EXHIBIT 99
HUGHES ELECTRONICS CORPORATION
FINANCIAL STATEMENTS AND
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENT OF INCOME AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
1998 1997 1998 1997
------ ------ ------- -------
(Dollars in Millions Except Per Share Amounts)
Revenues
Product sales $762.6 $739.4 $1,454.7 $1,422.6
Direct broadcast, leasing and
other services 606.4 412.0 1,205.3 752.8
------- ------- ------- -------
Total revenues 1,369.0 1,151.4 2,660.0 2,175.4
------- ------- ------- -------
Operating costs and expenses
Cost of products sold 580.6 606.3 1,122.9 1,161.1
Broadcast programming and
other costs 250.8 190.7 515.6 354.5
Selling, general and
administrative expenses 359.2 230.1 661.8 452.1
Depreciation and amortization 100.2 67.0 197.9 117.3
Amortization of GM purchase
accounting adjustments 5.3 5.3 10.6 10.6
------- ------- ------- --------
Total operating costs and expenses 1,296.1 1,099.4 2,508.8 2,095.6
------- ------- ------- -------
Operating profit 72.9 52.0 151.2 79.8
Interest income 30.6 5.7 68.1 7.7
Interest expense (2.9) (18.6) (5.9) (33.7)
Other, net (35.1) 479.5 (69.4) 470.4
------- ------ ------- ------
Income from continuing operations
before income taxes and
minority interests 65.5 518.6 144.0 524.2
Income taxes 23.3 207.5 54.7 209.7
Minority interests in net losses
of subsidiaries 8.6 7.7 9.9 21.9
----- ----- ----- -----
Income from continuing operations 50.8 318.8 99.2 336.4
Income from discontinued operations,
net of taxes - 0.3 - 1.3
----- ----- ----- -----
Net income 50.8 319.1 99.2 337.7
Adjustments to exclude the effect of
GM purchase accounting adjustments 5.3 5.3 10.6 10.6
------ ------- ------ ------
Earnings Used for Computation of Available
Separate Consolidated Net Income $56.1 $324.4 $109.8 $348.3
==== ===== ===== =====
Available Separate Consolidated Net Income
Average number of shares of General Motors
Class H Common Stock outstanding
(in millions) (numerator) 105.2 101.0 104.7 100.7
Class H dividend base (in millions)
(denominator) 399.9 399.9 399.9 399.9
Available Separate Consolidated Net
Income $14.7 $82.0 $28.7 $88.0
==== ==== ==== ====
Earnings Attributable to General Motors
Class H Common Stock on a Per Share
Basis $0.14 $0.81 $0.27 $0.87
==== ==== ==== ====
Reference should be made to the Notes to Financial Statements.
- 34 -
HUGHES ELECTRONICS CORPORATION
BALANCE SHEET
June 30,
1998 December 31,
ASSETS (Unaudited) 1997
--------- -----------
(Dollars in Millions)
Current Assets
Cash and cash equivalents $1,592.8 $2,783.8
Accounts and notes receivable (less allowances) 892.6 662.8
Contracts in process, less advances and progress
payments of $32.9 and $50.2 564.0 575.6
Inventories 581.8 486.4
Prepaid expenses and other, including deferred income
taxes of $101.4 and $93.2 376.8 297.3
-------- --------
Total Current Assets 4,008.0 4,805.9
Satellites, net 2,897.5 2,643.4
Property, net 927.6 889.7
Net Investment in Sales-type Leases 231.1 337.6
Intangible Assets, net of accumulated amortization
of $362.7 and $318.3 3,559.6 2,954.8
Investments and Other Assets 1,160.4 1,132.4
--------- ---------
Total Assets $12,784.2 $12,763.8
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $655.4 $ 472.8
Advances on contracts 244.1 209.8
Deferred revenues 121.8 110.6
Notes payable 100.0 -
Accrued liabilities 563.2 689.4
-------- --------
Total Current Liabilities 1,684.5 1,482.6
Long-Term Debt 787.9 637.6
Deferred Gains on Sales and Leasebacks 138.6 191.9
Accrued Operating Leaseback Expense 54.1 100.2
Postretirement Benefits Other Than Pensions 155.7 154.8
Other Liabilities and Deferred Credits 670.1 706.4
Deferred Income Taxes 636.5 570.8
Commitments and Contingencies
Minority Interests 436.8 607.8
Stockholder's Equity
Capital stock and additional paid-in capital 8,140.7 8,322.8
Net income retained for use in the business 106.3 7.1
------- -------
Subtotal 8,247.0 8,329.9
Minimum pension liability adjustment (34.8) (34.8)
Accumulated unrealized gains on securities 15.1 21.4
Accumulated foreign currency translation adjustments (7.3) (4.8)
------- -------
Accumulated other comprehensive loss (27.0) (18.2)
-------- --------
Total Stockholder's Equity 8,220.0 8,311.7
-------- --------
Total Liabilities and Stockholder's Equity $12,784.2 $12,763.8
======== ========
Reference should be made to the Notes to Financial Statements.
- 35 -
HUGHES ELECTRONICS CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-------------------
1998 1997
-------- --------
(Dollars in Millions)
Cash Flows from Operating Activities
Net cash provided by (used in) continuing operations $157.1 $(376.6)
Net cash used by discontinued operations - (0.5)
----- -----
Net Cash Provided by (Used in) Operating Activities 157.1 (377.1)
----- ------
Cash Flows from Investing Activities
Investment in companies (908.0) (1,468.0)
Expenditures for property (121.4) (89.4)
Increase in satellites (255.5) (130.4)
Early buyout of satellite under sale and leaseback (155.5) -
Proceeds from disposal of property 46.7 -
-------- --------
Net Cash Used in Investing Activities (1,393.7) (1,687.8)
-------- --------
Cash Flows from Financing Activities
Notes and loans payable 100.0 -
Long-term debt borrowings 875.3 1,759.1
Repayment of long-term debt (725.0) -
Payment to General Motors for Delco post-closing
price adjustment (204.7) -
Contributions from Parent Company - 641.9
------- -------
Net Cash Provided by Financing Activities 45.6 2,401.0
------- -------
Net (decrease) increase in cash and cash equivalents (1,191.0) 336.1
Cash and cash equivalents at beginning of the period 2,783.8 6.7
------- -----
Cash and cash equivalents at end of the period $1,592.8 $342.8
======= =====
- --------------
Reference should be made to the Notes to Financial Statements.
