EXHIBIT 99
HUGHES ELECTRONICS CORPORATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF INCOME (LOSS) AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- -------- -------- ---------
(Dollars in Millions Except Per Share Amounts)
Revenues
Direct broadcast, leasing and
other services $1,065.1 $606.4 $1,800.8 $1,205.3
Product sales 710.9 762.6 1,427.0 1,454.7
------- ------- ------- -------
Total Revenues 1,776.0 1,369.0 3,227.8 2,660.0
------- ------- ------- -------
Operating Costs and Expenses
Cost of products sold 685.7 580.6 1,354.9 1,122.9
Broadcast programming and
other costs 478.6 250.8 770.2 515.6
Selling, general and
administrative expenses 548.5 359.2 953.3 661.8
Depreciation and amortization 159.8 100.2 282.8 197.9
Amortization of GM purchase
accounting adjustments 5.3 5.3 10.6 10.6
------- ------- ------- -------
Total Operating Costs and Expenses 1,877.9 1,296.1 3,371.8 2,508.8
------- ------- ------- -------
Operating Profit (Loss) (101.9) 72.9 (144.0) 151.2
Interest income 4.9 30.6 18.5 68.1
Interest expense (12.4) (2.9) (19.3) (5.9)
Other, net (37.5) (35.1) 100.2 (69.4)
-------- ------- -------- -------
Income (Loss) Before Income Taxes,
Minority Interests and Cumulative
Effect of Accounting Change (146.9) 65.5 (44.6) 144.0
Income tax provision (benefit) (42.5) 23.3 (6.7) 54.7
Minority interests in net losses
of subsidiaries 6.8 8.6 13.3 9.9
-------- ------- -------- -------
Income (Loss) before cumulative effect
of accounting change (97.6) 50.8 (24.6) 99.2
Cumulative effect of accounting
change, net of taxes - - - (9.2)
------- ------- ------- -------
Net Income (Loss) (97.6) 50.8 (24.6) 90.0
Adjustments to exclude the effect of
GM purchase accounting adjustments 5.3 5.3 10.6 10.6
------ ----- ----- ------
Earnings (Loss) excluding the effect of
GM purchase accounting adjustments (92.3) 56.1 (14.0) 100.6
Preferred stock dividends (1.6) - (1.6) -
------ ------- ----- ---------
Earnings (Loss) Used for Computation of
Available Separate Consolidated Net
Income (Loss) $(93.9) $56.1 $(15.6) $100.6
====== ==== ====== =====
Available Separate Consolidated Net Income (Loss)
Average number of shares of General Motors
Class H Common Stock outstanding
(in millions) (Numerator) 121.0 105.2 113.6 104.7
Average Class H dividend base
(in millions) (Denominator) 414.9 399.9 407.5 399.9
Available Separate Consolidated
Net Income (Loss) $(27.4) $14.7 $(4.3) $26.2
====== ==== ===== ====
Earnings (Loss) Attributable to General Motors
Class H Common Stock on a Per Share
Basis - Basic and Diluted $(0.23) $0.14 $(0.04) $0.25
===== ==== ===== ====
Reference should be made to the Notes to Financial Statements.
- 43 -
HUGHES ELECTRONICS CORPORATION
BALANCE SHEETS
June 30,
1999 December 31,
ASSETS (Unaudited) 1998
----------- ----
(Dollars in Millions)
Current Assets
Cash and cash equivalents $858.7 $1,342.1
Accounts and notes receivable (less allowances) 1,345.0 922.4
Contracts in process, less advances and progress
payments of $24.7 and $27.0 690.6 783.5
Inventories 653.8 471.5
Prepaid expenses and other, including deferred income
taxes of $96.7 and $33.6 591.5 326.9
-------- --------
Total Current Assets 4,139.6 3,846.4
Satellites, net 3,515.8 3,197.5
Property, net 1,303.0 1,059.2
Net Investment in Sales-type Leases 162.0 173.4
Intangible Assets, net of accumulated amortization
of $486.7 and $413.2 7,420.0 3,552.2
Investments and Other Assets 1,732.6 1,606.3
--------- ---------
Total Assets $18,273.0 $13,435.0
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $1,020.4 $764.1
Advances on contracts 178.0 291.8
Deferred revenues 94.7 43.8
Current portion of long-term debt 184.4 156.1
Accrued liabilities 1,542.2 753.7
------- --------
Total Current Liabilities 3,019.7 2,009.5
Long-Term Debt 1,239.6 778.7
Deferred Gains on Sales and Leasebacks 59.6 121.5
Postretirement Benefits Other Than Pensions 153.9 150.7
Other Liabilities and Deferred Credits 1,495.1 867.1
Deferred Income Taxes 447.2 643.9
Commitments and Contingencies
Minority Interests 502.2 481.7
Stockholder's Equity
Capital stock and additional paid-in capital 9,689.8 8,146.1
Preferred stock 1,485.0 -
Net income retained for use in the business 231.6 257.8
-------- -------
Subtotal Stockholder's Equity 11,406.4 8,403.9
-------- -------
Accumulated Other Comprehensive Income (Loss)
Minimum pension liability adjustment (37.1) (37.1)
Accumulated unrealized gains (losses) on securities (8.0) 16.1
Accumulated foreign currency translation adjustments (5.6) (1.0)
Accumulated other comprehensive loss (50.7) (22.0)
-------- -------
Total Stockholder's Equity 11,355.7 8,381.9
-------- --------
Total Liabilities and Stockholder's Equity $18,273.0 $13,435.0
======== ========
Reference should be made to the Notes to Financial Statements.
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HUGHES ELECTRONICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1999 1998
---- ----
(Dollars in Millions)
Cash Flows from Operating Activities
Net Cash (Used in) Provided by Operating Activities $(15.3) $157.1
------ -----
Cash Flows from Investing Activities
Investment in companies, net of cash acquired (1,784.4) (908.0)
Expenditures for property (170.8) (121.4)
Increase in satellites (384.8) (255.5)
Early buyout of satellite under sale and leaseback (141.3) (155.5)
Proceeds from disposal of property 5.1 46.7
-------- --------
Net Cash Used in Investing Activities (2,476.2) (1,393.7)
-------- --------
Cash Flows from Financing Activities
Net increase in notes and loans payable 28.3 100.0
Long-term debt borrowings 2,422.0 875.3
Repayment of long-term debt (1,961.1) (725.0)
Net proceeds from issuance of preferred stock 1,485.0 -
Stock options exercised 42.8 -
Purchase and retirement of GM Class H common stock (8.9) -
Payment to General Motors for Delco post-closing
price adjustment - (204.7)
-------- --------
Net Cash Provided by Financing Activities 2,008.1 45.6
-------- --------
Net decrease in cash and cash equivalents (483.4) (1,191.0)
Cash and cash equivalents at beginning of the period 1,342.1 2,783.8
-------- -------
Cash and cash equivalents at end of the period $858.7 $1,592.8
======== =======
Reference should be made to the Notes to Financial Statements.
- 45 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting. In the opinion of management, all adjustments (consisting only of
normal recurring items) which are necessary for a fair presentation have been
included. The results for interim periods are not necessarily indicative of
results that may be expected for any other interim period or for the full year.
For further information, refer to the financial statements and notes thereto
included in the General Motors (GM) 1998 Annual Report on Form 10-K, the
unaudited information relating to Hughes filed as Exhibit 99 in GM's Quarterly
Report on Form 10-Q dated March 31, 1999, and Current Reports on Form 8-K filed
subsequent to the filing date for the GM 1998 Annual Report on Form 10-K.
The financial statements include the applicable portion of intangible assets,
including goodwill, and related amortization resulting from purchase accounting
adjustments associated with GM's purchase of Hughes in 1985.
In 1998, Hughes adopted American Institute of Certified Public Accountants
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 requires that all start-up costs previously capitalized be
written off and recognized as a cumulative effect of accounting change, net of
taxes, as of the beginning of the year of adoption. On a prospective basis,
these types of costs are required to be expensed as incurred. The unfavorable
cumulative effect of this accounting change was $9.2 million after-tax, or $0.02
per share of GM Class H common stock in the first quarter of 1998.
