 million.
The net assets of Delphi were as follows (in millions):
March 31,
1999
----
Current assets $8,730
Property and equipment - net 4,907
Deferred income taxes and other assets 4,442
Current liabilities (4,518)
Long-term debt (1,667)
Other liabilities (8,543)
Accumulated translation adjustments 172
Minority interest related to Delphi (332)
-----
Net assets of discontinued operations $3,191
=====
- 9 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 3. Inventories
Inventories included the following for Automotive, Communications Services,
and Other Operations (in millions):
March 31, Dec. 31, March 31,
2000 1999 1999
-------- ------- --------
Productive material, work in process,
and supplies $5,963 $5,505 $6,180
Finished product, service parts, etc. 7,955 7,023 7,288
------ ------ ------
Total inventories at FIFO 13,918 12,528 13,468
Less LIFO allowance 1,890 1,890 1,902
------ ------ ------
Total inventories (less allowances) $12,028 $10,638 $11,566
====== ====== ======
Note 4. Property - Net
Property - net included the following for Automotive, Communications
Services, and Other Operations (in millions):
March 31, Dec. 31, March 31,
2000 1999 1999
-------- ------- --------
Real estate, plants, and equipment $59,819 $59,777 $58,585
Less accumulated depreciation (34,010) (34,363) (33,988)
------ ------ ------
Real estate, plants, and equipment - net 25,809 25,414 24,597
Special tools - net 7,368 7,365 7,039
------ ------ ------
Total property - net $33,177 $32,779 $31,636
====== ====== ======
Financing and Insurance Operations had net property of $1.2 billion, $496
million, and $365 million recorded in other assets at March 31, 2000, December
31, 1999, and March 31, 1999, respectively.
Note 5. Postretirement Benefits Other than Pensions
GM has disclosed in the consolidated financial statements certain amounts
associated with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, GM does not admit or otherwise acknowledge that such
amounts or existing postretirement benefit plans of GM (other than pensions)
represent legally enforceable liabilities of GM.
Note 6. Preferred Securities of Subsidiary Trusts
General Motors - Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts
In July 1997, the General Motors Capital Trust D (Series D Trust) issued
approximately $79 million of its 8.67% Trust Originated Preferred Securitiessm
(TOPrSsm) Series D, (Series D Preferred Securities), in a one-for-one exchange
for 3,055,255 of the outstanding GM Series D 7.92% Depositary Shares, each
representing one-fourth of a share of GM Series D Preference Stock, $0.10 par
value per share. In addition, the General Motors Capital Trust G (Series G
Trust) issued approximately $143 million of its 9.87% TOPrS, Series G (Series G
Preferred Securities), in a one-for-one exchange for 5,064,489 of the
outstanding GM Series G 9.12% Depositary Shares, each representing one-fourth of
a share of GM Series G Preference Stock, $0.10 par value per share.
Concurrently with the exchanges and the related purchases by GM from the
Series D and Series G Trusts (Trusts) of the common securities of such Trusts,
which represent approximately 3% of the total assets of such Trusts, GM issued
to the wholly-owned Trusts, as the Series D Trust's sole assets its 8.67% Junior
Subordinated Deferrable Interest Debentures, Series D, due July 1, 2012 and as
the Series G Trust's sole assets, its 9.87% Junior Subordinated Deferrable
Interest Debentures, Series G, due July 1, 2012 (the "Series D Debentures" and
"Series G Debentures" or collectively the "Debentures"), having aggregate
principal amounts equal to the aggregate stated liquidation amounts of the
Series D and Series G Preferred Securities and the related common securities,
respectively ($79 million with respect to the Series D Debentures and $131
million with respect to the Series G Debentures).
- 10 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 6. Preferred Securities of Subsidiary Trusts (concluded)
The Series D Debentures were redeemable, in whole or in part, at GM's option
on or after August 1, 1999 at a redemption price equal to 100% of the
outstanding principal amount of the Series D Debentures plus accrued and unpaid
interest. The Series D Preferred Securities were mandatorily redeemable upon the
maturity or earlier redemption of the Series D Debentures. On May 2, 2000, GM
redeemed the Series D Debentures causing the Series D Trust to redeem the
approximately 3.1 million outstanding Series D Preferred Securities. The Series
D Preferred Securities were redeemed at a price of $25 per share plus accrued
and unpaid distributions of $0.01 per share. The Series D 7.92% Depositary
Shares were redeemable, in whole or in part, at GM's option on or after August
1, 1999 at a redemption price equal to $25 per share plus accrued and unpaid
dividends. GM, on May 2, 2000, redeemed the approximately 3 million outstanding
Series D 7.92% Depositary Shares. The Series D 7.92% Depositary Shares were
redeemed at a price of $25 per share plus accrued and unpaid dividends of $0.18
per share. The securities together had a total face value of approximately $154
million.
The Series G Debentures are redeemable, in whole or in part, at GM's option
on or after January 1, 2001, at a redemption price equal to 100% of the
outstanding principal amount of the Series G Debentures plus accrued and unpaid
interest, or, under certain circumstances, prior to January 1, 2001, at a
redemption price equal to 114% of the outstanding principal of the Series G
Debentures from the Series G expiration date through December 31, 1997,
declining ratably on each January 1 thereafter to 100% on January 1, 2001, plus
accrued and unpaid interest. The Series G Preferred Securities will be redeemed
upon the maturity or earlier redemption of the Series G Debentures.
GM has guaranteed the payment in full to the holders of the Series D and
Series G Preferred Securities (collectively the "Preferred Securities") of all
distributions and other payments on the Preferred Securities to the extent not
paid by the Trusts only if and to the extent that the Trusts have assets. GM has
made payments of interest or principal on the related Debentures. These
guarantees, when taken together with GM's obligations under the Preferred
Securities Guarantees, the Debentures, and the Indentures relating thereto and
the obligations under the Declaration of Trust of the Trusts, including the
obligations to pay certain costs and expenses of the Trusts, constitute full and
unconditional guarantees by GM of each Trust's obligations under its Preferred
Securities.
- ----------------
sm "Trust Originated Preferred Securities" and "TOPrS" are service trademarks of
Merrill Lynch & Co.
Note 7. America Online's Investment in GM Preference Stock
On June 24, 1999, as part of a strategic alliance with Hughes, America Online
(AOL) invested $1.5 billion in return for approximately 2.7 million shares of GM
Series H 6.25% Automatically Convertible Preference Stock, par value $0.10 per
share. This preference stock will automatically convert into GM Class H common
stock in three years, based upon a variable conversion factor linked to the GM
Class H common stock price at the time of conversion, and accrues quarterly
dividends at a rate of 6.25% per year. It may be converted earlier in certain
limited circumstances. GM immediately invested the $1.5 billion received from
AOL into shares of Hughes Series A Preferred Stock designed to correspond to the
financial terms of the GM Series H 6.25% Automatically Convertible Preference
Stock. Dividends on the Hughes Series A Preferred Stock are payable to GM
quarterly at an annual rate of 6.25%. These preferred stock dividends payable to
GM will reduce Hughes' earnings used for computation of the Available Separate
Consolidated Net Income (Loss) (ASCNI) of Hughes, which will have an effect
equivalent to the payment of dividends on the GM Series H 6.25% Automotically
Convertible Preference Stock as if those dividends were paid by Hughes. Upon
conversion of the GM Series H 6.25% Automatically Convertible Preference Stock
into GM Class H common stock, Hughes will redeem the Hughes Series A Preferred
Stock through a cash payment to GM equal to the fair market value of GM Class H
common stock issuable upon the conversion. Simultaneous with GM's receipt of the
cash redemption proceeds, GM will make a capital contribution to Hughes of the
same amount. In connection with this capital contribution, the denominator of
the fraction used in the computation of the ASCNI of Hughes will be increased by
the corresponding number of shares of GM Class H common stock issued.
Accordingly, upon conversion of the GM Series H 6.25% Automatically Convertible
Preference Stock into GM Class H common stock, both the numerator and
denominator used in the computation of ASCNI will increase by the amount of the
GM Class H common stock issued.
- 11 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 8. Comprehensive Income
GM's total comprehensive income was as follows (in millions):
Three Months Ended
March 31,
------------------
2000 1999
---- ----
Net income $1,783 $2,062
Other comprehensive income (loss):
Foreign currency translation adjustments (82) (693) (1)
Unrealized gains (losses) on securities 168 (23)
--- ---
Other comprehensive income (loss) 86 (716)
----- -----
Total comprehensive income $1,869 $1,346
===== =====
- ---------------------
(1)Includes approximately $450 million of translation adjustments associated
with the devaluation of the Brazilian Real in the first quarter of 1999.
Note 9. Earnings Per Share Attributable to Common Stocks
Earnings per share (EPS) attributable to each class of GM common stock was
determined based on the attribution of earnings to each such class of common
stock for the period divided by the weighted-average number of common shares for
each such class outstanding during the period. Diluted earnings per share
attributable to each class of GM common stock considers the impact of potential
common shares, unless the inclusion of the potential common shares would have an
antidilutive effect.