- 36 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting. In the opinion of management, all adjustments (consisting only of
normal recurring items) which are necessary for a fair presentation have been
included. The results for interim periods are not necessarily indicative of
results which may be expected for any other interim period or for the full year.
For further information, refer to the financial statements and notes thereto
included in the General Motors ("GM") 1997 Annual Report on Form 10-K, as
amended, the unaudited information relating to Hughes filed as Exhibit 99 in
GM's Quarterly Report on Form 10-Q dated March 31, 1998, and Current Reports on
Form 8-K filed subsequent to the filing date for the GM 1997 Annual Report on
Form 10-K, as amended.
GM purchase accounting adjustments relate to GM's purchase of Hughes in 1985.
On December 17, 1997, Hughes Electronics Corporation ("Hughes Electronics")
and GM, the parent of Hughes Electronics, completed a series of transactions
(the "Hughes Transactions") designed to address strategic challenges facing the
three principal businesses of Hughes Electronics and unlock stockholder value in
GM. The Hughes Transactions included the tax-free spin-off of the defense
electronics business ("Hughes Defense") to holders of GM $1-2/3 par value and
Class H common stocks, the transfer of Delco Electronics Corporation ("Delco"),
the automotive electronics business, to GM's Delphi Automotive Systems unit, and
the recapitalization of GM Class H common stock into a new GM tracking stock,
Class H common stock, that is linked to the remaining telecommunications and
space businesses. The Hughes Transactions were followed immediately by the
merger of Hughes Defense with Raytheon Company ("Raytheon"). For the periods
prior to the consummation of the Hughes Transactions on December 17, 1997,
Hughes Electronics, consisting of its defense electronics, automotive
electronics and telecommunications and space businesses, is hereinafter referred
to as former Hughes.
In connection with the recapitalization of Hughes Electronics on December 17,
1997, the telecommunications and space businesses of former Hughes, consisting
principally of its direct-to-home broadcast, satellite services, satellite
manufacturing and network systems businesses, were contributed to the
recapitalized Hughes Electronics. Such telecommunications and space businesses,
both before and after the recapitalization, are hereinafter referred to as
Hughes. The accompanying financial statements and footnotes pertain only to
Hughes and do not include balances of former Hughes related to Hughes Defense or
Delco.
Prior to the Hughes Transactions, the Hughes businesses were effectively
operated as divisions of former Hughes. The 1997 financial statements include
allocations of corporate expenses from former Hughes, including research and
development, general management, human resources, financial, legal, tax,
quality, communications, marketing, international, employee benefits and other
miscellaneous services. These costs and expenses have been charged to Hughes
based either on usage or using allocation methodologies primarily based upon
total revenues, certain tangible assets and payroll expenses. Management
believes the allocations were made on a reasonable basis; however, they may not
necessarily reflect the financial position, results of operations or cash flows
of Hughes on a stand-alone basis in the future. Also, the interest expense for
1997 in the Statement of Income and Available Separate Consolidated Net Income
("Statement of Income") included an allocated share of total former Hughes'
interest expense.
Note 2. Inventories
Major Classes of Inventories
June 30, December 31,
(Dollars in Millions) 1998 1997
---- ----
Productive material and supplies $91.7 $57.5
Work in process 361.7 328.5
Finished goods 128.4 100.4
----- -----
Total $581.8 $486.4
===== =====
- 37 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--Continued
(Unaudited)
Note 3. Comprehensive Income
Hughes' total comprehensive income was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
(Dollars in Millions) 1998 1997 1998 1997
------- ------ ------- -------
Net income $50.8 $319.1 $99.2 $337.7
Other comprehensive loss:
Foreign currency translation
adjustments (2.2) (0.9) (2.5) (0.8)
Unrealized gains on securities:
Unrealized holding gains $1.6 $ - $1.0 $ -
Less: reclassification
adjustment for
unrealized gains
included in net income (7.3) - (7.3) -
---- ----- ---- ----
Unrealized gains on
securities (5.7) - (6.3) -
---- ----- ---- ----
Other comprehensive loss (7.9) (0.9) (8.8) (0.8)
----- ----- ---- -----
Total comprehensive
income $42.9 $318.2 $90.4 $336.9
==== ===== ==== =====
Note 4. Earnings Per Share Attributable to GM Class H Common Stock and
Available Separate Consolidated Net Income
Earnings per share attributable to GM Class H common stock is determined
based on the relative amounts available for the payment of dividends to holders
of GM Class H common stock. Holders of GM Class H common stock have no direct
rights in the equity or assets of Hughes, but rather have rights in the equity
and assets of GM (which includes 100% of the stock of Hughes).
Amounts available for the payment of dividends on GM Class H common stock are
based on the available separate consolidated net income of Hughes. The available
separate consolidated net income of Hughes is determined quarterly and is equal
to the separate consolidated net income of Hughes, excluding the effects of GM
purchase accounting adjustments arising from GM's acquisition of Hughes
(earnings used for computation of available separate consolidated net income),
multiplied by a fraction, the numerator of which is a number equal to the
weighted-average number of shares of GM Class H common stock outstanding during
the period (105.2 million and 101.0 million during the second quarters of 1998
and 1997, respectively) and the denominator of which was 399.9 million during
the second quarters of 1998 and 1997.
For 1997, available separate consolidated net income and earnings
attributable to General Motors Class H common stock are presented on a pro forma
basis. Prior to the Hughes Transactions, such amounts were calculated based on
the financial performance of former Hughes. Since the 1997 financial statements
relate only to the telecommunications and space businesses of former Hughes,
they do not reflect the earnings attributable to the former GM Class H common
stock on a historical basis. The pro forma presentation, therefore, presents the
financial results which would have been achieved for 1997 relative to the GM
Class H common stock based solely on the performance of the telecommunications
and space businesses of former Hughes.
Earnings per share represent basic earnings per share. There is no dilutive
effect resulting from the assumed exercise of stock options, since the exercise
of stock options would not affect the GM Class H dividend base (denominator)
used in calculating earnings per share. As Hughes has no other common stock
equivalents that may impact the calculation, diluted earnings per share is not
presented.