Note 2. Inventories
Major Classes of Inventories
June 30, December 31,
(Dollars in Millions) 1999 1998
---- ----
Productive material and supplies $80.6 $73.4
Work in process 463.8 285.1
Finished goods 109.4 113.0
----- -----
Total $653.8 $471.5
===== =====
Note 3. Comprehensive Income
Hughes' total comprehensive income was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in Millions) 1999 1998 1999 1998
---- ---- ---- ----
Net income (loss) $(97.6) $50.8 $(24.6) $90.0
Other comprehensive loss:
Foreign currency translation
adjustments (1.1) (2.2) (4.6) (2.5)
Unrealized loss on securities:
Unrealized holding gains
(losses) (19.5) 1.6 (24.1) 1.0
Less: reclassification
adjustment for
unrealized gains
included in net income - (7.3) - (7.3)
----- ------ ----- ------
Unrealized loss on
securities (19.5) (5.7) (24.1) (6.3)
----- ------ ------ ------
Other comprehensive loss (20.6) (7.9) (28.7) (8.8)
------ ----- ------ -----
Total comprehensive income
(loss) $(118.2) $42.9 $(53.3) $81.2
======= ==== ====== ====
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HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--Continued
(Unaudited)
Note 4. Earnings (Loss) Per Share Attributable to GM Class H Common Stock
and Available Separate Consolidated Net Income (Loss)
Earnings (Loss) attributable to GM Class H common stock on a per share basis
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 (Loss) ("ASCNI") of
Hughes. The ASCNI of Hughes is determined quarterly and is equal to the separate
consolidated net income (loss) of Hughes, excluding the effects of GM purchase
accounting adjustments arising from GM's acquisition of Hughes and including the
effects of preferred dividends paid and/or payable to GM (earnings (loss) used
for computation of ASCNI), multiplied by a fraction, the numerator of which is
equal to the weighted-average number of shares of GM Class H common stock
outstanding during the period (121.0 million and 105.2 million during the second
quarters of 1999 and 1998, respectively) and the denominator of which is a
number equal to the weighted- average number of shares of GM Class H common
stock which, if issued and outstanding, would represent 100% of the tracking
stock interest in the earnings of Hughes (Average Class H dividend base). The
Average Class H dividend base was 414.9 million and 399.9 million during the
second quarters of 1999 and 1998, respectively. Upon conversion of the General
Motors Series H preference stock into General Motors 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 General Motors Class H common stock issued (see
further discussion in Note 5). In addition, the denominator used in determining
the ASCNI of Hughes may be adjusted from time-to-time as deemed appropriate by
the GM Board of Directors ("GM Board") to reflect subdivisions or combinations
of the GM Class H common stock, certain transfers of capital to or from Hughes,
the contribution of shares of capital stock of GM to or for the benefit of
Hughes employees and the retirement of GM Class H common stock purchased by
Hughes. The GM Board's discretion to make such adjustments is limited by
criteria set forth in GM's Restated Certificate of Incorporation.
In connection with the PRIMESTAR and USSB transactions (see further
discussion in Note 7), GM contributed to Hughes an amount of cash sufficient to
enable Hughes to purchase from GM, for fair value as determined by the GM Board,
the number of shares of GM Class H common stock delivered by Hughes. In
accordance with the GM certificate of incorporation, the Class H dividend base
was increased to reflect that number of shares. The number of shares issued as
part of the PRIMESTAR acquisition and the number of shares to be issued as part
of the USSB merger have been included in the calculation of both the numerator
and denominator of the fraction described above since the consummation dates of
the transactions.
Effective January 1, 1999, shares of Class H common stock delivered by GM in
connection with the award of such shares to and the exercise of stock options by
employees of Hughes increases the numerator and denominator of the fraction
referred to above. Prior to January 1, 1999, there was no dilutive effect
resulting from the assumed exercise of stock options, because the exercise of
stock options did not affect the GM Class H dividend base (denominator). From
time to time, in anticipation of exercises of stock options, Hughes purchases
Class H common stock from the open market. Upon purchase, these shares are
retired and therefore decrease the numerator and denominator of the fraction
referred to above.
For the three and six months ended June 30, 1999, diluted loss per share have
not been presented as the assumed exercise of stock options and the assumed
conversion of the preferred shares in the computation of diluted loss per share
would have been anti-dilutive.
- 47 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--Continued
(Unaudited)
Note 5. Hughes Series A Preferred Stock
On June 24, 1999, as part of a strategic alliance with Hughes, America Online
("AOL") invested $1.5 billion in shares of General Motors Series H 6.25%
Automatically Convertible Preference Stock. The General Motors Series H
preference stock will automatically convert into Class H common stock in three
years based upon a variable conversion factor linked to the 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.
General Motors immediately invested the $1.5 billion received from AOL in shares
of Hughes Series A Preferred Stock designed to correspond to the financial terms
of the General Motors Series H preference stock. Dividends on the Hughes Series
A Preferred Stock are payable to General Motors quarterly at an annual rate of
6.25%. These preferred stock dividends payable to General Motors will reduce
Hughes' earnings used for computation of the ASCNI of Hughes, which will have an
equivalent effect to the payment of dividends on the Series H preference stock
as if those dividends were paid by Hughes. Upon conversion of the General Motors
Series H preference stock into General Motors Class H common stock, Hughes will
redeem the Series A Preferred Stock through a cash payment to General Motors
equal to the fair market value of the Class H common stock issuable upon the
conversion. Simultaneous with General Motors' receipt of the cash redemption
proceeds, General Motors 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 General Motors Class H common stock issued.
Accordingly, upon conversion of the General Motors Series H preference stock
into General Motors Class H common stock, both the numerator and denominator
used in the computation of ASCNI will increase by the amount of the General
Motors Class H common stock issued.
Note 6. 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.
- 48 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--Continued
(Unaudited)
Note 7. Acquisitions
On January 22, 1999, Hughes agreed to acquire PRIMESTAR's 2.3 million
subscriber medium-power direct-to-home satellite business and the high-power
satellite assets and direct-broadcast satellite orbital frequencies of Tempo
Satellite, a wholly-owned subsidiary of TCI Satellite Entertainment, Inc. On
April 28, 1999, the acquisition of PRIMESTAR's direct-to-home business was
completed. The purchase price consisted of $1.1 billion in cash and 4.9 million
shares of GM Class H common stock, for a total purchase price of $1.3 billion,
based on the average market price of $47.87 per share of Class H common stock at
the time the acquisition agreement was signed. The purchase price will be
adjusted based upon the final adjusted net working capital of PRIMESTAR at the
date of closing. The purchase price for the Tempo Satellite assets consisted of
$500 million in cash. Of this purchase price, $150 million was paid on March 10,
1999 for a satellite that has not yet been launched and the remaining $350
million was paid on June 4, 1999 for an in-orbit satellite and 11 related
satellite orbital frequencies.
In December 1998, Hughes agreed to acquire all of the outstanding capital
stock of United States Satellite Broadcasting Company, Inc. ("USSB"). USSB
provided direct-to-home premium satellite programming in conjunction with
DIRECTV's basic programming service. The purchase price was approximately $1.6
billion, consisting of approximately $360 million in cash and 22.6 million
shares of Class H common stock. The USSB acquisition was closed on May 20, 1999
and the payment of cash and delivery of shares was made to the former USSB
shareholders in July 1999.
The financial information presented as of and for the periods ended June 30,
1999 reflect the effects of the PRIMESTAR, Tempo Satellite and USSB
transactions, discussed above, from their respective dates of acquisition. These
transactions have been accounted for using the purchase method of accounting;
however, the adjustments made in the June 30, 1999 financial statements reflect
a preliminary allocation of the purchase price for the transactions based upon
information currently available. Adjustments relating to the tangible assets
(i.e., satellites, equipment located on customer premises, etc.), intangible
assets (i.e., licenses granted by the Federal Communications Commission,
customer lists, dealer network, etc.), and accrued liabilities for programming
contracts and leases with above-market rates are estimates pending the
completion of independent appraisals currently in process. Additionally, the
adjustment to recognize the benefit of net operating loss carryforwards of USSB
represents a preliminary estimate pending further review and analysis by the
management of Hughes. These appraisals, valuations and studies are expected to
be completed by December 31, 1999. Accordingly, the final purchase price
allocations may be different from the amounts reflected herein.
As the Hughes 1999 financial statements include only USSB's and PRIMESTAR's
results of operations since the date of acquisition, the following selected
unaudited pro forma information is provided to present a summary of the combined
results of Hughes, USSB and PRIMESTAR as if the acquisitions had occurred as of
the beginning of the respective periods, giving effect to purchase accounting
adjustments. The pro forma data is presented for informational purposes only and
may not necessarily reflect the results of operations of Hughes had USSB and
PRIMESTAR operated as part of Hughes for the six months ended June 30, 1999 and
June 30, 1998, nor are they necessarily indicative of the results of future
operations. The pro forma information excludes the effect of non-recurring
charges.
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
- --------------------------------------------------------------------------------
(Dollars in Millions Except Per Share Amounts)
Total revenues $4,017.6 $3,466.5
Income (Loss) before cumulative effect
of accounting Change (20.7) 66.8
Net income (loss) (20.7) 57.6
Pro forma available separate consolidated
net loss (1) (17.7) 6.6
Pro forma loss per share attributable to GM Class H
common stock on a per share basis (1) $(0.13) $0.05
(1) Both periods include the pro forma effect of dividends amounting to $46.9
million related to the Hughes Series A Preferred Stock as if the preferred stock
had been outstanding as of the beginning of the respective periods.
- 49 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--Continued
(Unaudited)
Note 8. Segment Reporting
Hughes' segments, which are differentiated by their products and services,
include Direct-To-Home Broadcast, Satellite Services, Satellite Systems and
Network Systems. Direct-To-Home Broadcast is engaged in acquiring, promoting,
selling and/or distributing digital programming via satellite to residential and
commercial customers. Satellite Services is engaged in the selling, leasing and
operating of satellite transponders and providing services for cable television
systems, news companies, Internet service providers and private business
networks. Satellite Systems designs, manufactures and markets satellites and
satellite components. Network Systems products include satellite-based business
networks and Internet access service, cellular-based fixed wireless telephony
systems, mobile cellular digital packet data systems and DIRECTV(TM) receiver
equipment. Other includes the corporate office and other entities.