The attribution of earnings to each class of GM common stock was as follows
(in millions):
Three Months Ended
March 31,
------------------
2000 1999
---- ----
Earnings attributable to common stocks
$1-2/3 par value
Continuing operations $1,786 $1,783
Discontinued operations - 242
----- -----
Earnings attributable to $1-2/3 par value $1,786 $2,025
(Losses) earnings attributable to Class H $(32) $21
Earnings attributable to $1-2/3 par value common stock for the period
represent the earnings attributable to all GM common stocks for the period,
reduced by the ASCNI of Hughes for the respective period.
(Losses) earnings attributable to GM Class H common stock for the three
month periods ended March 31, 2000 and 1999, represent the ASCNI of Hughes.
(Losses) earnings used for computation of the ASCNI of Hughes are based on the
separate consolidated net (loss) income of Hughes, excluding the effects of GM
purchase accounting adjustments arising from GM's acquisition of Hughes Aircraft
Company (HAC) which remains after the spin-off of Hughes Defense, reduced by the
amount of dividends accrued on the Hughes Series A Preferred Stock (as an
equivalent measure of the effect that GM's payment of dividends on the GM Series
H 6.25% Automatically Convertible Preference Stock would have if paid by
Hughes). The calculated (losses) earnings used for the computation of the ASCNI
of Hughes is then multiplied by a fraction, the numerator of which is equal to
the weighted-average number of shares of GM Class H common stock outstanding
during the three month periods ended March 31, 2000 and 1999 (138 million and
106 million, respectively), and the denominator of which is a number equal to
the weighted-average number of shares of GM Class H common stock which if issued
and outstanding would represent a 100% interest in the earnings of Hughes (the
"Average Class H dividend base"). The Average Class H dividend base was 432
million and 400 million during the three month periods ended March 31, 2000 and
1999, respectively.
- 12 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 9. Earnings Per Share Attributable to Common Stocks (concluded)
Under the GM Restated Certificate of Incorporation, the GM Board may adjust
the denominator of the Class H fraction that determines the net income (loss) of
Hughes attributable to the GM Class H common stock - that is, the Class H
dividend base, from time to time as the GM Board deems appropriate to reflect
the following: (a) subdivisions and combinations of the GM Class H common stock
and stock dividends payable in shares of GM Class H common stock to holders of
GM Class H common stock; (b) the fair market value of contributions of cash or
property by GM to Hughes, or of cash or property of GM to or for the benefit of
employees of Hughes for employee benefit plans or arrangements of GM, Hughes, or
other GM subsidiaries; (c) the contribution of shares of capital stock of GM to
or for the benefit of employees of Hughes or its subsidiaries for benefit plans
or arrangements of GM, Hughes, or other GM subsidiaries; (d) payments made by
Hughes to GM of amounts applied to the repurchase by GM of shares of GM Class H
common stock, so long as the GM Board has approved the repurchase and GM applied
the payment to the repurchase; and (e) the repurchase by Hughes of shares of GM
Class H common stock that are no longer outstanding, so long as the GM Board
approved the repurchase. Additionally, upon conversion of the GM Series H 6.25%
Automatically Convertible Preference Stock into GM Class H common stock, both
the numerator and the denominator used in the computation of ASCNI will increase
by the number of shares of the GM Class H common stock issued (see further
discussion in Note 7 to the GM consolidated financial statements).
On December 15, 1999, in order to fulfill its previously disclosed goal of
repurchasing shares of $1-2/3 par value common stock, GM entered into a
derivative transaction pursuant to which it purchased for cash from a financial
institution on that date approximately 8.5 million shares of $1-2/3 par value
common stock. Upon receiving the shares, GM immediately reduced its common
shares outstanding used to calculate both basic and diluted EPS. GM is obligated
to deliver to the financial institution any difference in the notional value of
such amount of shares, based on trading prices to be determined during a period
following July 25, 2000. GM has the option to settle this derivative trade
either in cash or through delivery of securities. Since the transaction gives GM
this settlement option, it is considered an equity instrument for accounting
purposes. As such, changes in fair value are not recorded and final settlement
is recorded in equity. GM also has the right from time to time to settle all or
part of the transaction prior to July 25, 2000 by delivering a notice of early
settlement, in which event the notional value for the shares settled will be
determined in respect of the earlier settlement date. As of March 31, 2000,
there remained approximately 3.4 million unsettled shares related to this
transaction. Any net loss on this transaction is included in the calculation of
diluted EPS.
The reconciliation of the amounts used in the basic and diluted EPS
computations for income from continuing operations was as follows (in millions
except per share amounts):
$1-2/3 Par Value Common Stock Class H Common Stock
----------------------------- --------------------------
Per Share Per Share
Income Shares Amount ASCNI Shares Amount
------ ------ ------ ----- ------ ------
Three Months Ended March 31, 2000
Income (loss) from continuing
operations $1,807 $(24)
Less:Dividends on preference stocks 21 8
----- ---
Basic EPS
Income (loss) from continuing
operations attributable
to common stocks 1,786 620 $2.88 (32) 138 $(0.23)
==== ====
Effect of Dilutive Securities
Assumed exercise of dilutive
stock options - 17 - -
----- --- --- ---
Diluted EPS
Adjusted income (loss) from
continuing operations
attributable to common stocks $1,786 637 $2.80 $(32) 138 $(0.23)
===== === ==== == === ====
Three Months Ended March 31, 1999
Income from continuing operations $1,799 $21
Less:Dividends on preference stocks 16 -
----- --
Basic EPS
Income from continuing operations
attributable to common stocks 1,783 654 $2.73 21 106 $0.20
==== ====
Effect of Dilutive Securities
Assumed exercise of dilutive
stock options (1) 13 1 6
----- --- -- ---
Diluted EPS
Adjusted income from continuing
operations attributable
to common stocks $1,782 667 $2.68 $22 112 $0.19
===== === ==== == === ====
- 13 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 10. Other Income and Other Expenses
Other income and other expenses consisted of the following (in millions):
Three Months Ended
March 31,
------------------
2000 1999
---- ----
Other income
Interest income $535 $544
Insurance premiums 343 340
Rental car lease revenue 447 448
Mortgage operations investment
income and servicing fees 775 684
Other 287 290
----- -----
Total other income $2,387 $2,306
===== =====
Other expenses
Provision for financing losses $107 $119
Insurance losses and loss adjustment expenses 234 261
Other 168 58
--- ----
Total other expenses $509 $438
=== ===
Note 11. Acquisitions, Investments, and Divestitures
Acquisitions and Investments
On January 28, 2000, GM completed the acquisition of the remaining 50% of
Saab Automobile AB from Investor A.B. for $125 million. The transaction was
accounted for using the purchase method of accounting. The allocation of the
purchase price is expected to be finalized in the third quarter of 2000.
Additionally, in the first quarter of 2000, GM finalized the allocation of
the purchase price to its investment in Isuzu Motors Ltd., which resulted in
approximately $227 million of negative goodwill which was used to reduce the
carrying value of long-lived assets.
On April 12, 2000, GM finalized the previously announced Agreement of
Strategic Alliance (the "Alliance Agreement") between GM and Fuji Heavy
Industries Ltd. (Fuji) in which GM purchased 157,262,925 newly-issued shares of
Fuji's voting common stock, par value 50 yen ((Y)50) per share, for
approximately $1.3 billion, an equity interest in Fuji of 20% on a fully diluted
basis, at the time of payment. This investment will be accounted for using the
equity method of accounting and Fuji will remain an independent company with GM
as its largest shareholder. This Alliance Agreement will allow GM and Fuji to
collaborate in the design, development, and manufacturing of cars, trucks, and
related technology.
In 1999, significant transactions included the merger with United States
Satellite Broadcasting Company, Inc. (USSB) and acquisitions of PRIMESTAR, the
asset-based lending and factoring business unit of The Bank of New York (BNYFC),
and the full-service leasing business of Arriva Automotive Solutions Limited
(Arriva).
The following selected unaudited pro forma information is being provided to
present a summary of the combined results of GM, USSB, PRIMESTAR, BNYFC, and
Arriva for the three months ended March 31, 1999 as if the acquisitions had
occurred as of the beginning of the period, giving effect to purchase accounting
adjustments. The pro forma data presents only significant transactions, is
presented for informational purposes only, and may not necessarily reflect the
results of operations of GM had these companies operated as part of GM for the
period presented, nor are they necessarily indicative of the results of future
operations. The pro forma information excludes the effect of non-recurring
charges.