- 38 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--Continued
(Unaudited)
Note 5. Other Postretirement Benefits
Hughes has disclosed in the financial statements certain amounts associated
with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities" or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, Hughes does not admit or otherwise acknowledge that
such amounts or existing postretirement benefit plans of Hughes (other than
pensions) represent legally enforceable liabilities of Hughes.
Note 6. Acquisitions
In May 1997, Hughes and PanAmSat, a leading provider of international
satellite services, merged their respective satellite service operations into a
new publicly-held company, which retained the name PanAmSat. Hughes contributed
its Galaxy(R) satellite services business in exchange for a 71.5% interest in
the new company. PanAmSat stockholders received a 28.5% interest in the new
company and $1.5 billion in cash.
For accounting purposes, the merger was treated by Hughes as an acquisition
of 71.5% of PanAmSat and was accounted for using the purchase method.
Accordingly, the purchase price was allocated to the net assets acquired,
including intangible assets, based on estimated fair values at the date of
acquisition. The purchase price exceeded the fair value of net assets acquired
by $2.4 billion. In addition, the merger was treated as a partial sale of the
Galaxy business by Hughes and resulted in a one-time pre-tax gain of $489.7
million ($318.3 million after-tax).
In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat for
$851.4 million in cash, increasing Hughes' ownership interest from 71.5% to
81.0%.
Note 7. Hughes Transactions
In connection with the Hughes Transactions and the resulting Delco
post-closing price adjustment, Hughes made a cash payment to GM in June of 1998
for $204.7 million. The payment was treated as an adjustment to additional
paid-in capital.
Note 8. Discontinued Operations
On December 15, 1997, Hughes sold substantially all of the assets and
liabilities of the Hughes Avicom International, Inc. ("Hughes Avicom") business
to Rockwell Collins, Inc. for cash. Hughes Avicom is a supplier of products and
services to the commercial airline market. The 1997 net operating results of
Hughes Avicom have been reported, net of applicable income taxes, as "Income
from discontinued operations, net of taxes" and the net cash flows as "Net cash
used by discontinued operations."
- 39 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--Continued
(Unaudited)
Note 9. Segment Reporting
Hughes' operating segments selected information for the three months ended
and six months ended June 30, 1998 and 1997, are reported as follows:
Operating Segments:
Direct-To-
Home Satel. Satel. Network
Broadcast Services Manuf. Systems Other Elim. Total
--------- -------- ------ ------- ----- ----- ------
(Dollars in Millions)
For the Three Months Ended:
June 30, 1998
External Revenues $401.5 $161.6 $593.0 $207.0 $5.9 - $1,369.0
Intersegment
Revenues - 29.5 81.8 14.7 0.6 $(126.6) -
- -------------------------------------------------------------------------------
Total Revenues $401.5 $191.1 $674.8 $221.7 $6.5 $(126.6)$1,369.0
- --------------------------------------------------------------------------------
Operating (Loss)
Profit(1) $(40.2) $73.6 $60.0 $(25.2) $(0.6) $5.3 $72.9
- --------------------------------------------------------------------------------
June 30, 1997
External Revenues $281.7 $111.9 $568.4 $210.9 $(21.5) - $1,151.4
Intersegment
Revenues - 22.2 16.1 - 0.6 $(38.9) -
- -------------------------------------------------------------------------------
Total Revenues $281.7 $134.1 $584.5 $210.9 $(20.9) $(38.9)$1,151.4
- --------------------------------------------------------------------------------
Operating (Loss)
Profit(1) $(47.9) $62.1 $53.8 $(1.0) $(32.7) $17.7 $52.0
- --------------------------------------------------------------------------------
For the Six Months Ended:
June 30, 1998
External Revenues $789.4 $328.7 $1,146.7 $386.1 $9.1 - $2,660.0
Intersegment
Revenues - 55.4 152.4 20.3 0.9 $(229.0) -
- -------------------------------------------------------------------------------
Total Revenues $789.4 $384.1 $1,299.1 $406.4 $10.0 $(229.0)$2,660.0
- --------------------------------------------------------------------------------
Operating (Loss)
Profit(1) $(71.8) $158.5 $115.1 $(37.1) $(11.4) $(2.1) $151.2
- --------------------------------------------------------------------------------
June 30, 1997
External Revenues $517.3 $215.8 $1,064.6 $393.3 $(15.6) - $2,175.4
Intersegment
Revenues - 45.9 79.2 0.1 1.1 $(126.3) -
- -------------------------------------------------------------------------------
Total Revenues $517.3 $261.7 $1,143.8 $393.4 $(14.5) $(126.3)$2,175.4
- --------------------------------------------------------------------------------
Operating (Loss)
Profit(1) ($115.4) $129.6 $106.6 $(16.3) $(30.0) $5.3 $79.8
- --------------------------------------------------------------------------------
(1) Includes amortization arising from purchase accounting adjustments related
to GM's acquisition of Hughes amounting to $0.8 million in each of the three
month periods and $1.6 million in each of the six months periods for the
Satellite Services segment and $4.5 million in each of the three month
periods and $9.0 million in each of the six month periods for Other.
A reconciliation of operating profit to income from continuing operations
before income taxes and minority interests, as shown in the Statement of Income,
follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Dollars in Millions) 1998 1997 1998 1997
---- ---- ---- ----
Operating profit $72.9 $52.0 $151.2 $79.8
Interest income 30.6 5.7 68.1 7.7
Interest expense (2.9) (18.6) (5.9) (33.7)
Other, net (35.1) 479.5 (69.4) 470.4
----- ------ ----- -----
Income from continuing
operations before
income taxes and minority
interests $65.5 $518.6 $144.0 $524.2
==== ===== ===== =====
- 40 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--Concluded
(Unaudited)
Note 10. Contingencies
In connection with the 1997 spin-off of Hughes Defense and its subsequent
merger with Raytheon, a process was agreed to among General Motors, Hughes and
Raytheon for resolving disputes that might arise in connection with post-closing
adjustments called for by the terms of the merger agreement. Such adjustments
might call for a cash payment between Hughes and Raytheon. A dispute currently
exists regarding the post-closing adjustments which Hughes and Raytheon have
proposed to one another. If the dispute is not resolved by negotiation, the
parties will proceed to an agreed upon form of binding arbitration under which
either party may be required by arbitration to make a payment to the other. It
is possible that Hughes may be required by arbitration to make a payment to
Raytheon that would be material to Hughes. However, the amount of payment that
might be required of either party is not determinable at this time. Hughes
intends to vigorously oppose the adjustments Raytheon seeks. Hughes has
maintained a suit against the U.S. Government since September 1973 regarding the
Government's infringement and use of a Hughes patent (the "Williams Patent")
covering "Velocity Control and Orientation of a Spin Stabilized Body,"
principally satellites. On April 7, 1998, the Court of Appeals for the Federal
Circuit ("CAFC") reaffirmed earlier decisions in the Williams case and the award
of $114.0 million in damages. The CAFC ruled that the conclusions previously
reached in the Williams case were consistent with the U.S. Supreme Court's
findings in the Warner-Jenkinson case. The U.S. Government petitioned the CAFC
for a rehearing and was denied. Hughes is unable to estimate the duration of any
further appeal effort by the U.S. Government. While no amount has been recorded
in the financial statements of Hughes to reflect the $114.0 million award or the
interest accumulating thereon, a resolution of this issue could result in a gain
that would be material to the earnings of GM attributable to Class H common
stock.