Selected information for Hughes' operating segments for the three and six
months ended June 30, 1999 and 1998, are reported as follows:
Operating Segments:
Direct-To-
Home Satellite Satellite Network Elimin-
Broadcast Services Systems Systems Other ations Total
- --------------------------------------------------------------------------------
(Dollars in Millions)
For the Three Months Ended:
June 30, 1999
External Revenues $869.3 $167.3 $462.4 $277.0 - - $1,776.0
Intersegment
Revenues 0.9 33.1 91.4 64.1 $0.1 ($189.6) -
- --------------------------------------------------------------------------------
Total Revenues $870.2 $200.4 $553.8 $341.1 $0.1 $(189.6)$1,776.0
- --------------------------------------------------------------------------------
Operating Profit
(Loss)(1) $(68.4) $82.4 $(133.0) $11.3 $(26.5) $32.3 $(101.9)
- --------------------------------------------------------------------------------
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 Profit
(Loss)(1) $(40.2) $73.6 $60.0 $(25.2) $(0.6) $5.3 $72.9
- --------------------------------------------------------------------------------
For the Six Months Ended:
June 30, 1999
External Revenues$1,425.3 $327.0 $998.0 $477.5 - - $3,227.8
Intersegment
Revenues 1.5 66.9 186.1 94.5 $0.3 $(349.3) -
- --------------------------------------------------------------------------------
Total Revenues $1,426.8 $393.9 $1,184.1 $572.0 $0.3 $(349.3)$3,227.8
- --------------------------------------------------------------------------------
Operating Profit
(Loss)(1) $(91.8) $160.7 $(147.4) $(6.5) $(39.9) $(19.1) $(144.0)
- --------------------------------------------------------------------------------
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 Profit
(Loss)(1) $(71.8) $158.5 $115.1 $(37.1) $(11.4) $(2.1) $151.2
- --------------------------------------------------------------------------------
(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-month 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.
- 50 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--Continued
(Unaudited)
Note 9. Commitments and Contingencies
In connection with the 1997 spin-off of the defense electronics business of
Hughes' predecessor and the subsequent merger of that business with Raytheon
Company, 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. Such financial
adjustments might require a cash payment from Raytheon to Hughes or vice versa.
A dispute currently exists regarding the post-closing adjustments which Hughes
and Raytheon have proposed to one another and related issues regarding the
adequacy of disclosures made by Hughes to Raytheon in the period prior to
consummation of the merger. Hughes and Raytheon are proceeding with the dispute
resolution process. It is possible that the ultimate resolution of the
post-closing financial adjustment and of related disclosure issues may result in
Hughes making a payment to Raytheon that would be material to Hughes. However,
the amount of any payment that either party might be required to make to the
other cannot be determined at this time. Hughes intends to vigorously pursue
resolution of the disputes through the arbitration processes, opposing the
adjustments proposed by Raytheon, and seeking the payment from Raytheon that it
has proposed.
General Electric Capital Corporation ("GECC") and DIRECTV, Inc. entered into
a contract on July 31, 1995, in which GECC agreed to provide financing for
consumer purchases of DIRECTV hardware and related 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 $70 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. Pretrial
discovery is not yet completed in the case and no trial date has been set.
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") has a contract with
ICO Global Communications Operations to build the satellites and related
components for a global wireless communications system. Hughes owns
approximately 2.6% of the equity in its parent company, ICO Global
Communications (Holdings) ("ICO"). ICO has indicated in its public disclosure
that it requires substantial additional financing to continue operating its
business and to fund the construction of its communications network. ICO also
has indicated that it currently is attempting to obtain financing through its
existing stockholders, including Hughes, and/or third parties. There can be no
assurance that ICO will be successful in obtaining adequate financing to
continue operating its business or to complete construction of its
communications network. If ICO is unable to obtain the necessary additional
financing, it and its subsidiary would likely be unable to pay the remaining
amounts due to HSCI under the contract. If ICO fails to pay HSCI these remaining
amounts, HSCI could terminate the contract for non-payment. In the event of
non-payment, Hughes would expect to record a pre-tax charge to earnings of
approximately $500.0 million.
- 51 -
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--Continued
(Unaudited)
Note 10. Subsequent Event
On July 28, 1999, Galaxy Latin America ("GLA"), Hughes' 70% owned subsidiary,
acquired Galaxy Brasil, Ltda., the exclusive distributor of DIRECTV services in
Brazil, from Tevecap S.A. for approximately $114.0 million plus the assumption
of debt. In connection with the transaction, Tevecap sold its 10% equity
interest in GLA to Hughes and the Cisneros Group, the remaining GLA partners.
Hughes' share of the purchase amounted to approximately $101.1 million and
increased Hughes' ownership of GLA to 77.8%.
On July 6, 1999, as part of the USSB merger, Hughes paid approximately $0.4
billion in cash and issued approximately 22.6 million shares of Class H common
stock to the former USSB shareholders.
- 52 -
HUGHES ELECTRONICS CORPORATION
ITEM 2. 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) 1998 Annual Report to the Securities and Exchange Commission
(SEC) on Form 10-K, 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,
1999, and Current Reports on Form 8-K filed subsequent to the filing date for
GM's 1998 Form 10-K. In addition, the following discussion excludes purchase
accounting adjustments related to GM's acquisition of Hughes (see Supplemental
Data beginning on page 64).
This Quarterly Report may contain certain statements that Hughes believes
are, or may be considered to be, "forward-looking statements", within the
meaning of Section 27 A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements generally can
be identified by use of statements that include phrases such as we "believe,"
"expect," "anticipate," "intend," "plan," "foresee" or other similar words or
phrases. Similarly, statements that describe our objectives, plans or goals also
are forward-looking statements. All of these forward-looking statements are
subject to certain risks and uncertainties that could cause our actual results
to differ materially from those contemplated by the relevant forward-looking
statement. The principal important risk factors which could cause actual
performance and future actions to differ materially from forward-looking
statements made herein include economic conditions, product demand and market
acceptance, government action, ability to obtain export licenses, competition,
ability to achieve cost reductions, technological risk, ability to address the
year 2000 issue, interruptions to production attributable to causes outside of
Hughes' control, the success and timeliness of satellite launches, in-orbit
performance of satellites, ability of customers to obtain financing and Hughes'
ability to access capital to maintain its financial flexibility. Additionally,
Hughes and its 81.0% owned subsidiary, PanAmSat Corporation ("PanAmSat"), have
experienced satellite anomalies in the past and may experience satellite
anomalies in the future that could lead to the loss or reduced capacity of such
satellites that could materially affect Hughes' operations. Readers are urged to
consider these factors carefully in evaluating the forward-looking statements.
The forward-looking statements included in this Quarterly Report are made only
as of the date of this Quarterly Report and we undertake no obligation to
publicly update these forward-looking statements to reflect subsequent events or
circumstances.
The financial information presented as of and for the period ended June 30,
1999 reflect the effects of the PRIMESTAR, Tempo Satellite and USSB
transactions, discussed below, from their respective dates of acquisition. These
transactions have been accounted for using the purchase method of accounting;
however, the adjustments made in the June 30, 1999 financial statements reflect
a preliminary allocation of the purchase price for the transactions based upon
information currently available. Adjustments relating to the tangible assets
(i.e., satellites, equipment located on customer premises, etc.), intangible
assets (i.e., licenses granted by the Federal Communications Commission,
customer lists, dealer network, etc.), and accrued liabilities for programming
contracts and leases with above-market rates are estimates pending the
completion of independent appraisals currently in process. Additionally, the
adjustment to recognize the benefit of net operating loss carryforwards of USSB
represents a preliminary estimate pending further review and analysis by the
management of Hughes. These appraisals, valuations and studies are expected to
be completed by December 31, 1999. Accordingly, the final purchase price
allocations may be different from the amounts reflected herein.
General
In 1998, PanAmSat adopted a comprehensive satellite expansion and restoration
plan pursuant to which PanAmSat would expand its fleet of satellites in 1999 and
2000. The additional satellites are intended to meet the expected demand for
additional satellite capacity, replace capacity affected by satellite anomalies,
and provide added backup to existing capacity. In connection with the plan,
seven satellites are under construction by Hughes Space and Communications
Company ("HSC"). As a result of manufacturing delays being experienced by HSC,
however, it is expected that there will be delays in the launch of these
satellites. PanAmSat now expects to launch one additional satellite in 1999,
followed by five satellites in 2000 and one in 2001. It is expected that these
delays will result in 1999 revenues and earnings at PanAmSat that are
significantly lower than previously anticipated. A substantial portion of these
revenues and earnings previously anticipated in 1999 are expected to be
recognized in future years after the satellites commence commercial service.
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HUGHES ELECTRONICS CORPORATION
On February 24, 1999, the Department of Commerce notified Hughes that it
intended to deny a U.S. government export license Hughes was required to obtain
in connection with a contract with Asia-Pacific Mobile Telecommunications
Satellite Pte. Ltd. ("APMT") for the provision of a satellite-based mobile
telecommunications system. As a result, APMT and Hughes terminated the contract
on April 9, 1999, resulting in a pre-tax charge to Hughes' earnings of $92
million in the first quarter of 1999. This charge represents the write-off of
receivables and inventory, with no alternative use, related to the contract.
Hughes had maintained a lawsuit against the U.S. government since September
1973 regarding the U.S. government's infringement and use of a Hughes patent
covering "Velocity Control and Orientation of a Spin Stabilized Body,"
principally satellites (the "Williams Patent"). On April 7, 1998, the U.S. Court
of Appeals for the Federal Circuit reaffirmed earlier decisions in the Williams
Patent case, including an award of $114.0 million in damages, plus interest. In
March 1999, Hughes received and recognized as income a $154.6 million payment
from the U.S. government as a final settlement of the suit.