- 14 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 11. Acquisitions, Investments, and Divestitures (concluded)
The pro forma information is as follows (in millions except per share
amounts):
Three Months Ended
March 31, 1999
--------------
Total net sales and revenues $43,080
Net income from continuing operations $1,825
Net income from discontinued operations 242
------
Net income $2,067
=====
Basic earnings per share attributable to common stocks
$1-2/3 par value
Continuing operations $2.73
Discontinued operations 0.37
----
Earnings per share attributable to $1-2/3 par value $3.10
====
Earnings per share attributable to Class H $0.20
====
Diluted earnings per share attributable to common stocks
$1-2/3 par value
Continuing operations $2.68
Discontinued operations 0.36
----
Earnings per share attributable to $1-2/3 par value $3.04
====
Earnings per share attributable to Class H $0.19
====
Divestitures
On January 13, 2000, Hughes announced that it had reached an agreement to
sell its satellite systems manufacturing businesses to The Boeing Company
(Boeing) for approximately $3.8 billion in cash. The transaction, which is
subject to regulatory approval, is expected to close in the third quarter of
2000 and result in an after-tax gain in excess of $1.0 billion. In addition, if
Hughes were to enter into a settlement of the China investigation (see Note 13
to the GM consolidated financial statements) prior to the closing of the Boeing
transaction that involves a debarment from sales to the U.S. government or a
material suspension of Hughes' export licenses or other material limitation on
projected business activities of the satellite systems manufacturing business,
Boeing would not be obligated to complete the purchase of Hughes' satellite
systems manufacturing businesses.
On March 1, 2000, Hughes announced that the operations of DIRECTV Japan
(DTVJ), Hughes' affiliate that provides DIRECTV services in Japan, would be
discontinued and that its subscribers would have the opportunity to migrate
during 2000 to SkyPerfecTV!, a company in Japan that provides direct-to-home
satellite broadcast services that is expected to complete an IPO during the
third quarter of 2000. In connection with the agreement, Hughes acquired an
approximate 6.6% interest in SkyPerfecTV!. As a result of the transaction, in
the first quarter of 2000, Hughes wrote off its investment and accrued for the
estimated costs to exit the DTVJ business. The principal components of the
accrued exit costs include estimated subscriber migration and termination costs
and costs to terminate certain leases, programming agreements, and other
long-term contractual commitments. These one-time charges were offset by the
estimated fair value of the SkyPerfecTV! interest acquired. The fair value of
the SkyPerfecTV! interest recorded was estimated based upon a preliminary
independent appraisal, which is expected to be completed within three to six
months. Accordingly, the final amount of the fair value of the SkyPerfecTV!
investment recorded may be different from the amount reflected herein. The total
loss related to DTVJ for the first quarter of 2000, including Hughes' share of
DTVJ's operating losses, was approximately $230 million. The after-tax impact
was aproximately $49 million. Hughes will continue to record its share of DTVJ's
operating losses during the remainder of 2000.
- 15 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 12. Segment Reporting
GM's reportable operating segments within its Automotive, Communications
Services, and Other Operations business consist of GM Automotive (GMA), which is
comprised of four regions: GM North America (GMNA), GM Europe (GME), GM Latin
America/Africa/Mid-East (GMLAAM), and GM Asia/Pacific (GMAP); Hughes; and Other.
GM's reportable operating segments within its Financing and Insurance Operations
business consist of GMAC and Other. Selected information regarding GM's
reportable operating segments and regions were as follows:
Elimin- Total Other Total
GMNA GME GMLAAM GMAP ations GMA Hughes Other Automotive GMAC Financing Financing
---- --- ------ ---- ------ --- ------ ----- ---------- ---- --------- ---------
(in millions)
For the Three Months Ended March 31, 2000
Manufactured products sales &
revenues:
External customers $29,033 $6,448 $1,234 $749 $- $37,464 $2,081 $851 $40,396 $- $- $-
Intersegment 412 264 141 80 (897) - 11 (11) - - - -
------ ----- ----- --- --- ------ ----- --- ------ ---- ---- ----
Total manufactured
products 29,445 6,712 1,375 829 (897) 37,464 2,092 840 40,396 - - -
Financing revenues - - - - - - - - - 3,779 296 4,075
Other income 696 122 15 34 - 867 26 (94) 799 1,842 (254) 1,588
------ ----- ----- --- --- ------ ----- --- ------ ----- --- -----
Total net sales and
revenues $30,141 $6,834 $1,390 $863 $(897) $38,331 $2,118 $746 $41,195 $5,621 $42 $5,663
====== ===== ===== === === ====== ===== === ====== ===== == =====
Interest income (a) $123 $100 $6 $2 $- $231 $18 $(88) $161 $483 $(109) $374
Interest expense $266 $86 $21 $- $- $373 $45 $(202) $216 $1,910 $102 $2,012
Net income (loss) $1,290 $221 $1 $7 $(1) $1,518 $(77)(c) $(36) $1,405 $397 $(19) $378
Segment assets $84,862 $21,139 $4,597 $1,268$(2,244) $109,622 $20,196 (d)$(1,724) $128,094 $153,913 $594 $154,507
For the Three Months Ended March 31, 1999
Manufactured products sales &
revenues:
External customers $26,816 $6,066 $967 $583 $ - $34,432 $1,443 $745 $36,620 $ - $ - $ -
Intersegment 502 68 55 37 (662) - 9 (9) - - - -
------ ----- ----- ---- --- ------ ----- --- ------ ---- ---- ----
Total manufactured
products 27,318 6,134 1,022 620 (662) 34,432 1,452 736 36,620 - - -
Financing revenues - - - - - - - - - 3,277 232 3,509
Other income 750 143 11 27 - 931 183 (211) 903 1,550 (147) 1,403
------ ----- ----- ---- --- ------ ----- --- ------ ----- --- -----
Total net sales and
revenues $28,068 $6,277 $1,033 $647 $(662) $35,363 $1,635 $525 $37,523 $4,827 $85 $4,912
====== ===== ===== === === ====== ===== === ====== ===== == =====
Interest income (a) $195 $102 $16 $3 $- $316 $14 $(160) $170 $413 $(39) $374
Interest expense $306 $77 $15 $4 $- $402 $7 $(215) $194 $1,513 $138 $1,651
Net income (loss) $1,408 $174 $(25) $(60) $13 $1,510 $78(c) $101(b) $1,689 $392 $(19) $373
Segment assets $71,825 $17,869 $4,173 $1,259 $(870 $94,256 $12,990(d) $13,440 $120,686 $132,090 $(600) $131,490
(a)Interest income is included in other income.
(b)The amount for Other includes income from discontinued operations related to
Delphi of $242 million for the three months ended March 31, 1999.
(c)The amount reported for Hughes excludes amortization of GM purchase
accounting adjustments of approximately $5 million for both 2000 and 1999,
related to GM's acquisition of HAC. Such amortization was allocated to GM's
Other segment which is consistent with the basis upon which the segments are
evaluated.
(d)The amount reported for Hughes excludes the unamortized GM purchase
accounting adjustments of approximately $400 million and $421 million, for
2000 and 1999, respectively, related to GM's acquisition of HAC. These
adjustments were allocated to GM's Other segment which is consistent with
the basis upon which the segments are evaluated.
- 16 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 13. Commitments and Contingent Matters
Commitments
On February 1, 2000, and subsequently revised on March 13, 2000, GM announced
plans for a broad restructuring of its economic interest in Hughes, including an
offer to repurchase $1-2/3 par value common stock in exchange for $9.0 billion
of GM Class H common stock, and contributions up to $7.0 billion in GM Class H
common stock to the U.S. Hourly-Rate Employee Pension Plan and VEBA trust. The
exchange offer commenced April 24, 2000 and is expected to expire May 19, 2000.
GM will issue 1.065 shares of GM Class H common stock for each share of GM
$1-2/3 par value common stock tendered. This exchange ratio reflected a premium
of 17.7% on GM $1-2/3 par value common stock, based on the closing price of
$88.50 per share of GM $1-2/3 par value common stock and $97.81 per share of GM
Class H common stock on the New York Stock Exchange composite tape on April 19,
2000. GM will accept up to 86,396,977 shares of GM $1-2/3 par value common stock
and issue up to 92,012,781 shares of GM Class H common stock. GM expects to
complete the exchange offer as well as the pension and VEBA contributions during
the second quarter of 2000.
On March 13, 2000, GM entered into an agreement with Fiat S.p.A. (Fiat) to
form a strategic industrial alliance, including substantial financial
participation in each other's business. As part of the alliance, GM will acquire
a 20% stake in Fiat in exchange for $2.4 billion in GM $1-2/3 par value common
stock. Fiat's holdings of GM will amount to approximately 5.1% of GM $1-2/3 par
value common stock. GM and Fiat will enter into a separate registration rights
agreement with respect to the shares of GM $1-2/3 par value common stock to be
acquired by Fiat. The transaction is expected to be completed in 2000.
Contingent Matters
There is a pending grand jury investigation into whether Hughes should be
accused of criminal violations of the export control laws arising out of the
participation of two of its employees on a committee formed to review the
findings of Chinese engineers regarding the failure of a Long March rocket in
China in 1996. Hughes is also subject to the authority of the State Department
to impose sanctions for non-criminal violations of the Arms Export Control Act.
The possible criminal and/or civil sanctions could include fines as well as
debarment from various export privileges and participating in government
contracts. If Hughes were to enter into a settlement of this matter prior to the
closing of the Boeing transaction (see Note 11 to the GM consolidated financial
statements) that involves a debarment from sales to the U.S. government or a
material suspension of Hughes' export licenses or other material limitation on
projected business activities of the satellite systems manufacturing businesses,
Boeing would not be obligated to complete the purchase of Hughes' satellite
systems manufacturing businesses. Hughes does not expect the grand jury
investigation or State Department review to result in a material adverse effect
upon its business. However, there can be no assurance as to such a favorable
outcome.