- 41 -
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis should be read in
conjunction with the Hughes management's discussion and analysis included in the
General Motors ("GM") 1997 Annual Report to the Securities and Exchange
Commission on Form 10-K, as amended, the management's discussion and analysis
relating to Hughes included in Exhibit 99 to GM's Quarterly Report on Form 10-Q
dated March 31, 1998, and Current Reports on Form 8-K filed subsequent to the
filing date for GM's 1997 Form 10-K, as amended. In addition, the following
discussion excludes purchase accounting adjustments related to GM's acquisition
of Hughes (see Supplemental Data beginning on page 47).
Statements made concerning expected financial performance, ongoing financial
performance strategies, and possible future action which Hughes (as defined
below) intends to pursue to achieve strategic objectives for each of its four
principal business segments constitute forward-looking information. The
implementation of these strategies and of such future actions and the
achievement of such financial performance are each subject to numerous
conditions, uncertainties and risk factors, and, accordingly, no assurance can
be given that Hughes will be able to successfully accomplish its strategic
objectives or achieve such financial performance. The principal important risk
factors which could cause actual performance and future actions to differ
materially from forward-looking statements made herein include economic
conditions, product demand and market acceptance, government action,
competition, ability to achieve cost reductions, technological risk,
interruptions to production attributable to causes outside of Hughes' control,
the success of satellite launches, in-orbit performance of satellites and
Hughes' ability to access capital to maintain its financial flexibility.
General
On December 17, 1997, Hughes Electronics Corporation ("Hughes Electronics")
and GM, the parent of Hughes Electronics, completed a series of transactions
(the "Hughes Transactions") designed to address strategic challenges facing the
three principal businesses of Hughes Electronics and unlock stockholder value in
GM. The Hughes Transactions included the tax-free spin-off of the defense
electronics business ("Hughes Defense") to holders of GM $1-2/3 par value and
Class H common stocks, the transfer of Delco Electronics Corporation ("Delco"),
the automotive electronics business, to GM's Delphi Automotive Systems unit, and
the recapitalization of GM Class H common stock into a new GM tracking stock, GM
Class H common stock, that is linked to the remaining telecommunications and
space businesses. The Hughes Transactions were followed immediately by the
merger of Hughes Defense with Raytheon Company ("Raytheon"). For the periods
prior to the consummation of the Hughes Transactions on December 17,
1997, Hughes Electronics, consisting of its defense electronics, automotive
electronics, and telecommunications and space businesses, is hereinafter
referred to as former Hughes.
In connection with the recapitalization of Hughes Electronics on December 17,
1997, the telecommunications and space businesses of former Hughes, consisting
principally of its direct-to-home broadcast, satellite services, satellite
manufacturing and network systems businesses, were contributed to the
recapitalized Hughes Electronics. Such telecommunications and space businesses,
both before and after the recapitalization, is hereinafter referred to as
Hughes. The following discussion and accompanying financial statements pertain
only to Hughes and do not pertain to balances of former Hughes related to Hughes
Defense or Delco.
During 1998, three Hughes built satellites experienced the failure of a
primary spacecraft control processor (SCP). The satellites affected were the
DBS1 satellite operated by DIRECTV(R) and the Galaxy IV and Galaxy VII
satellites operated by PanAmSat. The control of the DBS1 and Galaxy VII
satellites were automatically switched to the spare SCP and the spacecrafts are
currently operating normally. The spare SCP on the Galaxy IV satellite was
unavailable due to unrelated and not previously detected damage, resulting in
the loss of the satellite. The loss of the Galaxy IV satellite is not expected
to have a material effect on Hughes' consolidated financial position due to
insurance coverage and the utilization of in-orbit spare capacity.
An extensive investigation by Hughes revealed that electrical shorts
involving tin-plated relay switches are the most likely cause of the primary SCP
failures. It appears the most probable cause of the electrical shorts is that
under certain conditions, a tiny, crystalline structure, less than the width of
a human hair, can grow and bridge a relay terminal to its case. Efforts are
currently underway to narrow the number of in-orbit HS-601 satellites that are
possibly susceptible to the phenomenon and determine steps that might reduce the
probability of recurrence in orbit. Although there exists the possibility of
failure of other currently operating SCP's, Hughes believes the probability of a
primary and spare SCP failing in one in-orbit HS-601 satellite is very low.
Hughes is confident that the phenomenon will not be repeated on satellites
currently being built and those ready for launch.
- 42 -
HUGHES ELECTRONICS CORPORATION
Results of Operations
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenues. Second quarter 1998 revenues increased 18.9% to $1,369.0
million compared with $1,151.4 million in the second quarter of 1997. The
increase reflects continued record subscriber growth in the Direct-To-Home
Broadcast segment, increased revenues in the Satellite Services segment
resulting primarily from the May 1997 PanAmSat merger and increased revenues in
the Satellite Manufacturing segment due to higher commercial satellite sales.