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 participation in government
contracts. 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 those conclusions. In addition, a
congressional committee chaired by Representative Cox released a report in May
1999 containing negative commentary about the compliance of U.S. satellite
manufacturers, including Hughes, with export control laws. Hughes is uncertain
of the impact that this report will have on the satellite manufacturing and
launching industries. Many of Hughes' satellite launches, including those of
PanAmSat, are scheduled for non-U.S. launch providers. We cannot assure you that
future satellite launches by non-U.S. launch providers will not be adversely
affected by this investigation and report, including the possibility of
significant launch delays.
On May 11, 1999, it was announced that Hughes will collaborate with America
Online ("AOL") on a new service that will combine digital satellite television
programming from DIRECTV with AOL's new interactive television Internet service.
Hughes Network Systems ("HNS") will design and build the initial dual purpose
DIRECTV/AOL receiver equipment. The new service will be suited for both frequent
Internet users and the mass market consumer who wants to connect to the
Internet. On June 21, 1999, Hughes announced a more extensive strategic alliance
with AOL to develop and market digital entertainment and Internet services
nationwide. The new alliance is expected to accelerate subscriber growth and
revenue-per-subscriber for the DIRECTV and DirecPC services, as well as expand
the subscriber base for AOL's developing AOL TV and AOL-Plus broadband services.
As part of the alliance, Hughes and AOL plan to jointly develop new content and
interactive services for U.S. and international markets. Additionally, an
extensive cross-marketing initiative will be instituted to market each company's
products through their respective retail outlets and to their respective
subscribers. As part of its marketing initiative with AOL, Hughes committed to
increase its sales and marketing expenditures over the next three years by
approximately $1.5 billion relating to its DirecPC/AOL-Plus, DlRECTV,
DlRECTV/AOL TV and DirecDuo products and services.
As part of the alliance, AOL invested $1.5 billion in shares of General
Motors Series H 6.25% Automatically Convertible Preference Stock. General Motors
immediately invested the $1.5 billion received from AOL in shares of Hughes
Series A Preferred Stock designed to correspond to the financial terms of the
General Motors Series H preference stock. Dividends on the Hughes Series A
Preferred Stock are payable to General Motors quarterly at an annual rate of
6.25%. See further discussion in Notes 4 and 5 to the financial statements.
Hughes Space and Communications International ("HSCI") has a contract with
ICO Global Communications Operations to build the satellites and related
components for a global wireless communications system. Hughes owns
approximately 2.6% of the equity in its parent company, ICO Global
Communications (Holdings) ("ICO"). ICO has indicated in its public disclosure
that it requires substantial additional financing to continue operating its
business and to fund the construction of its communications network. ICO also
has indicated that it currently is attempting to obtain financing through its
existing stockholders, incluidng Hughes, and/or third parties. There can be no
assurance that ICO will be successful in obtaining adequate financing to
continue operating its business or to complete the construction of its
ommunications network. If ICO is unable to obtain the necessary additional
financing, it and its subsidiary would likely be unable to pay the remaining
amounts due to HSCI under the contract. If ICO fails to pay HSCI these remaining
amounts, HSCI could terminate the contract for non-payment. In the event of
non-payment, Hughes would expect to record a pre-tax charge to earnings of
approximately $500.0 million.
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HUGHES ELECTRONICS CORPORATION
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues. Second quarter 1999 revenues increased 29.7% to $1,776.0
million compared with $1,369.0 million for the second quarter of 1998. The
increase reflects continued subscriber growth for the DIRECTV(R) businesses,
revenues from the medium-power direct-to-home business ("PRIMESTAR") and the
premium movie channels and pay-per-view services business of United States
Satellite Broadcasting Company, Inc. ("USSB"), increased sales of DIRECTV(TM)
receiver equipment by HNS and increased PanAmSat revenues from operating leases.
These increases were partially offset by a decrease in Satellite Systems segment
revenues primarily due to contract revenue adjustments and delayed revenue
recognition that resulted from increased costs and schedule delays on several
new product lines.
The Direct-To-Home Broadcast segment's second quarter 1999 revenues more than
doubled to $870.2 million from $401.5 million in the second quarter of 1998, an
increase of 116.7%. The increase resulted from continued strong subscriber
growth and higher average monthly revenue per subscriber, as well as added
revenues from the PRIMESTAR and USSB businesses. Domestic DIRECTV contributed
significantly to this growth with quarterly revenues of $778 million, a 111.4%
increase over last year's second quarter revenues of $368 million. With its
best-ever second quarter, domestic DIRECTV added 369,000 net new subscribers,
excluding subscribers added through the PRIMESTAR and USSB transactions,
compared to 227,000 net new subscribers for the second quarter of 1998, a 63%
increase. Total domestic DIRECTV(R) subscribers, including 2,244,000 subscribers
acquired as part of the PRIMESTAR and USSB transactions, grew to 7,375,000 as of
June 30, 1999. Hughes' Latin American DIRECTV businesses which include Hughes'
subsidiary, Galaxy Latin America ("GLA"), more than doubled revenues to $77
million for the second quarter of 1999 from $32 million for the second quarter
of 1998, an increase of 140.6%. This increase in revenues was due to continued
subscriber growth and additional revenues resulting from the consolidation of
SurFin Ltd. ("SurFin"), beginning in November 1998, and Grupo Galaxy Mexicana,
S.A. de C.V. ("GGM"), beginning in February 1999. GLA added 47,000 net new
subscribers for the second quarter, compared to 49,000 net new subscribers
acquired for the same period last year, bringing the total cumulative DIRECTV
subscribers in Latin America to 601,000 as of June 30, 1999.
The Satellite Services segment's second quarter 1999 revenues increased to
$200.4 million compared with $191.1 million for the prior year. The 4.9%
increase in revenues resulted primarily from the commencement of new service
agreements for full-time video distribution services and growth in data and
Internet-related services.
For the second quarter of 1999, revenues for the Satellite Systems segment
decreased to $553.8 million from revenues of $674.8 million for the same period
in 1998. This decrease in revenues was principally due to contract revenue
adjustments and delayed revenue recognition that resulted from increased costs
and schedule delays on several new product lines.
Second quarter 1999 revenues for the Network Systems segment were $341.1
million compared with $221.7 million for the same period last year, an increase
of 53.9%. This increase in revenues was primarily due to higher sales of DIRECTV
receiver equipment.
Costs and Expenses. Selling, general and administrative expenses increased to
$548.5 million in the second quarter of 1999 from $359.2 million for the same
period of 1998. The increase resulted primarily from higher marketing and
subscriber acquisition costs in the Direct-To-Home Broadcast segment, added
costs from the PRIMESTAR and USSB businesses, and the consolidation of GGM and
SurFin. The increase in depreciation and amortization expense to $159.8 million
in the second quarter of 1999 from $100.2 million in the same period of 1998
resulted primarily from higher depreciation due to increased capital
expenditures for property and equipment, additions to PanAmSat's satellite fleet
and additional goodwill amortization of $16.1 million that resulted from the
PRIMESTAR, USSB and GGM transactions.
Operating Profit (Loss). Hughes incurred an operating loss of $96.6 million
for the second quarter of 1999 compared with operating profit, on the same
basis, of $78.2 million for the second quarter of 1998. The operating loss for
the second quarter of 1999 was principally a result of a pre-tax charge, after
intercompany eliminations, of $125.0 million that resulted from increased
development costs and schedule delays experienced by the Satellite Systems
segment and higher depreciation and amortization expenses discussed above.
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HUGHES ELECTRONICS CORPORATION
The operating loss in the Direct-To-Home Broadcast segment for the second
quarter of 1999 was $68.4 million compared with an operating loss of $40.2
million for the second quarter of 1998. The increased operating loss for the
second quarter of 1999 was principally due to increased marketing and subscriber
acquisition costs and increased depreciation and amortization costs related to
the acquisitions of PRIMESTAR and USSB, partially offset by increased subscriber
revenues discussed above. Domestic DIRECTV reported an operating loss for the
second quarter of 1999 of $39 million compared with an operating loss of $7
million for the second quarter of 1998. GLA's operating loss for second quarter
of 1999 was $23 million compared with an operating loss of $32 million for the
same period of 1998.
DIRECTV's cost of acquiring new subscribers has increased due to, among other
things, incentives granted by USSB to manufacturers of DIRECTV receiving
equipment which were assumed by DIRECTV in connection with its merger with USSB
in May 1999. Subscriber acquisition costs are expected to increase further due
to increased incentives to dealers and consumers. In addition, in connection
with the AOL alliance, DIRECTV's subscriber acquisition costs will increase with
respect to both the DIRECTV service and the new DIRECTV/AOL TV service. In the
future, subscriber acquisition costs will continue to be largely determined by
the competitive environment.
The Satellite Services segment's operating profit for the second quarter of
1999 increased 11.8% to $83.2 million from $74.4 million for the same period of
1998. The increase in operating profit was primarily due to the increase in
revenues discussed above, offset by increased depreciation due to additions to
the satellite fleet. Also affecting the comparison was a second quarter 1998
provision for losses related to the May 1998 failure of PanAmSat's Galaxy IV
satellite.
