UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
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For the fiscal year ended December 31, 1999
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
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For the transition period from to
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Commission file number 1-143
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GENERAL MOTORS CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE 38-0572515
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common, $1-2/3 par value (619,783,944 shares
outstanding as of February 29, 2000) New York Stock Exchange, Inc.
Class H Common, $0.10 par value (137,879,463
shares outstanding as of February 29, 2000) New York Stock Exchange, Inc.
Preference, $0.10 par value, Series D
7.92% Depositary Shares, stated value
$25 per share, dividends cumulative
(3,014,654 depositary shares outstanding
as of February 29, 2000) New York Stock Exchange, Inc.
Preference, $0.10 par value, Series G
9.12% Depositary Shares, stated value
$25 per share, dividends cumulative
(5,015,410 depositary shares outstanding
as of February 29, 2000) New York Stock Exchange, Inc.
General Motors Capital Trust D 8.67% Trust
Originated Preferred Securitiessm (TOPrSsm),
Series D (3,149,748 shares outstanding as of
February 29, 2000) New York Stock Exchange, Inc.
General Motors Capital Trust G 9.87% Trust
Originated Preferred Securitiessm (TOPrSsm),
Series G (5,221,123 shares outstanding as of
February 29, 2000) New York Stock Exchange, Inc.
Note: The $1-2/3 par value common stock of the Registrant is also listed for
trading on:
Chicago Stock Exchange, Inc. Chicago, Illinois
Pacific Exchange, Inc. San Francisco, California
Philadelphia Stock Exchange, Inc. Philadelphia, Pennsylvania
Montreal Stock Exchange Montreal, Quebec, Canada
Toronto Stock Exchange Toronto, Ontario, Canada
Borse Frankfurt am Main Frankfort on the Main, Germany
Borse Dusseldorf Dusseldorf, Germany
Bourse de Bruxelles Brussels, Belgium
Courtiers en Valeurs Mobilieres Paris, France
The London Stock Exchange London, England
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value (based upon the average of the highest and lowest
sales prices on the Composite Tape on February 29, 2000) of General Motors
Corporation $1-2/3 par value and GM Class H common stocks held by nonaffiliates
on February 29, 2000 was approximately $47.7 billion and $16.6 billion,
respectively.
GM's Class H common stock is a "tracking stock" designed to provide holders with
financial returns based on the financial performance of Hughes. However, in the
event of a GM liquidation, insolvency or similar event, GM Class H stockholders
would have no direct claim against the assets of Hughes. Rather, GM Class H
stockholders would only have rights in the assets of GM as common stockholders
of GM.
We determine the earnings per share and the amounts available for the payment of
dividends on the GM Class H common stock by a fraction which reflects the
portion of Hughes' earnings that is allocated to the GM Class H common stock. We
sometimes refer to this fraction as the "Class H fraction." The numerator and
denominator of the Class H fraction are determined as follows:
- The numerator of the Class H fraction is the weighted average number of
shares of GM Class H common stock outstanding during the applicable
period.
- The denominator of the Class H fraction is the notional number of shares
of GM Class H common stock which, if outstanding, would represent 100% of
the tracking stock interest in the earnings of Hughes.
We sometimes also refer to the denominator of the Class H fraction as the
"Average Class H dividend base." It can be adjusted by the GM board of directors
in specified circumstances, including to reflect contributions by GM to Hughes.
Documents incorporated by reference are as follows:
Part and Item Number of Form
Document 10-K into Which Incorporated
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General Motors Notice of Annual Meeting
of Stockholders and Proxy Statement for
the Annual Meeting of Stockholders to
be held June 6, 2000 Part III, Items 10 through 13
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sm "Trust Originated Preferred Securities" and "TOPrS" are service trademarks of
Merrill Lynch & Co.
COVER PAGE
<PAGE>
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
THE CORPORATION
General Motors Corporation, incorporated in 1916 under the laws of the State
of Delaware, is hereinafter sometimes referred to as the "Registrant" or the
"Corporation" and, together with its subsidiaries, is hereinafter sometimes
referred to as "General Motors" or "GM."