Direct-To-Home Broadcast segment second quarter 1998 revenues increased 42.5%
to $401.5 million from $281.7 million in the second quarter of 1997. The
increase resulted from continued strong subscriber growth, strong average
monthly revenue per subscriber and low subscriber churn rates. Domestic DIRECTV
propelled this growth with quarterly revenues of $368 million, a 49% increase
over last year's second quarter revenues of $247 million. With 227,000 net new
subscribers in the second quarter, total DIRECTV(R) subscribers grew to
3,755,000 in the United States as of June 30, 1998. Hughes' Latin American
DIRECTV subsidiary, Galaxy Latin America ("GLA"), had second quarter revenues of
$32 million compared with $13 million in the second quarter of 1997. With the
addition of 49,000 net new subscribers in the second quarter, cumulative DIRECTV
subscribers in Latin America were 387,000 as of June 30, 1998.
The Satellite Services segment second quarter 1998 revenues were up 42.5% to
$191.1 million compared with $134.1 million in the prior year. The increase was
primarily due to the May 1997 PanAmSat merger and increased operating lease
revenues for video, data and Internet-related services.
For the second quarter of 1998, revenues for the Satellite Manufacturing
segment increased 15.4% to $674.8 million from revenues of $584.5 million for
the same period in 1997. The increase in revenue was principally due to higher
commercial satellite sales to customers such as Thuraya Satellite
Telecommunications Company, ICO Global Communications and PanAmSat
Corporation.
Second quarter revenues for the Network Systems segment were $221.7 million
compared with $210.9 million in the same period last year. Increased sales of
satellite-based mobile telephony equipment were mostly offset by lower sales of
international wireless local loop telephone systems.
Operating Profit. Operating profit in the quarter increased 36.5% to $78.2
million compared to $57.3 million in the second quarter of 1997. The increase
resulted from the above noted increase in revenues. Second quarter operating
profit margin on the same basis increased to 5.7% in 1998 from 5.0% in 1997. The
increase in operating profit for the second quarter of 1998 resulted primarily
from record DIRECTV subscriber growth through June, continued strong performance
in the Satellite Services segment resulting from the PanAmSat merger and higher
commercial satellite sales.
The Direct-To-Home Broadcast segment operating loss for the second quarter of
1998 was $40.2 million compared with an operating loss of $47.9 million in the
second quarter of 1997. The lower operating loss in 1998 was principally due to
increased subscriber revenues that more than offset higher sales and marketing
expenditures. The second quarter 1998 operating loss for the domestic DIRECTV
business was $7 million compared with $21 million for last year, and GLA's
second quarter operating loss was $32 million compared with $33 million last
year.
With respect to the worldwide DIRECTV businesses, particularly in the United
States, Hughes has implemented a number of strategic initiatives designed to
expand its market share and enhance its competitive position. These include new
distribution channels, expanded services, broader programming and marketing and
other promotional strategies designed to address "barriers to entry" identified
by consumers. The implementation of such strategies increased subscriber
acquisition costs and, as a result, is likely to affect the timing and amount of
revenues and the overall profitability of the DIRECTV businesses. However,
Hughes believes that early capture of market share and the establishment of
market leadership are important to the maximization of the long-term value of
the DIRECTV businesses.
The Satellite Services segment operating profit in the second quarter rose
18.3% to $74.4 million from $62.9 million in 1997, resulting from the PanAmSat
merger and increased operating lease revenues noted above. Operating profit
margin in the period declined to 38.9% from 46.9% in the same period last year
primarily from goodwill amortization associated with the PanAmSat merger and a
provision for losses relating to the May 1998 failure of PanAmSat's Galaxy IV
satellite.
For the second quarter 1998, operating profit for the Satellite Manufacturing
segment increased 11.5% to $60.0 million from $53.8 million in the prior year.
The increase in operating profit was principally due to the higher commercial
satellite sales noted above. Operating profit margin in the quarter declined
slightly to 8.9% from 9.2% last year.
The Network Systems segment operating loss in the second quarter of 1998 was
$25.2 million compared with an operating loss of $1.0 million in the second
quarter of 1997. The increased operating loss in the second quarter of 1998 was
primarily due to a $26 million provision for estimated losses associated with
the bankruptcy filing by a customer.
- 43 -
HUGHES ELECTRONICS CORPORATION
Costs and Expenses. Selling, general and administrative expenses increased to
$359.2 million in the second quarter of 1998 from $230.1 million in the same
period of 1997. The increase resulted primarily from the PanAmSat merger,
increased programming, marketing and subscriber acquisition costs in the
Direct-To-Home Broadcast segment and increased business activity in the
satellite manufacturing segment. The increase in depreciation and amortization
expenses to $100.2 million in the second quarter of 1998 from $67.0 million in
the same period of 1997 resulted from increased goodwill amortization related to
the PanAmSat merger and additional satellite depreciation.
Interest Income and Expense. Interest income increased to $30.6 million in
the second quarter of 1998 compared with $5.7 million in the second quarter of
1997. The increase was due to the higher level of cash and cash equivalents
resulting from the Hughes Transactions as well as the PanAmSat merger. Interest
expense decreased $15.7 million in the second quarter of 1998 from the same
period in 1997 due to the repayment of debt in conjunction with the Hughes
Transactions.
Other, net. The second quarter 1998 amount primarily relates to losses from
unconsolidated subsidiaries of $22.0 million and a provision for estimated
losses associated with bankruptcy filings by two customers. The second quarter
1997 amount includes the $489.7 million pre-tax gain recognized in connection
with the May 1997 PanAmSat merger offset by losses from unconsolidated
subsidiaries of $10.9 million.
Income Taxes. The effective income tax rate was 32.9% in the second quarter
of 1998 and 39.6% in the second quarter of 1997. The decrease in the effective
tax rate resulted from Hughes increasing its ownership in PanAmSat in the second
quarter of 1998. As a result of Hughes' increased ownership in PanAmSat, Hughes
now benefits from the inclusion of PanAmSat in the Hughes consolidated tax
return.
Discontinued Operations. On December 15, 1997, Hughes sold substantially all
of the assets and liabilities of the Hughes Avicom International, Inc.
("Hughes Avicom") business to Rockwell Collins, Inc. for cash. As a result,
Hughes Avicom is treated as a discontinued operation for 1997.