The Satellite Systems segment reported an operating loss for the second
quarter of 1999 of $133.0 million compared to operating profit of $60.0 million
and operating profit margin of 8.9% for the second quarter of 1998. The
operating loss for the second quarter of 1999 resulted from a pre-tax charge,
before intercompany eliminations, of $178.0 million that resulted from increased
development costs and schedule delays on several new product lines.
The Network Systems segment's operating income for the second quarter of 1999
was $11.3 million compared with an operating loss of $25.2 million for the
second quarter of 1998. The increase in operating income for the second quarter
of 1999 was primarily due to higher sales of DIRECTV receiver equipment and a
second quarter 1998 provision of $26.0 million associated with the bankruptcy
filing by a customer.
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA").
EBITDA is defined as operating profit (loss), plus depreciation and
amortization. EBITDA is not presented as an alternative measure of operating
results or cash flow from operations, as determined in accordance with generally
accepted accounting principles. However, Hughes believes EBITDA is a meaningful
measure of the company's performance and that of its business units. EBITDA is a
performance measurement commonly used by other communications, entertainment and
media service providers and therefore can be used to analyze and compare Hughes'
financial performance to that of its competitors. EBITDA is also a measurement
used for certain of Hughes' debt covenants and is used by rating agencies in
determining credit ratings. EBITDA does not give effect to cash used for debt
service requirements and thus does not reflect funds available for investment in
the business of Hughes, dividends or other discretionary uses. EBITDA margin is
calculated by dividing EBITDA by total revenues.
For the second quarter of 1999, EBITDA was $63.2 million versus $178.4
million for the same period in 1998. EBITDA margin on the same basis was 3.6%
for the second quarter of 1999 compared to 13.0% for the second quarter of 1998.
The Direct-To-Home Broadcast segment had a negative EBITDA for the second
quarter of 1999 of $6.8 million compared with negative EBITDA of $16.7 million
for the second quarter of 1998. Domestic DIRECTV's EBITDA was $13 million for
the second quarter of 1999 compared to $12 million for the second quarter of
1998. The slight increase in domestic DIRECTV's EBITDA was due to EBITDA
contributions from the USSB and PRIMESTAR businesses, which were mostly offset
by higher marketing and advertising expenses. GLA reported negative EBITDA for
the second quarter of 1999 of $13 million compared to negative EBITDA of $26
million for the same period of 1998. The improvement in GLA's EBITDA for the
second quarter of 1999 was due to higher revenue growth and EBITDA contributions
resulting from the consolidation of SurFin.
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HUGHES ELECTRONICS CORPORATION
For the Satellite Services segment, EBITDA for the second quarter of 1999 was
$151.0 million compared with $133.1 million for the same period of last year.
EBITDA margin increased to 75.3% versus 69.6% for last year's second quarter.
The increases in EBITDA and EBITDA margin were principally due to the higher
revenues discussed above and lower satellite leaseback expenses resulting from
the exercise of certain early buy-out options under sale-leaseback agreements
during the second quarter of 1999. Also affecting the comparison was a second
quarter 1998 provision for losses related to the May 1998 failure of PanAmSat's
Galaxy IV satellite.
The Satellite Systems segment had a negative EBITDA of $119.6 million for the
second quarter of 1999, compared with EBITDA and EBITDA margin of $71.5 million
and 10.6% for the second quarter of 1998. The decrease in EBITDA for the second
quarter of 1999 was due to a second quarter 1999 pre-tax charge, before
intercompany eliminations, of $178.0 discussed above.
Network Systems segment EBITDA grew to $25.0 million for the second quarter
of 1999, compared to a negative EBITDA of $15.3 million for the second quarter
of 1998. EBITDA margin for the second quarter of 1999 was 7.3%. The increase in
EBITDA and EBITDA margin was primarily due to higher sales of DIRECTV receiver
equipment and a second quarter 1998 provision of $26.0 million associated with
the bankruptcy filing by a customer.
Interest Income and Expense. Interest income decreased to $4.9 million for
the second quarter of 1999 compared with $30.6 million for the second quarter of
1998. The decrease in interest income was due to lower cash balances in the
second quarter of 1999 compared to 1998. Interest expense increased $9.5 million
for the second quarter of 1999 from the same period in 1998 due to the increase
of $184.2 million in borrowings.
Other, net. Other, net for the second quarter of 1999 reflects losses from
unconsolidated subsidiaries of $34.1 million that are primarily attributable to
equity investments in DIRECTV Japan and American Mobile Satellite Corporation
("AMSC"). The second quarter 1998 amount reflects losses from unconsolidated
subsidiaries of $22.0 million, primarily related to DIRECTV Japan and AMSC, and
$17.5 million of estimated losses associated with bankruptcy filings by two
unaffiliated customers.
Income Taxes. In the second quarter of 1999, Hughes recorded an income tax
benefit at an effective income tax rate of 30.0% while in the second quarter of
1998, Hughes recorded an income tax provision of 32.9%.
Accounting Change. In 1998, Hughes adopted American Institute of Certified
Public Accountants Statement of Position ("SOP") 98-5, Reporting on the Costs of
Start-Up Activities. SOP 98-5 requires that all start-up costs previously
capitalized be written off and recognized as a cumulative effect of accounting
change, net of taxes, as of the beginning of the year of adoption. On a
prospective basis, these types of costs are required to be expensed as incurred.
The unfavorable cumulative effect of this accounting change was $9.2 million
after-tax, or $0.02 per share of GM Class H common stock in the first quarter of
1998.
Earnings (Loss). Second quarter 1999 loss and loss per share, including the
effect of preferred stock dividends, were $92.3 million and $0.23, respectively,
compared to second quarter 1998 earnings and earnings per share of $56.1 million
and $0.14, respectively.
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HUGHES ELECTRONICS CORPORATION
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues. For the first six months of 1999, revenues increased 21.3% to
$3,227.8 million compared to $2,660.0 million for the first six months of 1998.
This increase in revenues was primarily the result of continued subscriber
growth in the DIRECTV businesses, revenues from PRIMESTAR and USSB which were
acquired on April 28, 1999 and May 20, 1999, respectively, increased sales of
DIRECTV receiver equipment by HNS and increased PamAmSat operating lease
revenues. These increases were partially offset by a decrease in HSC revenues
principally due to contract revenue adjustments and delayed revenue recognition
that resulted from increased costs and schedule delays on several new product
lines.
Direct-To-Home Broadcast segment revenues for the first six months of 1999
increased 80.7% to $1,426.8 million from $789.4 million for the same period of
1998. The increase resulted from continued record subscriber growth and higher
average monthly revenue per subscriber, as well as added revenues from the
PRIMESTAR and USSB businesses.
For the first six months of 1999, the Satellite Services segment's revenues
increased to $393.9 million compared with $384.1 million for the prior year. The
slight increase in revenues resulted primarily from growth in data and
Internet-related services.
Revenues for the first six months of 1999 for the Satellite Systems segment
decreased to $1,184.1 million from revenues of $1,299.1 million for the same
period in 1998. This decrease in revenues was principally due to the contract
revenue adjustments and delayed revenue recognition discussed above.
Network Systems segment revenues for the first six months of 1999 were $572.0
million compared with $406.4 million for the same period last year, an increase
of 40.7%. This increase in revenues was primarily due to higher sales of DIRECTV
receiver equipment.
Costs and Expenses. Selling, general and administrative expenses increased to
$953.3 million for the first six months of 1999 from $661.8 million for the same
period of 1998. The increase resulted primarily from higher marketing and
subscriber acquisition costs in the Direct-To-Home Broadcast segment, added
costs for the PRIMESTAR and USSB businesses, and the consolidation of GGM and
SurFin. The increase in depreciation and amortization expense to $282.8 million
for the first six months of 1999 from $197.9 million for the same period of 1998
resulted primarily from higher depreciation due to additions to PanAmSat's
satellite fleet, increased goodwill amortization related to the 1998 purchase of
an additional 9.5% interest in PanAmSat and amortization of goodwill and
depreciation for PRIMESTAR, USSB and GGM.
Operating Profit (Loss). Hughes incurred an operating loss of $133.4 million
for the first six months of 1999 compared with operating profit, on the same
basis, of $161.8 million for the first six months of 1998. The operating loss
for the first six months of 1999 was principally a result of the $125.0 million
pre-tax charge at the Satellite Systems segment, $84.9 million of higher
depreciation and amortization expense discussed above and a one-time pre-tax
charge of $92.0 million resulting from the termination of the Asia-Pacific
Mobile Telecommunications Satellite Pte. Ltd. ("APMT") contract due to export
licenses not being issued.
The operating loss in the Direct-To-Home Broadcast segment for the first six
months of 1999 was $91.8 million compared with an operating loss of $71.8
million for the first six months of 1998. The increase in operating loss in 1999
was principally due to increased programming, marketing and subscriber
acquisition costs and increased depreciation and amortization costs that
resulted from the acquisition of PRIMESTAR and USSB, partially offset by
increased subscriber revenues discussed above.
The Satellite Services segment operating profit for the first six months of
1999 was $162.3 million compared to $160.1 million for the same period of 1998.
The slight improvement in operating profit was primarily due to the increase in
revenues discussed above, offset by higher depreciation due to additions to the
satellite fleet. Also affecting the comparison was a second quarter 1998
provision for losses related to the May 1998 failure of PanAmSat's Galaxy IV
satellite.