In connection with the 1997 spin-off of the defense electronics business of
Hughes' predecessor as part of the Hughes restructuring transactions and the
subsequent merger of that business with Raytheon Company (Raytheon), the terms
of the merger agreement provided processes for resolving disputes that might
arise in connection with post-closing financial adjustments that were also
called for by the terms of the merger agreement. These financial adjustments
might require a cash payment from Raytheon to Hughes or vice versa. A dispute
currently exists regarding the post-closing adjustments which Hughes and
Raytheon have proposed to one another and related issues regarding the adequacy
of disclosures made by Hughes to Raytheon in the period prior to consummation of
the merger. Hughes and Raytheon are proceeding with the dispute resolution
process. It is possible that ultimate resolution of the post-closing financial
adjustment and of related disclosure issues may result in Hughes making a
payment to Raytheon that would be material to Hughes. However, the amount of any
payment that either party might be required to make to the other cannot be
determined at this time. Hughes intends to vigorously pursue resolution of the
dispute through the arbitration processes, opposing the adjustments proposed by
Raytheon, and seeking the payment from Raytheon that Hughes has proposed.
General Electric Capital Corporation (GECC) and DIRECTV, Inc. (DIRECTV)
entered into a contract on July 31, 1995, in which GECC agreed to establish and
manage a private label consumer credit program for consumer purchases of
hardware and related DIRECTV programming. Under the contract, GECC also agreed
to provide certain related services to DIRECTV, including credit risk scoring,
billing, and collections services. DIRECTV agreed to act as a surety for loans
complying with the terms of the contract. Hughes guaranteed DIRECTV's
performance under the contract. A complaint and counterclaim have been filed by
the parties in the U.S. District Court for the District of Connecticut
concerning GECC's performance and DIRECTV's obligation to act as a surety. GECC
claims damages from DIRECTV in excess of $140 million. DIRECTV is seeking
damages from GECC in excess of $45 million. Hughes intends to vigorously contest
GECC's allegations and pursue Hughes' own contractual rights and remedies.
Hughes does not believe that the litigation will have a material adverse impact
on Hughes' results of operations or financial position. The court has set a
trial date of June 12, 2000.
- 17 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 13. Commitments and Contingent Matters (continued)
Contingent Matters (continued)
As part of a marketing agreement entered into with AOL on June 21, 1999,
Hughes committed to increase its sales and marketing expenditures over the next
three years by approximately $1.5 billion relating to DirecPC/AOL-Plus, DlRECTV,
DlRECTV/AOL TV and DirecDuo.
Hughes Space and Communications International (HSCI), a wholly owned
subsidiary of Hughes Space and Communications Company, has certain contracts
with ICO Global Communications Operations (ICO) to build the satellites and
related components for a global wireless communications system. On August 27,
1999, the ICO parent company filed for bankruptcy protection under Chapter 11 in
U.S. Bankruptcy Court in Wilmington, Delaware. On May 3, 2000, the U.S.
Bankruptcy Court approved a plan of reorganization and ICO's assumption of
contracts with HSCI. In connection with the contract assumption, ICO is expected
to pay, in the second quarter of 2000, all pre-petition amounts due to Hughes
related to the ICO contracts.
On June 3, 1999, the National Rural Telecommunications Cooperative (NRTC)
filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc.
(together "DIRECTV") in the United States District Court for the Central
District of California, alleging that DIRECTV has breached the DBS Distribution
Agreement (the "DBS Agreement") with the NRTC. The DBS Agreement provides the
NRTC with certain rights, in certain specified portions of the United States,
with respect to DIRECTV programming delivered over 27 of the 32 frequencies at
the 101 degrees west longitude orbital location. The NRTC claims that DIRECTV
has wrongfully deprived it of the exclusive right to distribute programming
formerly provided by USSB over the other five frequencies at 101 degrees.
DIRECTV denies that the NRTC is entitled to exclusive distribution rights to the
former USSB programming because, among other things, the NRTC's exclusive
distribution rights are limited to programming distributed over 27 of the 32
frequencies at 101 degrees. The NRTC's complaint seeks, in the alternative, the
right to distribute former USSB programming on a non-exclusive basis and the
recovery of related revenues from the date USSB was acquired by Hughes. DIRECTV
maintains that the NRTC's right under the DBS Agreement is to market and sell
the former USSB programming as its agent and the NRTC is not entitled to the
claimed revenues. DIRECTV intends to vigorously defend against the NRTC claims.
DIRECTV has also filed a counterclaim against the NRTC seeking a declaration of
the parties' rights under the DBS Agreement.
On August 26, 1999, the NRTC filed a second lawsuit against DIRECTV alleging
that DIRECTV has breached the DBS Agreement. In this lawsuit, the NRTC is asking
the court to require DIRECTV to pay the NRTC a proportionate share of
unspecified financial benefits that DIRECTV derives from programming providers
and other third parties. DIRECTV ignored the NRTC on account of the allegations
in these matters and plans to vigorously defend itself against these claims.
A purported class action suit was filed against DIRECTV on behalf of the
NRTC's participating members on February 29, 2000. The members assert claims
identical to the claims that were asserted by Pegasus Satellite Television, Inc.
and Golden Sky Systems, Inc. in their lawsuit against DIRECTV.
Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two
largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV in
United States District Court in Los Angeles. The plaintiffs allege, among other
things, that DIRECTV has interfered with their contractual relationship with the
NRTC. The plaintiffs plead that their rights and damages are derivative of the
rights and claims asserted by the NRTC in its two cases against DIRECTV. The
plaintiffs also allege that DIRECTV has interfered with their contractual
relationships with manufacturers and distributors by preventing those parties
from selling receiving equipment to the plaintiffs' dealers. DIRECTV denies that
it has wrongfully interfered with any of the plaintiffs' business relationships
and will vigorously defend the lawsuit. Although an amount of loss, if any,
cannot be estimated at this time, an unfavorable outcome could be reached in the
NRTC and Pegasus litigation that could be material to Hughes' results of
operations or financial position.
EchoStar Communications Corporation (EchoStar) and others commenced an action
in the U.S. District Court in Colorado on February 1, 2000 against DIRECTV,
Hughes Network Systems, and Thomson Consumer Electronics, Inc. seeking, among
other things, injunctive relief and unspecified damages, including treble
damages, in connection with allegations that the defendants have entered into
agreements with retailers and program providers and engaged in other conduct
that violates the antitrust laws and constitutes unfair competition. DIRECTV
believes that the complaint is without merit and intends to vigorously defend
against the allegations raised. Although an amount of loss, if any, cannot be
estimated at this time, an unfavorable outcome could be reached that could be
material to Hughes' results of operations or financial position.
- 18 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded
(Unaudited)
Note 13. Commitments and Contingent Matters (concluded)
Contingent Matters (concluded)
Hughes and DIRECTV filed counterclaims against EchoStar on March 13, 2000,
alleging that EchoStar tortiously interfered with DIRECTV's relationship with
Kelly Broadcasting System, a provider of foreign-language programming; engaged
in unfair business practices in connection with improper sales of network
programming, misleading advertisements for National Football League games and
EchoStar's "PRIMESTAR bounty program"; and infringed on PRIMESTAR trademarks.
In Anderson, et al v. General Motors Corporation, a jury in a Los Angeles
Superior Court returned a verdict of $4.9 billion against GM in a product
liability lawsuit involving a post-collision fuel fed fire in a 1979 Chevrolet
Malibu. In post-trial developments, the trial court has reduced the punitive
damages from $4.8 billion to $1.1 billion and has entered an order which stays
execution of the judgment pending resolution of all appeals by GM and has
released the bond GM had posted for the punitive and compensatory damages (the
cost of which was not material to the Corporation). GM continues to pursue its
appellate rights, including efforts to secure a new trial and the complete
elimination of responsibility to pay any damages in this matter consistent with
GM's view that the design of the Chevrolet Malibu was not responsible for
plaintiffs' injuries.
In connection with GM's disposition of certain businesses (including
Delphi), GM has granted the United Auto Workers guarantees covering benefits to
be provided to certain former U.S. hourly employees of GM who became employees
of the disposed businesses. These guarantees have limited terms that do not
extend beyond October 2007. In connection with such guarantees relating to
certain of Delphi's U.S. hourly employees, GM and Delphi entered into an
agreement, the provisions of which are designed to prevent or mitigate the risk
that GM's guarantee relating to Delphi's employees would ever be called upon,
or, if it is, any payments thereunder by GM would result in the obligation of
Delphi to indemnify and hold GM harmless as to such amounts. GM believes that
the likelihood it will make payments under any of these various guarantees is
remote and that if such payments are made they will not be material to GM's
financial position or results of operations.
GM is subject to potential liability under government regulations and various
claims and legal actions which are pending or may be asserted against them. Some
of the pending actions purport to be class actions. The aggregate ultimate
liability of GM under these government regulations and under these claims and
actions, was not determinable at March 31, 2000. After discussion with counsel,
it is the opinion of management that such liability is not expected to have a
material adverse effect on the Corporation's consolidated financial condition or
results of operations.