Net Earnings. 1998 second quarter earnings increased to $56.1 million
compared with last year's $6.1 million, which excludes the $318.3 million
after-tax gain ($0.80 per share) recognized in connection with the May 1997
PanAmSat merger. Earnings per share on the same basis increased to $0.14 per
share versus pro forma earnings per share of $0.01 in 1997. Including the gain
associated with the PanAmSat merger, second quarter 1997 pro forma earnings per
share was $0.81. See Note 4 to the financial statements for further discussion
regarding pro forma presentation.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues. For the first six months of 1998, revenues increased 22.3% to
$2,660.0 million compared with $2,175.4 million in the first half of 1997. This
growth was primarily the result of strong DIRECTV subscriber growth, the May
1997 PanAmSat merger and higher commercial satellite sales.
Direct-To-Home Broadcast segment revenues for the first six months of 1998
increased 52.6% to $789.4 million from $517.3 million for the same period in
1997. The increase resulted from continued strong subscriber growth and average
monthly revenues per subscriber, as well as low subscriber churn rates.
For the first six months of 1998, the Satellite Services segment revenues
increased 46.8% to $384.1 million from $261.7 million for the same period in
1997. The increase was primarily due to the May 1997 PanAmSat merger and
increased operating lease revenues for video, data and Internet-related
services.
Revenues for the first six months of 1998 for the Satellite Manufacturing
segment were $1,299.1 million compared to $1,143.8 million for the same period
in 1997. The 13.6% increase in revenues resulted principally from higher
commercial satellite sales to customers such as Thuraya Satellite
Telecommunications Company, ICO Global Communications and PanAmSat
Corporation.
Network Systems segment revenues for the first six months of 1998 increased
3.3% to $406.4 million from $393.4 million for the first six months of 1997.
Increased sales resulting from the sale of private business networks and
satellite-based mobile telephony equipment, were mostly offset by lower sales of
international wireless local loop telephone systems.
Operating Profit. Driven by the above noted revenue growth, operating profit
for the first six months of 1998 rose sharply to $161.8 million versus $90.4
million in 1997, an increase of 79.0%. The increase in operating profit for the
first six months of 1998 is a result of increases in revenues noted above.
Operating profit margin on the same basis increased to 6.1% compared with 4.2%
in the first half of 1997. The increase in operating profit margin for the
second quarter of 1998 resulted primarily from record DIRECTV subscriber growth
through June, continued strong performance in the Satellite Services segment
resulting from the PanAmSat merger and higher commercial satellite sales.
The Direct-To-Home Broadcast segment operating loss for the first six months
of 1998 was $71.8 million compared with an operating loss of $115.4 million for
first six months of 1997. The lower operating loss in 1998 was principally due
to increased subscriber revenues that more than offset higher sales and
marketing expenditures.
- 44 -
HUGHES ELECTRONICS CORPORATION
The Satellite Services segment operating profit for the first six month of
1998 increased 22.0% to $160.1 million from $131.2 million for the first six
months of 1997, resulting from the PanAmSat merger and increased operating lease
revenues noted above. Operating profit margin in the period declined to 41.7%
from 50.1% in the same period last year primarily from goodwill amortization
associated with the PanAmSat merger and a provision for losses relating to the
May 1998 failure of PanAmSat's Galaxy IV satellite.
For the first six months of 1998, operating profit for the Satellite
Manufacturing segment increased 8.0% to $115.1 million from $106.6. The
increased operating profit was principally due to the higher commercial
satellite sales noted above. Operating profit margin in the first six months of
1998 declined slightly to 8.9% from 9.3% in the prior year.
The Network Systems segment operating loss in the first six months of 1998
was $37.1 million compared with an operating loss of $16.3 million in the first
six months of 1997. The increased operating loss was primarily due to a $26
million provision for estimated losses associated with the bankruptcy filing by
a customer.
Cost and Expenses. Selling, general and administrative expenses increased to
$661.8 million from $452.1 million in the same period of 1997. The increase in
these expenses resulted primarily from the PanAmSat merger, increased
programming, marketing and subscriber acquisition costs in the Direct-To-Home
Broadcast segment and increased business activity in the satellite manufacturing
segment. Depreciation and amortization expenses increased to $197.9 million in
the first six months of 1998 from $117.3 million for the same period in 1997.
The increase in depreciation and amortization expenses resulted from increased
goodwill amortization related to the PanAmSat merger and additional satellite
depreciation.
Interest Income and Expense. Interest income increased to $68.1 million in
the first six months of 1998 from $7.7 million in the first six months of 1997.
The increase was due to the higher level of cash and cash equivalents resulting
from the Hughes Transactions as well as the PanAmSat merger. Interest expense
decreased $27.8 million in the first six months of 1998 from the same period in
1997 due to the repayment of debt in conjunction with the Hughes Transactions.
Other, net. Other, net for the first six months of 1998 relates primarily to
losses from unconsolidated subsidiaries of $50.9 million, attributable
principally to equity investments, and a provision for estimated losses
associated with bankruptcy filings by two customers. The amount for the first
six months of 1997 includes the $489.7 million pre-tax gain recognized in
connection with the May 1997 PanAmSat merger offset by losses from
unconsolidated subsidiaries of $20.3 million.
Income Taxes. The effective income tax rate was 35.4% in the first six months
of 1998 and 39.2% in the first six months of 1997. The decrease in the effective
tax rate resulted from Hughes increasing its ownership of PanAmSat in the second
quarter of 1998. As a result of Hughes' increased ownership in PanAmSat, Hughes
now benefits from the inclusion of PanAmSat in the Hughes consolidated tax
return.
Net Earnings. Earnings for the first six months of 1998 increased to $109.8
million compared with last year's $30.0 million, which excludes the $318.3
million after-tax gain ($0.80 per share) recognized in connection with the may
1997 PanAmSat merger. Earnings per share on the same basis increased to $0.27
per share versus pro forma earnings per share of $0.07 in 1997. Including the
gain associated with the PanAmSat merger, for the first six months of 1997, pro
forma earnings per share was $0.87. See Note 4 to the financial statements for
further discussion regarding pro forma presentation.
Liquidity and Capital Resources
Cash and Cash Equivalents. Cash and cash equivalents were $1,592.8 million at
June 30, 1998 compared to $2,783.8 million at December 31, 1997. The $1,191.0
million decrease was primarily due to the purchase of an additional 9.5%
interest in PanAmSat, expenditures for PanAmSat satellites and cash paid to
General Motors for the Delco post-closing price adjustment.
Cash provided by operating activities for the six months ended June 30, 1998
was $157.1 million, compared to $377.1 million cash used in operating activities
for the same period in 1997. The change for the first six months of 1998
compared to that of 1997 resulted primarily from higher cash provided by
operations in 1998 resulting from the above noted increases in revenues while
there was a use of cash for the build-up in working capital for 1997.