The Satellite Systems segment reported an operating loss for the first six
months of 1999 of $147.4 million compared to operating profit of $115.1 million
and operating profit margin of 8.9% for the first six months of 1998. The
operating loss for the first six months of 1999 resulted from a pre-tax charge,
before intercompany eliminations, of $178.0 million that resulted from increased
development costs and schedule delays on several new product lines and a
one-time pre-tax charge of $81.0 million resulting from the termination of the
APMT contract.
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HUGHES ELECTRONICS CORPORATION
The Network Systems segment's operating loss for the first six months of 1999
was $6.5 million compared with an operating loss of $37.1 million for the first
six months of 1998. The lower operating loss was primarily due to higher sales
of DIRECTV receiver equipment and satellite-based mobile telephony systems and a
second quarter 1998 provision of $26.0 million associated with the bankruptcy
filing by a customer, partially offset by a one-time pre-tax charge in 1999 of
$11.0 million resulting from the termination of the APMT contract.
EBITDA. For the first six months of 1999, EBITDA was $149.4 million versus
$359.7 million for the same period in 1998. EBITDA margin on the same basis was
4.6% for the first six months of 1999 compared to 13.5% for the first six months
of 1998.
The Direct-To-Home Broadcast segment had a negative EBITDA for the first six
months of 1999 of $2.9 million compared with negative EBITDA of $25.8 million
for the first six months of 1998. This improvement in EBITDA for the first six
months of 1999 was primarily due to continued strong subscriber growth in the
domestic DIRECTV business, the contributions from PRIMESTAR and USSB from their
dates of acquisition and the consolidation of SurFin.
The Satellite Services segment's EBITDA for the first six months of 1999 was
$296.9 million compared with $273.3 million for the same period of last year.
EBITDA margin increased to 75.4% versus 71.2% for last year's first six months.
The increases in EBITDA and EBITDA margin were principally due to higher
revenues discussed above, and lower satellite leaseback expenses resulting from
the 1999 exercise of certain early buy-out options under sale-leaseback
agreements. Also affecting the comparison was a second quarter 1998 provision
for losses related to the May 1998 failure of PanAmSat's Galaxy IV satellite.
The Satellite Systems segment had a negative EBITDA of $121.0 million for the
first six months of 1999, compared with EBITDA and EBITDA margin of $137.3
million and 10.6% for the first six months of 1998. The decrease in EBITDA for
the first six months of 1999 was due to the second quarter 1999 $178.0 million
pre-tax charge, before intercompany eliminations, discussed above and the first
quarter 1999 pre-tax charge of $81.0 million that resulted from the termination
of the APMT contract.
Network Systems segment EBITDA increased to $19.1 million for the first six
months of 1999, compared to a negative EBITDA of $18.7 million for the first six
months of 1998. EBITDA margin for the first six months of 1999 was 3.3%. The
increase in EBITDA and EBITDA margin for the first six months of 1999 was
primarily due to the higher sales discussed above, partially offset by the first
quarter 1999 pre-tax charge of $11.0 million related to the termination of the
APMT contract under which HNS was providing ground network equipment and
handsets. The second quarter of 1998 included a $26.0 million provision
associated with the bankruptcy filing by a customer.
Interest Income and Expense. Interest income decreased to $18.5 million for
the first six months of 1999 compared with $68.1 million for the first six
months of 1998. The decrease in interest income was due to lower cash balances
for the first six months of 1999 compared to 1998. Interest expense increased
$13.4 million for the first six months of 1999 from the same period in 1998 due
to the increase of $184.2 million in borrowings.
Other, net. Other, net for the first six months of 1999 reflects a $154.6
million pre-tax gain that resulted from the settlement of the Williams Patent
infringement case offset by losses from unconsolidated subsidiaries of $64.7
million attributable principally to equity investments in DIRECTV Japan and
AMSC. The first six months of 1998 includes losses from unconsolidated
subsidiaries of $50.9 million, primarily related to DIRECTV Japan and AMSC and
$17.5 million of losses associated with bankruptcy filings by two unaffiliated
customers.
Income Taxes. For the first six months of 1999, Hughes recorded an income
tax benefit at an effective income tax rate of 19.7%, while Hughes recorded an
income tax provision at an effective income tax rate of 35.4% for the first six
months of 1998. The effective income tax rates in each period benefited from the
favorable resolution of tax contingencies; however, the lower effective income
tax rate for 1999 resulted from the effect of the benefits on lower expected
pre-tax earnings for the year compared to 1998.
Earnings (Loss). Loss and loss per share, including the effect of preferred
stock dividends, for the first six months ended June 30, 1999 were $14.0 million
and $0.04, respectively, compared to earnings and earnings per share of $100.6
million and $0.25, respectively, for the comparable period in 1998.
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HUGHES ELECTRONICS CORPORATION
Liquidity and Capital Resources
Cash and Cash Equivalents. Cash and cash equivalents were $858.7 million at
June 30, 1999 compared to $1,342.1 million at December 31, 1998. The $483.4
million decrease was due to increased investments in companies, net of cash
acquired, which included the acquisition of PRIMESTAR and Tempo Satellite assets
(see "Acquisitions"), the early buy-out of a satellite sale-leaseback by
PanAmSat, additional capital expenditures for satellites and property and
equipment and general working capital requirements, partially funded by GM's
$1.5 billion investment in Hughes as part of the alliance with AOL and the
$154.6 million received related to the settlement of the Williams Patent
infringement case.
Cash used in operating activities for the first six months of 1999 was
$15.3 million, compared to cash provided by operating activities of $157.1
million in the same period of 1998. This decrease was due primarily to the
decrease in net income for the first six months of 1999 and an increase in
prepaid dealer commissions and prepaid marketing expenditures of the DIRECTV
businesses.
Net cash used in investing activities was $2,476.2 million for the six months
ended June 30, 1999 and $1,393.7 million for the same period in 1998. The
substantial increase in 1999 compared to 1998 resulted from increased
investments in companies, net of cash acquired, which included the acquisition
of PRIMESTAR and the Tempo Satellite assets (see "Acquisitions"), and an
increase in capital expenditures for satellites and property and equipment.
Net cash provided by financing activities was $2,008.1 million for the first
six months of 1999, compared with $45.6 million for the same period in 1998. The
substantial increase was primarily due to an increase in net borrowings compared
to 1998 and proceeds received in 1999 from the issuance of preferred stock to GM
related to the AOL transaction.
Liquidity Measurement. As a measure of liquidity, the current ratio (ratio of
current assets to current liabilities) at June 30, 1999 and December 31, 1998
was 1.37 and 1.91, respectively. Working capital decreased by $717.0 million to
$1,119.9 million at June 30, 1999 from $1,836.9 million at December 31, 1998.
Common Stock Dividend Policy and Use of Cash. Since the completion of the
recapitalization of Hughes in late 1997, the GM Board has not paid, and does not
currently intend to pay in the foreseeable future, cash dividends on its GM
Class H common stock. Similarly, since such time, Hughes has not paid dividends
on its common stock to GM and does not currently intend to do so in the
foreseeable future. Future Hughes earnings, if any, are expected to be retained
for the development of the businesses of Hughes. Expected cash requirements for
the remainder of 1999 relate to capital expenditures for property and equipment
and expenditures for additional satellites of approximately $1.0 billion, the
early buy-out of satellite sale-leasebacks, the funding of business
acquisitions, payment of preferred stock dividends, additional equity
investments and increases in working capital. These cash requirements are
expected to be funded from a combination of existing cash balances, amounts
available under existing credit facilities and debt offerings, as needed. Also,
although Hughes may be required to make a cash payment to or receive a cash
payment from Raytheon, the amount of a cash payment to or from Raytheon, if any,
is not determinable at this time. Additionally, DIRECTV Japan is in the process
of seeking shareholder approval of its funding needs through March 2000. At this
time, not all shareholders have agreed to fund their pro rata share of the
capital call. In the event that all shareholders do not all elect to continue
funding the business, remaining shareholders, including Hughes, could face
increased future cash requirements.
Debt and Credit Facilities. At June 30, 1999, Hughes' 59.1% owned subsidiary,
SurFin, had a total of $184.2 million outstanding under a $400.0 million
unsecured revolving credit facility expiring in June 2002.
In January 1998, PanAmSat issued five, seven, ten and thirty-year notes
totaling $750.0 million. The proceeds received were used by PanAmSat to repay
$600.0 million of outstanding borrowings.
PanAmSat maintains a $500.0 million multi-year revolving credit facility and
a $500.0 million commercial paper program. The multi-year revolving credit
facility provides for a commitment through December 24, 2002. Borrowings under
the credit facility and commercial paper program are limited to $500.0 million
in the aggregate and are expected to be used to fund PanAmSat's satellite
expansion program. No amounts were outstanding under the credit facility at June
30, 1999. $85.0 million was outstanding under the commercial paper program at
June 30, 1999.
At June 30, 1999, other long-term debt of $21.6 million was outstanding.
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HUGHES ELECTRONICS CORPORATION
Hughes has $1.0 billion of unused credit available under two unsecured
revolving credit facilities, consisting of a $750.0 million multi-year facility
and a $250.0 million 364-day facility. The multi-year credit facility provides
for a commitment of $750.0 million through December 5, 2002 and the 364-day
credit facility provides for a commitment of $250.0 million through December 1,
1999. No amounts were outstanding under either facility at March 31, 1999. These
facilities provide backup capacity for Hughes' $1.0 billion commercial paper
program. $383.0 million was outstanding under the commercial paper program at
June 30, 1999.