* * * * * *
- 19 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the December 31,
1999 consolidated financial statements and notes thereto along with the MD&A
included in General Motors Corporation's (the "Corporation" or "GM") 1999 Annual
Report on Form 10-K, and all other GM, Hughes Electronics Corporation and
Subsidiaries (Hughes), and General Motors Acceptance Corporation and
Subsidiaries (GMAC) filings with the Securities and Exchange Commission. All
earnings per share amounts included in the MD&A are reported as diluted.
GM presents separate supplemental consolidating financial information for the
following businesses: Automotive, Communications Services, and Other Operations
and Financing and Insurance Operations.
GM's reportable operating segments within its Automotive, Communications
Services, and Other Operations business consist of:
. GM Automotive (GMA) is comprised of four regions: GM North America (GMNA),
GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM
Asia/Pacific (GMAP).
. Hughes includes activities relating to digital entertainment, information
and communications services, and satellite-based private business
networks.
. The Other segment includes the design, manufacturing, and marketing of
locomotives and heavy-duty transmissions, the elimination of intersegment
transactions, and certain non-segment specific revenues and expenditures.
GM's reportable operating segments within its Financing and Insurance
Operations business consist of GMAC and Other. The Financing and Insurance
Operations' Other segment includes financing entities operating in the U.S.,
Canada, Brazil, and Sweden which are not associated with GMAC.
The disaggregated financial results for GMA have been prepared using a
management approach, which is consistent with the basis and manner in which GM
management internally disaggregates financial information for the purpose of
assisting in making internal operating decisions. In this regard, certain common
expenses were allocated among regions less precisely than would be required for
stand-alone financial information prepared in accordance with generally accepted
accounting principles (GAAP) and certain expenses (primarily certain U.S. taxes
related to non-U.S. operations) were included in the Automotive, Communications
Services, and Other Operations' Other segment. The financial results represent
the historical information used by management for internal decision making
purposes; therefore, other data prepared to represent the way in which the
business will operate in the future, or data prepared on a GAAP basis, may be
materially different.
- 20 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
In the first quarter of 2000, GM's consolidated income from continuing
operations totaled $1.8 billion or $2.80 per share of $1-2/3 par value common
stock, which represents a decrease of $37 million compared with $1.8 billion or
$2.68 per share of $1-2/3 par value common stock in the first quarter of 1999.
On April 12, 1999, the GM Board of Directors (GM Board) approved the
complete separation of Delphi Automotive Systems Corporation (Delphi) from GM by
means of a spin-off (which was tax-free to GM and its stockholders for U.S.
federal income tax purposes) which was completed on May 28, 1999 and,
accordingly, the financial results related to Delphi for all periods presented
are reported as discontinued operations. GM's net income for the first quarter
of 1999, including the income from discontinued operations totaled $2.1 billion
or $3.04 per share of $1-2/3 par value common stock. Additional information
regarding the spin-off of Delphi is contained in Note 2 to the GM consolidated
financial statements.
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Highlights of financial performance by GM's Automotive, Communications
Services, and Other Operations business were as follows for the three months
ended March 31, (in millions):
2000 1999
---- ----
Total net sales and revenues
GMA $38,331 $35,363
Hughes 2,118 1,635
Other 746 525
-------- --------
Total net sales and revenues $41,195 $37,523
====== ======
Net income (loss)
GMA $1,518 $1,510
Hughes (1) (77)(2) 78
Other (36) (141)
------- -----
Income from continuing operations 1,405 1,447
Discontinued operations - 242
-------- ------
Net income $1,405 $1,689
===== =====
- ----------------
(1) Excludes amortization of GM purchase accounting adjustments of $5 million
for the first quarters of 2000 and 1999, related to GM's acquisition of
Hughes Aircraft Company (HAC) in 1985. Such amortization was allocated to
GM's Other segment which is consistent with the basis upon which the
segments are evaluated.
(2) Includes a $13 million net loss related to the discontinuation of DIRECTV
Japan's (DTVJ) operations and migration of its subscribers to
SkyPerfecTV!. The net loss is comprised of a pre-tax charge of
approximately $171 million, partially offset by a $158 million tax benefit
associated with DTVJ's higher tax basis. See the Hughes Financial Review
for further information.
- 21-
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA Financial Highlights
Three Months Ended
March 31,
----------------------
2000 1999
---- ----
(Dollars in Millions)
GMNA
Total net sales and revenues $30,141 $28,068
------ ------
Pre-tax income 1,922 2,097
Income tax expense 615 665
Earnings/(losses) of nonconsolidated associates
and minority interests (17) (24)
----- -----
GMNA income $1,290 $1,408
===== =====
GME
Total net sales and revenues $6,834 $6,277
----- -----
Pre-tax income 349 281
Income tax expense 130 105
Earnings/(losses) of nonconsolidated associates
and minority interests 2 (2)
--- ---
GME income $221 $174
=== ===
GMLAAM
Total net sales and revenues $1,390 $1,033
----- -----
Pre-tax loss (36) (58)
Income tax benefit (23) (36)
Earnings/(losses) of nonconsolidated associates
and minority interests 14 (3)
-- ---
GMLAAM income (loss) $1 $(25)
= ==
GMAP
Total net sales and revenues $863 $647
--- ---
Pre-tax income (loss) 27 (25)
Income tax expense (benefit) 10 (6)
Earnings/(losses) of nonconsolidated associates
and minority interests (10) (41)
-- --
GMAP income (loss) $7 $(60)
= ==
GMA (1)
Total net sales and revenues $38,331 $35,363
------ ------
Pre-tax income 2,263 2,315
Income tax expense 732 735
Earnings/(losses) of nonconsolidated associates
and minority interests (13) (70)
----- -----
GMA income $1,518 $1,510
===== =====
- -----------------
(1) GMA's results include eliminations of transactions among GMNA, GME, GMLAAM,
and GMAP.
- 22 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Vehicle Unit Deliveries of Cars and Trucks - GMA
Three Months Ended March 31,
-------------------------------------
2000 1999
------------------------ -------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- --- -------- -------- --- --------
(Units in Thousands)
GMNA
United States
Cars 2,227 644 28.9% 2,007 628 31.3%
Trucks 2,262 639 28.3% 2,023 533 26.4%
----- ------ ----- ------
Total United States 4,489 1,283 28.6% 4,030 1,161 28.8%
Canada, Mexico, and Other 590 159 27.1% 549 153 27.7%
------ ------ ------ ------
Total GMNA 5,079 1,442 28.4% 4,579 1,314 28.7%
GME 5,509 518 9.4% 5,306 508 9.6%
GMLAAM 834 133 15.9% 794 125 15.8%
GMAP 3,261 111 3.4% 3,165 112 3.5%
------ ----- ------ -----
Total Worldwide 14,683 2,204 15.0% 13,844 2,059 14.9%
====== ===== ====== =====
Three Months Ended
March 31,
-------------------------
2000 1999
------- --------
(Units in Thousands)
Wholesale Sales
GMNA
Cars 731 783
Trucks 758 718
----- -----
Total GMNA 1,489 1,501
----- -----
GME
Cars 460 433
Trucks 39 37
--- ---
Total GME 499 470
--- ---
GMLAAM
Cars 92 75
Trucks 43 47
--- ---
Total GMLAAM 135 122
--- ---
GMAP
Cars 39 38
Trucks 77 54
--- --
Total GMAP 116 92
--- --
Total Worldwide 2,239 2,185
===== =====
GMA Financial Review
GMA reported income of $1.5 billion which is consistent with the income
reported in the prior year quarter. Continued competitive pricing pressure and
higher structural and engineering costs were offset by higher wholesale sales
volumes, improved mix, and further material cost reductions. These factors also
contributed to the decrease in GMA's net margin to 4.0% for the first quarter of
2000 from 4.3% for the first quarter of 1999.
Total net sales and revenues for GMA in the first quarter of 2000 were $38.3
billion compared with $35.4 billion in the first quarter of 1999. The increase
in net sales and revenues from the prior year quarter was primarily due to a
54,000 unit increase in wholesale sales volumes.
GMA's worldwide vehicle deliveries were 2,204,000 for the first quarter of
2000, which represented a market share of 15.0% compared with 2,059,000 for the
first quarter of 1999, which represented a market share of 14.9%.
- 23 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA Financial Review (concluded)
GM is currently negotiating an agreement (which was announced in November
1999) with Commerce One, a recognized leader in business-to-business electronic
procurement solutions, for development of an automotive focused e-commerce
marketsite called the GM TradeXchange. In connection with this agreement, GM,
Ford Motor Company, and DaimlerChrysler Corporation jointly announced on
February 25, 2000 that they are planning to combine their efforts to form a
business-to-business integrated supplier exchange through a single global portal
which will create the world's largest virtual marketplace. The new enterprise
will offer open participation to all auto manufacturers around the world, and
their respective market of suppliers and dealers. Eventually, this marketplace
could be expanded to encompass other industries. The three automakers plan to
have equal ownership in the new venture which would operate as a separate
independent business. A memorandum of agreement has been signed and requisite
governmental approval will be sought shortly. Until then, GM TradeXchange will
continue to offer its services.