Net cash used in investing activities was $1,393.7 million for the six months
ended June 30, 1998 and $1,687.8 million for the same period in 1997. The 1998
investing activities reflect the purchase of an additional 9.5% interest in
PanAmSat, an increase in satellite expenditures and the early buyout of
satellite sale-leasebacks at PanAmSat. The 1997 investing activities reflect the
PanAmSat merger in May 1997.
Net cash provided by financing activities was $45.6 million for the six
months ended June 30, 1998 compared with $2,401.0 million for same period in
1997. The 1998 financing activities reflect PanAmSat's net borrowings of $250.0
million, offset by the $204.7 million payment to GM for the Delco post-closing
price adjustment. The 1997 financing activities resulted from former Hughes
contributing $641.9 million to Hughes and Hughes borrowing $1,725.0 million from
GM for the PanAmSat merger.
- 45 -
HUGHES ELECTRONICS CORPORATION
Liquidity Measurement. As a measure of liquidity, the current ratio (ratio of
current assets to current liabilities) at June 30, 1998 and December 31, 1997
was 2.38 and 3.24, respectively. Current assets decreased by $797.9 million to
$4,008.0 million at June 30, 1998 from $4,805.9 million at December 31, 1997,
resulting primarily from the decrease in cash, noted above.
Dividend Policy and Use of Cash. Hughes does not initially anticipate paying
cash dividends to GM nor does GM anticipate paying cash dividends initially to
holders of GM Class H common stock. Hughes anticipates using its cash to fund
1998 capital expenditures for property and equipment and to fund additional
equity investments. Although, Hughes may be required to make a cash payment to
or receive a cash payment from Raytheon for a post-closing purchase price
adjustment in connection with the merger of Hughes Defense and Raytheon, the
amount of a cash payment to or from Raytheon, if any, is not determinable at
this time. (See further discussion in Note 10).
Debt and Credit Facilities. In January 1998, PanAmSat borrowed $125.0 million
under their five-year revolving credit facility, principally for the purpose of
exercising an early buyout option on a satellite sale-leaseback agreement. Also
in January 1998, PanAmSat completed a private placement debt offering for five,
seven, ten and thirty year notes aggregating $750.0 million, the proceeds of
which were used to repay outstanding bank borrowings of $725.0 million, which
included the $125.0 million of borrowings in January.
PanAmSat maintains a $500 million five-year revolving credit facility, which
provides for short-term and long-term borrowings, and a $500 million commercial
paper program, which provides for short-term borrowings. Borrowings under the
credit facility and commercial paper program are limited to $500 million in the
aggregate. There were $100.0 million of short-term borrowings against the credit
facility at June 30, 1998, principally for the purpose of exercising an early
buyout option on satellite sale-leaseback agreements.
In addition, Hughes maintains two unsecured revolving credit facilities,
consisting of a $750 million multi-year facility and a $250 million 364-day
facility. There were no borrowings against the credit facilities at June 30,
1998.
Hughes believes that existing cash balances and amounts available under its
credit facilities will provide sufficient resources to meet currently identified
working capital requirements, satellite construction, debt service and other
cash needs.
New Accounting Standards
In February of 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 132, Employers'
Disclosures About Pensions and Other Postretirement Benefits. SFAS No. 132
requires an entity to disclose certain information about pensions and other
postretirement benefits. The effect of adopting this new accounting standard,
which is required for adoption in the current fiscal year, will result in
additional disclosure only and will have no impact on Hughes' consolidated
financial statements.
In March of 1998, the American Institute of Certified Public Accountant's
(AICPA) Accounting Standards Executive Committee (ASEC) issued Statement of
Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 provides guidance on the capitalization of
software developed and/or purchased for internal use. Hughes will adopt SOP 98-1
by January 1, 1999, as required. Management is currently assessing the impact of
this SOP to Hughes' consolidated financial statements.
In April of 1998, the ASEC of the AICPA issued SOP 98-5, Reporting on the
Costs of Start-Up Activities. SOP 98-5 provides guidance on the financial
reporting of start-up and organizational costs, requiring those costs to be
expensed as incurred. Hughes will adopt the standard by January 1, 1999.
Adoption of this standard is not expected to have a material impact on Hughes'
consolidated financial statements.
In June of 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Gains or losses resulting
from changes in the values of those derivatives would be recognized immediately
or deferred depending on the use of the derivative and if the derivative is a
qualifying hedge. Hughes plans to adopt SFAS No. 133 by January 1, 2000, as
required. Hughes is currently assessing the impact of this statement on Hughes'
consolidated financial statements.
- 46 -
HUGHES ELECTRONICS CORPORATION
Supplemental Data
The financial statements reflect the application of purchase accounting
adjustments as previously discussed. However, as provided in GM's Restated
Certificate of Incorporation, the earnings attributable to GM Class H common
stock for purposes of determining the amount available for the payment of
dividends on GM Class H common stock specifically excludes such adjustments.
More specifically, amortization of the intangible assets associated with GM's
purchase of Hughes amounted to $5.3 million for the second quarters of 1998 and
1997 and $10.6 million for the six months ended June 30, 1998 and 1997. Such
amounts are excluded from the earnings available for the payment of dividends on
GM Class H common stock and are charged against earnings available for the
payment of dividends on GM's $1-2/3 par value stock. Unamortized purchase
accounting adjustments associated with GM's purchase of Hughes were $437.0
million at June 30, 1998 and $447.6 million at December 31, 1997.
In order to provide additional analytical data to the users of Hughes'
financial information, supplemental data in the form of unaudited summary pro
forma financial data are provided. Consistent with the basis on which earnings
of Hughes available for the payment of dividends on the GM Class H common stock
is determined, the pro forma data exclude purchase accounting adjustments
related to GM's acquisition of Hughes. Included in the supplemental data are
certain financial ratios which provide measures of financial returns excluding
the impact of purchase accounting adjustments. The pro forma data are not
presented as a measure of GM's total return on its investment in Hughes.