ITEM 1. Business
General
The following information is incorporated herein by reference to the
indicated pages in Part II:
Item Page(s)
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Wholesale Sales II-6
Employment and Payrolls II-20
Note 26 of Notes to the GM
Consolidated Financial Statements
(Segment Reporting) II-72 through II-75
GM presents separate consolidating financial information for the following
businesses: Automotive, Communications Services, and Other Operations and
Financing and Insurance Operations. GM participates in the automotive industry
through the activities of its automotive business operating segment: General
Motors Automotive (GMA) which is comprised of four regions: GM North America
(GMNA), GM Europe (GME), GM Asia/Pacific (GMAP), and GM Latin
America/Africa/Mid-East (GMLAAM). GMNA designs, manufactures, and markets
vehicles primarily in North America under the following nameplates: Chevrolet,
Pontiac, GMC, Oldsmobile, Buick, Cadillac, and Saturn. GME, GMAP, and GMLAAM
meet the demands of customers outside North America with vehicles designed,
manufactured, and marketed under the following nameplates: Opel, Vauxhall,
Holden, Isuzu, Saab, Buick, Chevrolet, GMC, and Cadillac. GM's communications
services relate to its Hughes Electronics Corporation subsidiary (Hughes) which
includes digital entertainment, information and communications services, and
satellite-based private business networks. GM's other operations includes the
design, manufacturing and marketing of locomotives and heavy-duty transmissions,
the elimination of intersegment transactions, and certain non-segment specific
revenues and expenditures. GM's financing and insurance operations primarily
relate to General Motors Acceptance Corporation (GMAC). GMAC provides a broad
range of financial services, including consumer vehicle financing, full-service
leasing and fleet leasing, dealer financing, car and truck extended service
contracts, residential and commercial mortgage services, commercial, vehicle,
and homeowners' insurance, and asset-based lending.
Substantially all automotive-related products are marketed through retail
dealers and through distributors and jobbers in the United States, Canada, and
Mexico, and through distributors and dealers overseas. At December 31, 1999,
there were approximately 8,100 GM vehicle dealers in the United States, 840 in
Canada, and 155 in Mexico. Additionally, there were a total of approximately
11,340 outlets overseas which include dealers and authorized sales, service, and
parts outlets.
Raw Materials and Services
GM purchases materials, parts, supplies, freight transportation, energy, and
other services from numerous unaffiliated firms. Interruptions in production or
delivery of these goods or services could adversely affect GM.
Backlog of Orders
Shipments of GM automotive products are made as promptly as possible after
receipt of firm sales orders; therefore, no significant backlog of unfilled
orders accumulates. Hughes had a $9.2 billion and $10.1 billion backlog of
commercial contracts relating to its telecommunications and space businesses at
the end of 1999 and 1998, respectively.
I-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Competitive Position
GM's principal competitors in passenger cars and trucks in the United States
and Canada include Ford Motor Company, DaimlerChrysler Corporation, Toyota
Corporation, Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd., Mazda
Motor Corporation, Mitsubishi Motors Corporation, Volkswagen A.G. (Volkswagen),
Hyundai Motor Company, Ltd. (Hyundai), Bayerische Motoren Werke AG (BMW), Volvo
AB, and Kia Motors Corporation (Kia). All but Volkswagen, Hyundai and Kia
currently operate vehicle manufacturing facilities in the United States or
Canada. Toyota and GM operate the New United Motor Manufacturing, Inc. facility
in Fremont, California as a joint venture which currently builds passenger cars
and light-duty trucks. Wholesale unit sales of GM passenger cars and trucks
during the three years ended December 31, 1999 are summarized in Management's
Discussion and Analysis in Part II.
Total industry new motor vehicle (passenger cars, trucks, and buses)
registrations of domestic and foreign makes and GM's competitive position during
the years ended December 31, 1999, 1998, and 1997, respectively, were as
follows:
1999(1) 1998 1997
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(Units in Thousands)
Total industry registrations
In the United States 17,419 15,966 15,501
In Canada and Mexico 2,221 2,092 1,919
In other countries 35,307 34,623 36,125
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Total industry registrations - all countries 54,947 52,681 53,545
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1999(1) 1998 1997
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(Percent of Total Industry)
GM's registrations
In the United States 29% 29% 31%
In Canada and Mexico 29 29 31
In other countries 9 9 9
Total GM's registrations - all countries 16 16 16
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(1) Preliminary
The above information on registrations of new cars, trucks, and buses was
obtained from outside sources and that pertaining to GM's registrations includes
units which are manufactured overseas by other companies and which are imported
and sold by GM and affiliates.