GMNA reported income of $1.3 billion for the first quarter of 2000 compared
with $1.4 billion for the prior year quarter. The decrease in GMNA's first
quarter 2000 income was primarily due to increased competitive pricing pressure,
labor economics, and an increase in spending for product development activity,
partially offset by material cost reductions. Net price was slightly lower for
the quarter at (0.7)% year-over-year. Net price comprehends the percent
increase/(decrease) a customer pays in the current period for the same
comparably equipped vehicle produced in the previous year's period. GMNA's
market share for the first quarter of 2000 was 28.4% compared with 28.7% for the
first quarter of 1999.
GME reported income of $221 million for the first quarter of 2000 compared
with $174 million for the prior year quarter. The improvement in GME's first
quarter 2000 income was primarily due to higher wholesale sales volumes related
to the Zafira and Corsa, partially offset by increased pricing pressures, as
well as a shift of volumes from higher profit sales in Western Europe to lower
profit sales in Central and Eastern Europe.
During 1999, the European parliament began consideration of legislation
regarding end-of-life vehicles and the responsibility of manufacturers of such
vehicles for dismantling and recycling vehicles they have sold. GME is currently
assessing the impact of this potential legislation on their results of
operations and financial position.
GMLAAM reported income of $1 million for the first quarter of 2000 compared
with a loss of $25 million for the prior year quarter. The increase in GMLAAM's
first quarter 2000 income compared to 1999 first quarter results was primarily
due to higher wholesale sales volumes, nominal price increases, and equity
income improvements from several joint ventures in the region, partially offset
by increased material and freight costs driven by GM do Brasil's and its
suppliers' exposure to hard currencies and inflationary factors, as well as
increased manufacturing costs in preparation for the start of production at the
Gravatai Plant in Brazil.
GMAP reported income of $7 million for the first quarter of 2000 compared
with a loss of $60 million for the prior year quarter. The increase in GMAP's
first quarter 2000 income compared to first quarter 1999 results was primarily
due to continued strong performance in Australia by Holden and improved equity
earnings at Shanghai GM, which did not commence regular production until April
1999.
Hughes Financial Highlights
Three Months Ended
March 31,
------------------------
2000 1999
---- ----
(Dollars in Millions
Except Per Share Amounts)
Total net sales and revenues $2,118 $1,635
----- -----
Pre-tax (loss) income (213) 133
Income tax (benefit) expense (192) 36
Minority interests 8 7
Losses of nonconsolidated associates (69) (31)
-- --
Net (loss) income $ (82) $ 73
== ==
(Losses) earnings used for
computation of Available
Separate Consolidated Net Income (1) $(101) $78
(Losses) earnings per
share attributable
to Class H common stock $(0.23) $0.19
- ------------
(1)Excludes amortization of GM purchase accounting adjustments of $5 million in
both periods related to GM's acquisition of HAC in 1985. Includes accrued
preferred stock dividends of $25 million in the first quarter of 2000.
- 24 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Hughes Financial Review
Total net sales and revenues for the first quarter of 2000 increased to $2.1
billion, compared with $1.6 billion in the first quarter of 1999. The DIRECTV
businesses contributed to the overall change with an increase in revenues of
$619 million over the first quarter of 1999 that resulted from the addition of
510,000 new subscribers in the United States and Latin America since December
31, 1999, and added revenues from PRIMESTAR By DIRECTV and premium channel
services. PRIMESTAR medium-power direct-to-home and United States Satellite
Broadcasting Company, Inc. (USSB) premium channel services businesses were
acquired in mid-1999. Also contributing to the overall increase in net sales and
revenues was Hughes Network Systems, which shipped nearly 1 million DIRECTV
receiver systems during the first quarter of 2000 compared to about 0.2 million
shipped in the first quarter of 1999 leading to an increase in net sales and
revenues of $134 million. PanAmSat also reported an increase in net sales and
revenues of $105 million due primarily to outright sales and sales-type leases
of satellite transponders during the first quarter of 2000. These increases in
net sales and revenues were partially offset by a $266 million decrease in net
sales and revenues at Hughes Space and Communications which was principally due
to decreased activity associated with a contract with ICO Global Communications
Operations and a $155 million pre-tax gain related to the settlement of a
patent infringement case included in 1999.
Hughes had a pre-tax loss of $213 million in the first quarter of 2000,
compared with pre-tax income of $133 million in the first quarter of 1999. The
pre-tax loss for the first quarter of 2000 was primarily due to a one-time
pre-tax charge of $171 million related to an agreement with SkyPerfecTV! and
discontinuation of the DTVJ business, which is described below. Also
contributing to the loss in the first quarter of 2000 was $99 million of higher
depreciation and amortization expense due primarily to the 1999 PRIMESTAR and
USSB acquisitions. Pre-tax income for the first quarter of 1999 included a $155
million pre-tax gain related to the settlement of a patent infringement case
discussed above offset in part by a pre-tax charge to earnings of $92 million
resulting from the termination of a satellite systems contract with Asia Pacific
Mobile Telecommunications.
Hughes recognized an income tax benefit in the first quarter of 2000 of $192
million, compared to income tax expense of $36 million in the first quarter of
1999. The income tax benefit for the first quarter of 2000 reflects the $158
million tax benefit associated with the write-off of Hughes' historical
investments in DTVJ and tax benefits resulting from increased operating losses
in the first quarter of 2000.
Losses of nonconsolidated associates increased to $69 million in the first
quarter of 2000, compared with $31 million in the first quarter of 1999. The
increase was primarily due to higher equity losses recorded for DTVJ due to
Hughes' increased investment during the third quarter of 1999.
(Losses) earnings used for computation of Available Separate Consolidated Net
Income (Loss) (ASCNI) in the first quarter of 2000 was a loss of $101 million,
compared with earnings of $78 million in the first quarter of 1999. ASCNI in the
first quarter of 2000 included $25 million of accrued preferred stock dividends.
On March 1, 2000, Hughes announced that the operations of DTVJ, Hughes'
affiliate that provides DIRECTV services in Japan, would be discontinued and
that its subscribers would have the opportunity to migrate during 2000 to
SkyPerfecTV!, a company in Japan that provides direct-to-home satellite
broadcast services that is expected to complete an initial public offering
during the third quarter of 2000. In connection with the agreement, Hughes
acquired an approximate 6.6% interest in SkyPerfecTV!. As a result of the
transaction, in the first quarter of 2000, Hughes wrote off its investment and
accrued for the estimated costs to exit the DTVJ business. The principal
components of the accrued exit costs include estimated subscriber migration and
termination costs and costs to terminate certain leases, programming agreements,
and other long-term contractual commitments. These one-time charges were offset
by the estimated fair value of the SkyPerfecTV! interest acquired. The fair
value of the SkyPerfecTV! interest recorded was estimated based upon a
preliminary independent appraisal, which is expected to be completed within
three to six months. Accordingly, the final amount of the fair value of the
SkyPerfecTV! investment recorded may be different from the amount reflected
herein. The total loss related to DTVJ for the first quarter of 2000, including
Hughes' share of DTVJ's operating losses, was approximately $230 million. The
after-tax impact was approximately $49 million. Hughes will continue to record
its share of DTVJ's operating losses during the remainder of 2000.
On January 13, 2000, Hughes announced that it had reached an agreement to
sell its satellite systems manufacturing businesses to The Boeing Company for
approximately $3.8 billion in cash. The transaction, which is subject to
regulatory approval, is expected to close in the third quarter of 2000 and
result in an after-tax gain in excess of $1.0 billion.
- 25 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financing and Insurance Operations
- ----------------------------------
Highlights of financial performance by GM's Financing and Insurance Operations
business were as follows for the three months ended March 31, (in millions):
2000 1999
---- ----
Total net sales and revenues
GMAC $5,621 $4,827
Other 42 85
----- -----
Total net sales and revenues $5,663 $4,912
===== =====
Net income (loss)
GMAC $397 $392
Other (19) (19)
---- ----
Total net income $378 $373
=== ===
GMAC Financial Highlights
Three Months Ended
March 31,
------------------
2000 1999
---- ----
(Dollars in Millions)
Financing revenues
Retail and lease financing $1,144 $1,006
Operating leases 2,012 1,795
Wholesale, commercial, and other loans 623 476
------ ------
Total financing revenues 3,779 3,277
Interest and discount 1,910 1,513
Depreciation on operating leases 1,330 1,188
----- -----
Net financing revenue 539 576
Mortgage revenue 860 728
Insurance premiums earned 462 447
Other income 520 374
----- -----
Net financing revenue and other 2,381 2,125
Expenses 1,750 1,484
----- -----
Pre-tax income 631 641
Income tax expense 234 249
--- ---
Net income $397 $392
=== ===
Net income from automotive and
other financing operations $262 $229
Net income from insurance operations 62 65
Net income from mortgage operations 73 98
---- ----
Net income $397 $392
=== ===
GMAC Financial Review
Net income from automotive and other financing operations totaled $262
million, up 14% from the $229 million earned in the first quarter of last year.