Hughes has filed a shelf registration statement with the Securities and
Exchange Commission with respect to an issuance of up to $2.0 billion of debt
securities from time to time. Subject to market conditions, Hughes expects to
issue up to $1.0 billion of these securities in the third quarter of 1999.
Hughes will use these funds principally to repay commercial paper borrowings
incurred in connection with recent acquisitions and to fund short-term working
capital requirements.
Acquisitions. On July 28, 1999, GLA, Hughes' 70% owned subsidiary, acquired
Galaxy Brasil, Ltda., the exclusive distributor of DIRECTV services in Brazil,
from Tevecap S.A. for approximately $114.0 million plus the assumption of debt.
In connection with the transaction, Tevecap sold its 10% equity interest in GLA
to Hughes and Cisneros Group, the remaining GLA partners. Hughes' share of the
purchase amounted to approximately $101.1 million and increased Hughes'
ownership of GLA to 77.8%.
On January 22, 1999, Hughes agreed to acquire PRIMESTAR's 2.3 million
subscriber medium-power direct-to-home satellite business and the high-power
satellite assets and direct-broadcast satellite orbital frequencies of Tempo
Satellite, a wholly-owned subsidiary of TCI Satellite Entertainment, Inc. On
April 28, 1999, the acquisition of PRIMESTAR's direct-to-home business was
completed. The purchase price consisted of $1.1 billion in cash and 4.9 million
shares of GM Class H common stock, for a total purchase price of $1.3 billion,
based on the average market price of $47.87 per share of Class H common stock at
the time the acquisition agreement was signed. The purchase price will be
adjusted based upon the final adjusted net working capital of PRIMESTAR at the
date of closing. The purchase price for the Tempo Satellite assets consisted of
$500 million in cash. Of this purchase price, $150 million was paid on March 10,
1999 for a satellite that has not yet been launched and the remaining $350
million was paid on June 4, 1999 for an in-orbit satellite and 11 related
satellite orbital frequencies.
In December 1998, Hughes agreed to acquire all of the outstanding capital
stock of USSB. USSB provided direct-to-home premium satellite programming in
conjunction with DIRECTV's basic programming service. The purchase price,
consisting of cash and GM Class H common stock, was approximately $1.6 billion,
consisting of approximately $360 million in cash and 22.6 million shares of
Class H common stock. The USSB acquisition was closed on May 20, 1999 with the
payment of cash and delivery of shares made to the former USSB shareholders in
July 1999.
The number of shares issued as part of the PRIMESTAR acquisition and the
number of shares issued in July 1999 as part of the USSB merger have been
included in the calculation of both the numerator and denominator of the
fraction used to calculate the Available Separate Consolidated Net Income (Loss)
("ASCNI") of Hughes. See further discussion of ASCNI in Note 4 to the financial
statements.
New Accounting Standards. In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities. 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. Hughes plans to adopt
SFAS No. 133 by January 1, 2001, as required. Management is currently
assessing the impact of this statement on Hughes' results of operations and
financial position.
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HUGHES ELECTRONICS CORPORATION
Year 2000
Many computer technologies made or used by Hughes throughout its business
have the potential for operational problems if they lack the ability to handle
the transition to the Year 2000. Computer technologies include both information
technology ("IT") in the form of hardware and software, as well as
non-information technology ("Non-IT") which includes embedded technology such as
microprocessors.
Because of the potential disruption that this issue could cause to Hughes'
business operations and its customers, a comprehensive, company-wide, Year 2000
program was initiated in 1996 to identify and remediate potential Year 2000
problems. The Year 2000 program addresses both IT and Non-IT systems related to
internal systems and Hughes' products and services.
Hughes' Year 2000 program is being implemented in seven phases, some of which
are being conducted concurrently:
(1)Awareness - establish project teams made up of project leaders from each
Hughes operating company, assign responsibilities and establish awareness
of Year 2000 issues. The awareness phase has been completed.
(2)Inventory - identify all systems within Hughes, determine if they are
critical and identify responsible personnel for compliance. The inventory
phase has been completed. Many of Hughes' systems are already Year 2000
compliant, or had already been scheduled for replacement as part of
Hughes' ongoing systems plans.
(3)Assessment - categorize all systems and determine activities that are
required to achieve compliance, including contacting and assessing the
Year 2000 readiness of material third party vendors and suppliers of
hardware and software. The assessment phase is substantially complete. All
critical systems have been identified in this phase and are the primary
focus of the project teams. Critical systems identified requiring
remediation include satellite control and communication software,
broadcast systems and systems utilized in customer service/billing,
engineering and manufacturing operations. Hughes has also identified the
need to upgrade network control software for customers who have
maintenance agreements with Hughes. Hughes' in-orbit satellites do not
have date-dependent processing.
(4)Remediation - modify, repair or replace categorized systems. Remediation
tasks have been completed on many systems, with the exception of the
following: satellite control and communication software, the customer
service call center purchased in April 1999 from Tele-Communications,
Inc., upgrades of software used in the broadcast control system, including
the uplinking and encoding systems, customer service systems and
laboratory system and upgrades of network and telecommunication
equipments, which are expected to be completed in the fourth quarter of
1999. The remediation tasks for the satellite ground control software and
ground stations delivered by Hughes are being coordinated with Raytheon,
the supplier.
(5)Testing - test remediated systems to assure normal function when placed
in their original operating environment and further test for Year 2000
compliance. Overall testing is completed at approximately the same time as
remediation due to the overlap of the remediation and testing phases.
Testing is currently underway and is expected to be a primary focus of the
project teams over the next six months. Hughes expects to complete this
phase shortly after the remediation phase, with on-going review and
follow-up.
(6)Implementation - once a remediated system and its interfaces have been
successfully tested, the system will be put into its operating
environment. A large number of remediated systems have already been put
back into operations. The remaining remediated systems will be put into
operations during 1999.
(7)Contingency Planning - development and execution of plans that narrow the
focus on specific areas of significant concern and concentrate resources
to address them. All Year 2000 critical systems are expected to be Year
2000 compliant by the end of 1999. However, Hughes is in the process of
developing contingency plans to address the risk of any system not being
Year 2000 compliant and expects to complete such plans in the third
quarter of 1999. Hughes currently believes that the most reasonably likely
worst case scenario is a temporary loss of functionality in satellite
control and communication software for the HSC built satellites. The loss
of real-time satellite control software functionality for these satellites
would be addressed through the use of back-dated processors or through
manual procedures. These alternative procedures would restore any loss in
functionality but could result in slightly higher operating costs until
the Year 2000 problems are corrected.
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HUGHES ELECTRONICS CORPORATION
Hughes is utilizing both internal and external resources for the remediation
and testing of its systems that are undergoing Year 2000 modification. Hughes
has incurred and expensed approximately $11.0 million during the first six
months of 1999 and approximately $7.0 million during 1998, related to the
assessment of, and on-going efforts in connection with, its Year 2000 program.
Future spending for system remediation and testing, including estimated Year
2000 remediation costs related to PRIMESTAR, are currently estimated to be from
$15 million to $17 million, with the majority of the expense expected to be
incurred early in the fourth quarter of 1999. Each Hughes operating company is
funding its respective Year 2000 efforts with current and future operating cash
flows.
Hughes has mailed Year 2000 verification request letters to its suppliers and
other third parties and is coordinating efforts to assess and reduce the risk
that Hughes' operations could be adversely affected by the failure of these
third parties to adequately address the Year 2000 issue. A high percentage of
the third parties have replied and a large number of Hughes' third parties'
systems are Year 2000 compliant or are expected to be Year 2000 compliant in a
timely manner. For those third party systems that are not yet Year 2000
compliant, Hughes will continue to identify action plans or alternatives to meet
Hughes' requirements.
In view of the foregoing, Hughes does not currently anticipate that it will
experience a significant disruption of its business as a result of the Year 2000
issue. However, there is still uncertainty about the broader scope of the Year
2000 issue as it may affect Hughes and third parties that are critical to
Hughes' operations. For example, lack of readiness by electrical and water
utilities, financial institutions, governmental agencies or other providers of
general infrastructure could pose significant impediments to Hughes' ability to
carry on its normal operations. If the modifications and conversions required to
make Hughes Year 2000 ready are not made or are not completed on a timely basis
and in the event that Hughes is unable to implement adequate contingency plans
in the event that problems are encountered internally or externally by third
parties, the resulting problems could have a material adverse effect on Hughes'
results of operations and financial condition.
Security Ratings
In June 1999, Standard and Poor's Rating Services ("S&P") affirmed Hughes'
long-term debt rating of BBB. The S&P BBB credit rating indicates the issuer has
adequate capacity to pay interest and repay principal. Additionally, S&P
affirmed its A-2 rating on Hughes' commercial paper. The A-2 commercial paper
rating is the third highest category available and indicates a strong degree of
safety regarding timely payment. S&P's ratings outlook for Hughes remains
developing.
In April 1999, Moody's Investors Service ("Moody's") lowered Hughes'
long-term credit rating from Baa1 to Baa2, which was subsequently affirmed in
June 1999. The Baa2 rating for senior debt indicates medium-grade obligations
with adequate likelihood of interest and principal payment and principal
security. Moody's ratings for Hughes' commercial paper remained unchanged at
P-2. The rating is the second highest rating available and indicates that the
issuer has a strong ability for repayment relative to other issuers.