Research and Development
In 1999, GM spent $6.8 billion for research, manufacturing engineering,
product engineering, and development activities related primarily to the
development of new products or services or the improvement of existing products
or services, including activities related to vehicle emissions control, improved
fuel economy, and the safety of persons using GM products. In addition, $295
million was spent for customer-sponsored activities. Comparably, $6.3 billion
and $6.5 billion were spent on company-sponsored activities in 1998 and 1997,
respectively and $717 million and $1.5 billion were spent on customer-sponsored
activities in 1998 and 1997, respectively.
Environmental Matters
Automotive Emissions Control
Both the Federal and California governments currently impose stringent
emission control requirements on motor vehicles sold in their respective
jurisdictions. These requirements include pre-production testing of vehicles,
testing of vehicles after assembly, the imposition of emission defect and
performance warranties, and the obligation to recall and repair customer-owned
vehicles determined to be non-compliant with emissions requirements.
Both the U.S. Environmental Protection Agency (EPA) and the California Air
Resources Board (CARB) continue to place great emphasis on compliance testing of
customer-owned vehicles. Failure to comply with the emission standards or
defective emission control hardware discovered during such testing can lead to
substantial cost for General Motors related to emissions recalls. New CARB and
Federal requirements will increase the time and mileage periods over which
manufacturers are responsible for a vehicle's emission performance.
I-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive Emissions Control (concluded)
Both the EPA and the CARB emission requirements will become even more
stringent in the future. A new tier of exhaust emission standards for cars and
light-duty trucks, the "LEV II" standards will begin phasing in for California
vehicles in the 2004 model year. Similar Federal "Tier 2" standards will also
start in 2004.
The requirement that, for model years 2003 and later, 10% of cars and small
light-duty trucks (up to 3,750 lb Loaded Vehicle Weight) sold in California must
be zero emission vehicles (ZEVs), was modified by the LEV II rules to allow up
to 6% of the 10% to be met using partial ZEV credits. Also, GM and six other
major vehicle manufacturers signed Memorandum of Agreements (MOAs) with CARB to
provide for a more market driven-introduction of ZEVs. The MOAs include
provisions for an advanced battery ZEV demonstration program of 3,750 vehicles
in the 1998-2000 time frame, a National LEV program or an alternative that
provides equivalent emission benefits in California, the capability to produce
specified numbers of ZEVs as warranted by demand, and continued research and
development of advanced batteries. General Motors has fulfilled its MOA
commitment for 1998 and 1999.
The Clean Air Act permits states that have areas with air quality problems to
adopt the California car and truck emission standards in lieu of the Federal
requirements and four states have done so. Under the voluntary National LEV
(NLEV) program, the auto industry began the phase in of California vehicles in
the northeast in 1999, and vehicles in all states outside California standard
states meeting LEV standards on average starting in 2001. The EPA issued a final
rule which would implement the NLEV program as a voluntary alternative available
to automakers, and on March 2, 1998, the EPA declared that the NLEV program was
"in effect" for 1999 and later model years after all manufacturers and all the
Northeast states except New York, Massachusetts, Maine, and Vermont opted to
participate in the program.
In addition to the above-mentioned exhaust emission programs, onboard
diagnostic (OBD) devices, used to diagnose problems with emission control
systems, were required both federally and in California effective with the 1996
model year. This system has the potential of increasing warranty costs and the
chance for recall.
New evaporative emission control requirements for cars and trucks began
phasing in with the 1995 model year in California and the 1996 model year
federally. Systems will need to be further modified to accommodate Federal
onboard refueling vapor recovery (ORVR) control standards. ORVR phases in on
passenger cars in the 1998 through 2000 model years and on light-duty trucks in
the 2001 through 2006 model years. Beginning with the 2004 model year, even more
stringent evaporative emission standards will be required in California, as well
as Federally.
Starting in the 2001 model year, today's test procedure for exhaust emissions
will become more complex with vehicles required to meet two additional test
requirements: 1) measuring exhaust emissions over a new test cycle with the air
conditioner operating; and 2) measuring exhaust emissions over a new high speed
(80 mph) and high load cycle. Both of these requirements have the potential of
adding hardware (and thus costs) to many vehicles.