- 47 -
HUGHES ELECTRONICS CORPORATION
Unaudited Summary Pro Forma Financial Data*
Pro Forma Condensed Statement of Income
Three Months Ended Six Months Ended
June 30, June 30,
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in Millions Except Per Share Amounts)
Total revenues $1,369.0 $1,151.4 $2,660.0 $2,175.4
Total operating costs and expenses 1,290.8 1,094.1 2,498.2 2,085.0
------- ------- ------- -------
Operating profit 78.2 57.3 161.8 90.4
Non-operating (loss) income (7.4) 466.6 (7.2) 444.4
Income taxes 23.3 207.5 54.7 209.7
Minority interests in net losses
of subsidiaries 8.6 7.7 9.9 21.9
Income from discontinued operations - 0.3 - 1.3
----- --- ----- ---
Earnings Used for Computation of Available
Separate Consolidated Net Income $56.1 $324.4 $109.8 $348.3
==== ===== ===== =====
Earnings Attributable to General Motors
Class H Common Stock on a
Per Share Basis $0.14 $0.81 $0.27 $0.87
==== ==== ==== ====
Pro Forma Condensed Balance Sheet
June 30, December 31,
Assets 1998 1997
-------- ---------
(Dollars in Millions)
Total Current Assets $4,008.0 $4,805.9
Satellites, net 2,897.5 2,643.4
Property, net 927.6 889.7
Net Investment in Sales-type Leases 231.1 337.6
Intangible Assets, Investments and Other Assets, net 4,283.0 3,639.6
-------- --------
Total Assets $12,347.2 $12,316.2
======== ========
Liabilities and Stockholder's Equity
Total Current Liabilities $1,684.5 $1,482.6
Long-Term Debt 787.9 637.6
Postretirement Benefits Other Than Pensions,
Other Liabilities and Deferred Credits 1,655.0 1,724.1
Minority Interests 436.8 607.8
Total Stockholder's Equity (1) 7,783.0 7,864.1
--------- ---------
Total Liabilities and Stockholder's Equity (1) $12,347.2 $12,316.2
======== ========
* The summary excludes purchase accounting adjustments related to GM's
acquisition of Hughes. 1997 earnings attributable to General Motors Class H
common stock on a per share basis are presented on a pro forma basis for
comparative purposes. See Note 4 to the financial statements for further
discussion.
(1)General Motors' equity in its wholly-owned subsidiary, Hughes. Holders of GM
Class H common stock have no direct rights in the equity or assets of Hughes,
but rather have rights in the equity and assets of GM (which includes 100% of
the stock of Hughes).
- 48 -
HUGHES ELECTRONICS CORPORATION
Unaudited Summary Pro Forma Financial Data* - Continued
Pro Forma Selected Segment Data
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in Millions)
Direct-To-Home Broadcast
Total Revenues $401.5 $281.7 $789.4 $517.3
Operating Loss $(40.2) $(47.9) $(71.8) $(115.4)
Depreciation and Amortization $23.5 $23.0 $46.0 $41.3
Capital Expenditures $34.4 $18.8 $48.1 $30.2
Satellite Services
Total Revenues $191.1 $134.1 $384.1 $261.7
Operating Profit $74.4 $62.9 $160.1 $131.2
Operation Profit Margin 38.9% 46.9% 41.7% 50.1%
Depreciation and Amortization $58.7 $30.1 $113.2 $43.9
Capital Expenditures (1) $164.7 $18.1 $414.3 $352.7
Satellite Manufacturing
Total Revenues $674.8 $584.5 $1,299.1 $1,143.8
Operating Profit $60.0 $53.8 $115.1 $106.6
Operation Profit Margin 8.9% 9.2% 8.9% 9.3%
Depreciation and Amortization $11.5 $9.1 $22.2 $17.8
Capital Expenditures $21.6 $24.5 $32.3 $40.1
Network Systems
Total Revenues $221.7 $210.9 $406.4 $393.4
Operating Loss $(25.2) $(1.0) $(37.1) $(16.3)
Depreciation and Amortization $9.9 $8.9 $18.4 $16.1
Capital Expenditures $10.9 $10.8 $15.7 $17.7
Eliminations and Other
Total Revenues $(120.1) $(59.8) $(219.0) $(140.8)
Operating Loss $9.2 $(10.5) $(4.5) $(15.7)
Depreciation and Amortization $(3.4) $(4.1) $(1.9) $(1.8)
Capital Expenditures $10.0 $52.8 $135.9 $(221.7)
- -------------------------
* The Financial Statements reflect the application of purchase accounting
adjustments related to GM's acquisition of Hughes. However, as provided in the
General Motor's Restated Certificate of Incorporation, the earnings
attributable to GM Class H common stock for purposes of determining the amount
available for the payment of dividends on GM Class H common stock specifically
excludes such adjustments. In order to provide additional analytical data the
above unaudited pro forma selected segment data, which exclude the purchase
accounting adjustments related to GM's acquisition of Hughes, are presented.
(1) Includes expenditures related to satellites amounting to $94.4 million,
$15.0 million, $240.0 and $347.1 million, respectively. Also included in
1998 is $58.9 million for the three months ended June 30 and $155.5 million
for the six months ended June 30 related to the early buyout of satellite
sale-leasebacks.
- 49 -
HUGHES ELECTRONICS CORPORATION AND SUBSIDIARIES
Unaudited Summary Pro Forma Financial Data* - Concluded
Pro Forma Selected Financial Data
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in Millions Except Per Share Amounts)
Operating profit $78 $57 $162 $90
Income from continuing operations
before income taxes and minority
interests 71 524 155 535
Earnings used for computation of
available separate consolidated
net income 56 324 110 348
Average number of GM Class H
dividend base shares (1) 399.9 399.9 399.9 399.9
Stockholder's equity $7,783 $3,413 $7,783 $3,413
Working capital 2,324 781 2,324 781
Operating profit as a percent
of revenues 5.7% 5.0% 6.1% 4.2%
Income from continuing operations
before income taxes and
minority interests as a
percent of revenues 5.2% 45.5% 5.8% 24.6%
Net income as a percent of revenues 4.1% 28.2% 4.1% 16.0%
- ---------------------
* The summary excludes purchase accounting adjustments related to GM's
acquisition of Hughes.
(1)Class H dividend base shares is used in calculating earnings attributable to
GM Class H common stock on a per share basis. This is not the same as the
average number of GM Class H shares outstanding, which was 105.2 million for
the second quarter of 1998 and 101.0 million for the second quarter of 1997.
* * * * * *
- 50 -