Earnings were higher due primarily to higher asset levels and favorable loss
experience. These higher earnings were partially offset by the onset of
increased interest expense resulting from recent Federal Reserve rate increases.
Insurance operations generated net income of $62 million in the first quarter
of 2000, virtually unchanged from the $65 million earned in the first quarter of
1999. Increased volume was offset by storm-related losses.
Mortgage operations earned $73 million in the first quarter of 2000, down 26%
from the record $98 million earned for the same period last year. The decline in
year-over-year performance is due to the non-recurrence of substantial benefits
realized in the first quarter of 1999 that resulted from the securitization and
sale of mortgage assets.
During the first quarter of 2000, GMAC financed 45.3% of new GM vehicle
retail deliveries in the United States, up from 42.0% compared to the same
period last year. The increase in financing penetration was primarily the result
of increased lease incentive programs sponsored by GM.
GMAC also provides wholesale financing for GM and other dealers' new and used
vehicle inventories. In the United States, inventory financing was provided for
866,000 new GM vehicles in 2000 and 868,000 new GM vehicles in 1999,
representing 66.8% of all GM sales to U.S. dealers during the first quarter of
2000 and 1999. Wholesale penetration levels remained stable as a result of
continued competitive pricing strategies by GMAC.
- 26 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review (concluded)
Financing revenue totaled $3.8 billion in the first quarter of 2000, an
increase of $502 million compared with the first quarter of 1999. The growth was
mainly due to higher average retail, wholesale, operating lease, and other loan
receivable balances, which resulted primarily from strong GM sales levels and
continued GM-sponsored special financing programs.
Insurance premiums earned totaled $462 million for the three months ended
March 31, 2000, a $15 million increase over the comparable 1999 period. This
increase was caused by higher volume in the mechanical repair protection,
personal auto, and property and casualty reinsurance lines of business. These
increases were partially offset by lower volume in commercial lines, primarily
due to the July 1999 termination of an auto dealership program.
Mortgage revenue and other income totaled $1.4 billion for the three months
ended March 31, 2000, compared to $1.1 billion during the comparable period a
year ago. The change from the comparable period in 1999 was mainly attributable
to increases in mortgage servicing and processing fees and other income;
interest and servicing fees earned on receivables due from Automotive,
Communications Services, and Other Operations; and the inclusion of GMAC
Commercial Credit LLC, which was acquired in July 1999.
GMAC's worldwide cost of borrowing, including the effects of derivatives, for
the first quarter of 2000 averaged 6.21% compared to 5.52% for the same period
in 1999. Total borrowing costs for U.S. operations averaged 6.32% for the first
quarter of 2000, compared to 5.44% for the same period in 1999. The increase in
average borrowing costs was mainly a result of the steady increase in market
interest rates beginning in the third quarter of 1999.
Consolidated salaries and other operating expenses totaled $1.3 billion and
$1.0 billion for the respective quarters ended March 31, 2000 and 1999. The
increase was mainly attributable to continued growth and acquisitions at GMAC
Mortgage Group, Inc. during the last three quarters of 1999. Additionally, GMAC
acquisitions during 1999 contributed to a rise in goodwill amortization.
The effective income tax rate was 37.1% and 38.8% for the three months ended
March 31, 2000 and 1999, respectively. The decline in the effective tax rate can
be attributed to decreases in accruals from prior years based upon periodic
assessment of the adequacy of such accruals.
LIQUIDITY AND CAPITAL RESOURCES
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Cash, marketable securities, and $3.0 billion of assets of the Voluntary
Employees' Beneficiary Association (VEBA) trust invested in fixed-income
securities, at March 31, 2000, totaled $13.4 billion compared with $14.4 billion
at December 31, 1999 and $16.2 billion at March 31, 1999. The decrease from
December 31, 1999 is primarily due to a $1.0 billion cash equity injection in
GMAC. The total VEBA assets in the VEBA trust used to pre-fund part of GM's
other postretirement benefits liability approximated $6.3 billion at March 31,
2000, compared to $6.3 billion at December 31, 1999 and $4.6 billion at March
31, 1999.
Net liquidity, calculated as cash and marketable securities less the total of
loans payable and long-term debt, was $(183) million at March 31, 2000, compared
with $2.0 billion at December 31, 1999 and $5.3 billion at March 31, 1999. GM
previously indicated that it had a goal of maintaining $13.0 billion of cash and
marketable securities in order to continue funding product development programs
throughout the next downturn in the business cycle. This $13.0 billion target
includes cash to pay certain costs that were pre-funded in part by VEBA
contributions.
Long-term debt was $8.6 billion at March 31, 2000, compared to $7.4 billion
at December 31, 1999 and $7.0 billion at March 31, 1999. The ratio of long-term
debt to long-term debt and GM investment in Automotive, Communications Services,
and Other Operations was 47.6% at March 31, 2000, compared to 43.7% at December
31, 1999 and 51.4% at March 31, 1999. The ratio of long-term debt and short-term
loans payable to the total of this debt and GM investment was 52.9% at March 31,
2000, compared to 49.6% at December 31, 1999 and 54.3% at March 31, 1999.
Financing and Insurance Operations
- ----------------------------------
GM's Financing and Insurance Operations are conducted by GMAC, certain of
its subsidiaries, and other financing entities operating in the U.S., Canada,
Brazil, and Sweden which are not associated with GMAC. At March 31, 2000, GMAC
owned assets and serviced automotive receivables totaling $166.9 billion, $4.6
billion above year-end 1999, and $25.8 billion above March 31, 1999. The
year-to-year increase was principally the result of higher commercial and other
loan receivables; serviced retail loan receivables; operating lease assets;
serviced wholesale loan receivables; intangible assets; receivables due from
Automotive, Communications Services, and Other Operations; other assets; and
factored receivables. These increases were partially offset by a decline in real
estate mortgages held for sale.
- 27 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financing and Insurance Operations (concluded)
- ----------------------------------
Automotive and commercial finance receivables serviced by GMAC, including
sold receivables, totaled $100.1 billion at March 31, 2000, $3.1 billion above
December 31, 1999 levels and $15.0 billion above March 31, 1999 levels. The
year-to-year increase was primarily a result of an $8.1 billion increase in
commercial and other loan receivables, a $4.9 billion increase in serviced
retail loan receivables, and a $2.5 billion increase in serviced wholesale loan
receivables. The change in commercial and other loan receivables was due to the
acquisition of the asset-based lending and factoring business unit of The Bank
of New York Financial Corporation in July 1999 and increases in secured notes.
Continued GM-sponsored retail financing incentives contributed to the rise in
serviced retail loan receivables. The increase in serviced wholesale loan
receivables over the prior year was a result of an increase in dealer inventory
levels. The decrease in the on-balance sheet wholesale loan receivables was a
result of two sales of wholesale receivables during the second half of 1999.
GMAC's liquidity, as well as its ability to profit from ongoing acquisition
activity, is in large part dependent upon its timely access to capital and the
costs associated with raising funds in different segments of the capital
markets. In this regard, GMAC regularly accesses the short-term, medium-term,
and long-term debt markets, principally through commercial paper, notes, and
underwritten transactions.
As of March 31, 2000, GMAC's total borrowings were $123.2 billion, compared
with $121.2 billion and $105.3 billion at December 31, 1999 and March 31, 1999,
respectively. The increased borrowings since March 31, 1999 were used to fund
increased earning asset levels. GMAC's ratio of total debt to total
stockholder's equity at March 31, 2000 was 9.5:1, compared to 10.9:1 at December
31, 1999, and 10.5:1 at March 31, 1999. The decline was due to capital
contributions from GM totaling $1.5 billion during the first quarter of 2000.
GMAC and its subsidiaries maintain substantial bank lines of credit which
totaled $45.8 billion at March 31, 2000, compared to $46.2 billion at year-end
1999 and $42.0 billion at March 31, 1999. The unused portion of these credit
lines totaled $36.5 billion at March 31, 2000, $963 million and $4.1 billion
higher than December 31 and March 31, 1999, respectively. Included in the unused
credit lines at March 31, 2000, is a $14.7 billion syndicated multi-currency
global credit facility available for use in the U.S. by GMAC and in Europe, by
GMAC International Finance B.V. and GMAC (UK) plc. The entire $14.7 billion is
available to GMAC in the U.S., $900 million is available to GMAC (UK) plc and
$750 million is available to GMAC International Finance B.V. At March 31, 1999,
syndicated revolving credit facilities of $11.2 billion were available for use
by these entities. The syndicated credit facility serves for GMAC's unsecured
commercial paper programs. Also included in the unused credit lines is a $12.0
billion U.S. asset-backed commercial paper liquidity and receivables facility
for New Center Asset Trust, a non-consolidated limited purpose business trust
established to issue asset-backed commercial paper.
Book Value Per Share
Book value per share of $1-2/3 par value common stock was $29.42 at March 31,
2000, compared with $27.02 at December 31, 1999 and $22.40 at March 31, 1999.