Debt ratings by the various rating agencies reflect each agency's opinion of
the ability of issuers to repay debt obligations punctually. The lowered rating
reflects increased financial leverage at Hughes resulting from a significant
acceleration of its growth initiatives, including the PRIMESTAR, Tempo Satellite
and USSB transactions, PanAmSat's satellite deployment and restoration plan, the
previously announced increased development costs and schedule delays experienced
by HSC and the investment in Spaceway. Lower ratings generally result in higher
borrowing costs. A security rating is not a recommendation to buy, sell, or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each rating should be evaluated independently of
any other rating.
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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 $10.6 million for the first six months of 1999
and 1998. 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 common stock.
Unamortized purchase accounting adjustments associated with GM's purchase of
Hughes were $416.0 million at June 30, 1999 and $426.6 million at December 31,
1998.
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.
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HUGHES ELECTRONICS CORPORATION
Unaudited Summary Pro Forma Financial Data*
Pro Forma Condensed Statement of Income (Loss)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in Millions Except Per Share Amounts)
Total revenues $1,776.0 $1,369.0 $3,227.8 $2,660.0
Total operating costs and expenses 1,872.6 1,290.8 3,361.2 2,498.2
------- ------- ------- -------
Operating profit (loss) (96.6) 78.2 (133.4) 161.8
Non-operating income (loss) (45.0) (7.4) 99.4 (7.2)
Income tax provision (benefit) (42.5) 23.3 (6.7) 54.7
Minority interests in net losses
of subsidiaries 6.8 8.6 13.3 9.9
Cumulative effect of accounting change,
net of taxes - - - (9.2)
Preferred stock dividends (1.6) - (1.6) -
------- ----- ------- -------
Earnings (Loss) Used for Computation of
Available Separate Consolidated Net
Income (Loss) (1) $(93.9) $56.1 $(15.6) $100.6
====== ==== ====== =====
Earnings (Loss) Attributable to
General Motors Class H Common
Stock on a Per Share Basis-
Basic and Diluted $(0.23) $0.14 $(0.04) $0.25
====== ==== ====== ====
Pro Forma Condensed Balance Sheet
June 30, December 31,
Assets 1999 1998
---- ----
(Dollars in Millions)
Total Current Assets $4,139.6 $3,846.4
Satellites, net 3,515.8 3,197.5
Property, net 1,303.0 1,059.2
Net Investment in Sales-type Leases 162.0 173.4
Intangible Assets, Investments and Other Assets, net 8,736.6 4,731.9
-------- --------
Total Assets $17,857.0 $13,008.4
======== ========
Liabilities and Stockholder's Equity
Total Current Liabilities $3,019.7 $2,009.5
Long-Term Debt 1,239.6 778.7
Postretirement Benefits Other Than Pensions,
Other Liabilities and Deferred Credits 2,155.8 1,783.2
Minority Interests 502.2 481.7
Total Stockholder's Equity (2) 10,939.7 7,955.3
-------- ---------
Total Liabilities and Stockholder's Equity (2) $17,857.0 $13,008.4
======== ========
* The summary excludes purchase accounting adjustments related to GM's
acquisition of Hughes.
(1)Includes accrued preferred stock dividends of $1.6 million in 1999.
(2)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).
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HUGHES ELECTRONICS CORPORATION
Unaudited Summary Pro Forma Financial Data* - Continued
Pro Forma Selected Segment Data
Direct-To- Elimin-
Home Satellite Satellite Network ations
Broadcast Services Systems Systems and Other Total
- --------------------------------------------------------------------------------
(Dollars in Millions)
For the Three Months Ended:
June 30, 1999
Total Revenues $870.2 $200.4 $553.8 $341.1 $(189.5) $1,776.0
- --------------------------------------------------------------------------------
Operating Profit
(Loss) $(68.4) $83.2 $(133.0) $11.3 $10.3 $(96.6)
Operating Profit
Margin - 41.5% - 3.3% - -
EBITDA (3) $(6.8) $151.0 $(119.6) $25.0 $13.6 $63.2
EBITDA Margin(3) - 75.3% - 7.3% - 3.6%
- --------------------------------------------------------------------------------
Depreciation and
Amortization $61.6 $67.8 $13.4 $13.7 $3.3 $159.8
Capital
Expenditures $78.2(1)$135.4(2) $22.8 $15.5 $36.7 $288.6
- --------------------------------------------------------------------------------
June 30, 1998
Total Revenues $401.5 $191.1 $674.8 $221.7 $(120.1) $1,369.0
- --------------------------------------------------------------------------------
Operating Profit
(Loss) $(40.2) $74.4 $60.0 $(25.2) $9.2 $78.2
Operating Profit
Margin - 38.9% 8.9% - - 5.7%
EBITDA(3) $(16.7) $133.1 $71.5 $(15.3) $5.8 $178.4
EBITDA Margin(3) - 69.6% 10.6% - - 13.0%
- --------------------------------------------------------------------------------
Depreciation and
Amortization $23.5 $58.7 $11.5 $9.9 $(3.4) $100.2
Capital
Expenditures $34.4 $164.7(2) $21.6 $10.9 $10.0 $241.6
- --------------------------------------------------------------------------------
For the Six Months Ended:
June 30, 1999
Total Revenues $1,426.8 $393.9 $1,184.1 $572.0 $(349.0) $3,227.8
- --------------------------------------------------------------------------------
Operating Profit
(Loss) $(91.8) $162.3 $(147.4) $(6.5) $(50.0) $(133.4)
Operating Profit
Margin - 41.2% - - - -
EBITDA(3) $(2.9) $296.9 $(121.0) $19.1 $(42.7) $149.4
EBITDA Margin(3) - 75.4% - 3.3% - 4.6%
- --------------------------------------------------------------------------------
Depreciation and
Amortization $88.9 $134.6 $26.4 $25.6 $7.3 $282.8
Capital
Expenditures $155.8(1)$475.2(2) $35.1 $17.7 $4.5 $688.3
- --------------------------------------------------------------------------------
June 30, 1998
Total Revenues $789.4 $384.1 $1,299.1 $406.4 $(219.0) $2,660.0
- --------------------------------------------------------------------------------
Operating Profit
(Loss) $(71.8) $160.1 $115.1 $(37.1) $(4.5) $161.8
Operating Profit
Margin - 41.7% 8.9% - - 6.1%
EBITDA(3) $(25.8) $273.3 $137.3 $(18.7) $(6.4) $359.7
EBITDA Margin(3) - 71.2% 10.6% - - 13.5%
- --------------------------------------------------------------------------------
Depreciation and
Amortization $46.0 $113.2 $22.2 $18.4 $(1.9) $197.9
Capital
Expenditures $48.1 $414.3(2) $32.3 $15.7 $135.9 $646.3
* The Financial Statements reflect the application of purchase accounting
adjustments related to GM's acquisition of Hughes. However, as provided in the
General Motors' 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 satellite expenditures amounting to $22.5 million and $75.5 million
in the second quarter and first six months of 1999, respectively.
(2)Includes satellite expenditures amounting to $125.9 million, $94.4 million,
$315.6 million and $240.0 million, respectively. Also included are
expenditures related to the early buy-out of satellite sale-leasebacks
totaling $58.9 million for the second quarter of 1998 and $141.3 million and
$155.5 million for the first six months of 1999 and 1998, respectively.
(3)EBITDA is defined as operating profit (loss), plus depreciation and
amortization. EBITDA is not presented as an alternative measure of
operating results or cash flow from operations, as determined in
accordance with generally accepted accounting principles. EBITDA margin is
calculated by dividing EBITDA by total revenues. See discussion in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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HUGHES ELECTRONICS CORPORATION
Unaudited Summary Pro Forma Financial Data* - Concluded
Pro Forma Selected Financial Data
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in Millions Except Per Share Amounts)
Operating profit (loss) $(97) $78 $(133) $162
EBITDA (1) $63 $178 $149 $360
EBITDA margin (2) 3.6% 13.0% 4.6% 13.5%
Income (Loss) before income taxes,
minority interests and cumulative
effect of accounting change $(142) $71 $(34) $155
Earnings (Loss) used for computation
of available separate consolidated
net income (loss) (3) $(94) $56 $(16) $101
Average number of GM Class H
dividend base shares (4) 414.9 399.9 407.5 399.9
Stockholder's equity $10,940 $7,783 $10,940 $7,783
Working capital $1,120 $2,324 $1,120 $2,324
Operating profit as a percent of
revenues N/A 5.7% N/A 6.1%
Income before income taxes,
minority interests and
cumulative effect of accounting
change as a percent of revenues N/A 5.2% N/A 5.8%
Net income as a percent of revenues N/A 4.1% N/A 3.8%
* The summary excludes purchase accounting adjustments related to GM's
acquisition of Hughes.
(1)EBITDA is defined as operating profit (loss), plus depreciation and
amortization. EBITDA is not presented as an alternative measure of operating
results or cash flow from operations, as determined in accordance with
generally accepted accounting principles. See discussion in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
(2)EBITDA margin is calculated by dividing EBITDA by total revenues.
(3)Includes accrued preferred stock dividends of $1.6 million in 1999.
(4)Average 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 121.0
million and 105.2 million for the second quarter of 1999 and 1998,
respectively, and 113.6 million and 104.7 million for the six months ended
June 30, 1999 and 1998, respectively.
* * * * *
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