Book value per share of GM Class H common stock was $17.65 at March 31, 2000,
compared with $16.21 at December 31, 1999 and $13.44 at March 31, 1999. Book
value per share was determined based on the liquidation rights of the various
classes of common stock.
Return on Net Assets (RONA)
As part of its shareholder value initiatives, GM has adopted RONA as a
performance measure to heighten management's focus on balance sheet investments
and the return on those investments. GM's RONA calculation is based on
principles established by management and approved by the GM Board. GM's 2000
first quarter RONA for continuing operations on an annualized basis, excluding
Hughes, was 15.9%.
CASH FLOWS
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Net cash provided by operating activities was $2.4 billion for the first
quarter of 2000 compared with $9.2 billion for the first quarter of 1999. The
decrease in net cash provided by operating activities for the first quarter 2000
compared to the first quarter 1999 was primarily the result of decreases in
operating liabilities. These decreases were primarily related to an extension of
the payment terms in the first quarter of 1999.
Net cash used in investing activities amounted to $3.8 billion for the first
quarter of 2000 compared with $4.9 billion for the first quarter of 1999. The
decrease in net cash used in investing activities during the first quarter of
2000 was primarily attributable to decreased cash used for investments in
companies and investments in marketable securities and operating leases,
partially offset by a $1.0 billion cash equity injection in GMAC.
- 28 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CASH FLOWS
Automotive, Communications Services, and Other Operations (concluded)
- ---------------------------------------------------------
Net cash used in financing activities was $187 million for the first quarter
of 2000 compared with $1.4 billion for the first quarter of 1999. The decrease
in net cash used for financing activities for the first quarter 2000 was
primarily due to reduced stock repurchases as a result of the Corporation
completing its $4.0 billion stock repurchase program in 1999, and increases in
loans payable and long-term debt.
Financing and Insurance Operations
- ----------------------------------
Net cash provided by operating activities totaled $3.7 billion and $5.9
billion during the three months ended March 31, 2000 and 1999, respectively. The
reduction in operating cash flow was primarily the result of a reduction in the
net proceeds from sales of mortgage loans and an increase in miscellaneous
assets, partially offset by a decrease in the origination/purchases of mortgage
loans.
Net cash used for investing activities during the first quarter of 2000
totaled $6.7 billion, a $1.6 billion increase compared to the same period last
year. Net cash used increased primarily as a result of net increases in
acquisitions of finance receivables and operating leases, partially offset by
increased proceeds from sales of finance receivables.
Net cash provided by financing activities during the three months ended March
31, 2000 totaled $3.6 billion, compared with net cash used of $922 million
during the comparable 1999 period. The change was primarily the result of
increases in short-term loans payable and a $1.0 billion cash equity injection
from Automotive, Communications Services, and Other Operations, partially offset
by a net decrease in long-term debt.
Dividends
Dividends may be paid on common stocks only when, as, and if declared by the
GM Board in its sole discretion. GM's policy is to distribute dividends on its
$1-2/3 par value common stock based on the outlook and indicated capital needs
of the business. In February 2000, the GM Board declared a quarterly cash
dividend of $0.50 per share on $1-2/3 par value common stock, paid March 10,
2000 to holders of record as of February 11, 2000. The GM Board also declared
quarterly dividends on the Series D and Series G Depositary Shares of $0.495 and
$0.57 per share, respectively, paid May 1, 2000, to holders of record on April
3, 2000. With respect to GM Class H common stock, the GM Board determined that
it will not pay any cash dividends at this time in order to allow the earnings
of Hughes to be retained for investment in its telecommunications and space
businesses. A quarterly dividend of $8.7793 per share for the GM Series H 6.25%
Automatically Convertible Preference Stock was paid May 1, 2000, to the holder
of record on April 3, 2000.
Employment and Payrolls
Worldwide employment at March 31, (in thousands) 2000 1999
---- ----
GMNA 214 222
GME 90 81
GMLAAM 23 23
GMAP 11 10
GMAC 26 24
Hughes 18 16
Other 13 11
--- ---
Total employees 395 387
=== ===
Three Months Ended
March 31,
------------------
2000 1999
---- ----
Worldwide payrolls - (in billions) $5.5 $5.4
=== ===
- 29 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
New Accounting Standard
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an Amendment of FASB Statement No. 133. This
statement defers, for one year, the effective date of SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, to those fiscal years
beginning after June 15, 2000. SFAS No. 133 requires all derivatives to be
recorded as either assets or liabilities and the instruments to be measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives are to be recognized immediately or deferred depending on the use of
the derivative and whether or not it qualifies as a hedge. GM will adopt SFAS
No. 133 by January 1, 2001, as required. Management is currently assessing the
impact of this statement on GM's results of operations and financial position.
* * * * * * *
- 30 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
(a) Material pending proceedings, other than ordinary routine litigation
incidental to the business, to which the Corporation became, or was, a party
during the quarter ended March 31, 2000 or subsequent thereto, but before the
filing of this report are summarized below:
Other Matters
With respect to the previously reported purported class actions filed against
General Motors alleging defective rear disc brake caliper pins in the 1988-1993
"GM W-Body Cars," GM has agreed to resolve these matters. GM has entered into an
agreement for settlement of the New Jersey consolidated case, Maryjane Garcia
and Thomas Cook v. General Motors Corporation, and Peter Bishop v. General
Motors Corporation. If approved by the court, the proposed settlement would
provide for GM to contribute to the cost of the court providing notice of the
proposed settlement to members of the class, and for payment by GM of $19
million to reimburse class members for eligible brake repair expenses and for
plaintiffs' attorneys' fees. The trial court in New Jersey has preliminarily
approved the proposed settlement. Notice of the proposed settlement will be
provided to members of the class and a hearing will be held by the court to
determine whether the proposed settlement is fair, reasonable and adequate.
Pursuant to the settlement agreement, the plaintiffs in the other previously
reported cases will dismiss their lawsuits; these include Keith McGill v.
General Motors Corporation and Richard Dolowich v. General Motors Corporation
(filed in New York), and Marcel v. General Motors Corporation, Neff v. General
Motors Corporation, and Cohen v. General Motors Corporation (filed in
Pennsylvania).
* * *
General Electric Capital Corporation (GECC) and DIRECTV, Inc. (DIRECTV)
entered into a contract on July 31, 1995, in which GECC agreed to establish and
manage a private label consumer credit contract, GECC also agreed to provide
certain related services to DIRECTV, including credit risk scoring, billing, and
collections services. DIRECTV agreed to act as a surety for loans complying with
the terms of the contract. Hughes guaranteed DIRECTV's performance under the
contract. A complaint and counterclaim have been filed by the parties in the
U.S. District Court for the District of Connecticut concerning GECC's
performance and DIRECTV's obligation to act as surety. GECC claims damages from
DIRECTV in excess of $140 million. DIRECTV is seeking damages from GECC in
excess of $45 million. Hughes intends to vigorously contest GECC's allegations
and pursue Hughes' own contractual rights and remedies. The court has set a
trial date of June 12, 2000.
***
With respect to the previously reported actions against the DIRECTV unit of
Hughes filed by the National Rural Telecommunications Galaxy Inc. (NRTC) on June
3, 1999 and August 26, 1999, and a related action filed by Pegasus Satellite
Television, Inc. and Golden Sky Systems, Inc., on January 11, 2000, a purported
class action was filed on February 29, 2000 against DIRECTV on behalf of the
NRTC's participating members asserting claims substantially the same as those
asserted in the actions brought by Pegasus and Golden Sky.
***
With respect to the previously reported action against DIRECTV, Hughes
Network Systems, and Thomson Consumer Electronics, Inc., filed by EchoStar
Communications Corporation (EchoStar) and others on February 1, 2000, Hughes and
DIRECTV filed counterclaims against EchoStar on March 13, 2000, alleging that
EchoStar tortiously interfered with DIRECTV's relationship with Kelly
Broadcasting System, a provider of foreign-language programming; engaged in
unfair business practices in connection with improper sales of network
programming, misleading advertisements for National Football League games and
EchoStar's "PRIMESTAR bounty program"; and infringed the PRIMESTAR trademarks.
* * * * * * *
- 31 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS (Including Those Incorporated by Reference).
Exhibit
Number Exhibit Name Page No.
- ------ ----------------------------------------------- --------
99 Hughes Electronics Corporation Financial Statements and
Management's Discussion and Analysis of Financial
Condition and Results of Operations 33
27 Financial Data Schedule (Unaudited)
(for Securities and Exchange Commission information only)
(b) REPORTS ON FORM 8-K.
Ten reports on Form 8-K, dated August 2, 1999 (filed January 14, 2000),
January 13, 2000, January 20, 2000, February 1, 2000, February 25, 2000, March
1, 2000, March 6, 2000, March 7, 2000, March 13, 2000, and March 31, 2000 were
filed during the quarter ended March 31, 2000 reporting matters under Item 5,
Other Events and reporting certain agreements under Item 7, Financial
Statements, Pro Forma Financial Information, and Exhibits.
* * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
--------------------------
(Registrant)
Date: May 15, 2000 /s/Peter R. Bible
- ------------------ -----------------
(Peter R. Bible, Chief Accounting Officer)
- 32 -