Industrial Environmental Control
GM is subject to various laws relating to the protection of the environment
including laws regulating air emissions, water discharges, waste management, and
environmental cleanup.
GM is in various stages of investigation or remediation for sites where
contamination has been alleged and has recorded a liability of $404 million at
December 31, 1999 and $500 million at December 31, 1998 for worldwide
environmental investigation and remediation as summarized below:
. GM has been identified as a potentially responsible party at sites
identified by the EPA and state regulatory agencies for investigation and
remediation under the Comprehensive Environmental Response, Compensation,
and Liability Act (CERCLA) and similar state statutes. GM voluntarily and
actively participates in cleanup activity where such involvement is
verified. The total liability for sites involving GM is estimated to be
$114 million at December 31, 1999. This compares to $147 million at
December 31, 1998.
. For closed or closing plants owned by the Corporation, an estimated
liability for environmental investigation and remediation is typically
recognized at the time of the closure decision. Such liability, which is
based on an environmental assessment of the plant property, is estimated
at $92 million at December 31, 1999. This compares to $102 million at
December 31, 1998.
. GM is involved in investigations and remediation activities at additional
locations worldwide with an estimated liability of approximately $198
million at December 31, 1999. This compares to $251 million at December
31, 1998.
The cost impact of the Clean Air Act Amendments under Title V is the annual
emission fees of approximately $9 million per year. Additional programs under
the Clean Air Act, including Hazardous Air Pollutant standards, and Compliance
Assurance Monitoring and periodic monitoring requirements are estimated to cost
$500 million to $700 million in aggregate through the year 2003.
I-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Industrial Environmental Control (concluded)
Expenditures by General Motors in the United States for industrial
environmental control facilities during the years ended December 31, 1999, 1998,
and 1997, respectively, were as follows (in millions): 1999-$71; 1998-$78; and
1997-$84. The Corporation currently estimates that future expenditures for
industrial environmental control facilities through 2003 will be (in millions):
2000-$99; 2001-$74; 2002 and 2003-$104. Specific environmental expenses are
difficult to isolate since expenditures may be made for more than one purpose,
making precise classification difficult.
Vehicular Noise Control
Federal Truck Regulations preempt all state/local noise regulations for
trucks over 10,000 lb Gross Vehicle Weight Rating (GVWR). All jurisdictions
regulating noise levels of school buses which are built on medium-duty truck
chassis have adopted standards compatible with Federal regulations for
medium-duty trucks. Federal Truck Regulations contain label and owner's manual
requirements.
Passenger cars and light-duty trucks are subject to state and local motor
vehicle noise regulations. The current standard for vehicles in these classes is
80 dB as measured at 50 feet. Future implementation of more stringent exhaust
emission regulations and more stringent fuel economy regulations will require an
assessment of increased costs of noise control.
Safety Affairs and Regulations
Expenditures to maintain and improve the operational safety, occupant
protection, and vehicle theft deterrence capability of new GM models continue.
These expenditures include amounts for the study of alternative approaches for
meeting the needs of all three areas.
GM continues to meet the government requirement for passive restraints by
installing driver and passenger supplemental inflatable restraints (air bags) on
all passenger cars and many light trucks and vans.
Once permitted by federal regulatory changes to do so, GM introduced in 1998
and later models, less aggressive air bags in order to address concerns about
inflation injuries, particularly to children and smaller adult passengers who
are not properly positioned. GM continues to make available air bag on-off
switches for those customers eligible to request them under the requirements of
the National Highway Traffic Safety Administration (NHTSA) regulation allowing
these devices.
In 1998 and 1999, the NHTSA proposed extensive modifications to Federal Motor
Vehicle Safety Standard (FMVSS) 208, an occupant protection regulation. The
proposal entails a substantial increase in the number of crash test
configurations and test dummy occupant sizes for which certification compliance
performance would be required. It also would add a large number of static air
bag suppression or low risk deployment test requirements. A significant amount
of engineering design and development is already underway, with more
anticipated, in preparation for the final version of the proposal which will be
adopted by the NHTSA during the 2000 calendar year.
Dynamic side impact protection requirements similar to those for cars apply
to certain light trucks and vans as of September 1, 1998. Side structure and
interior trim designs of future models will continue to be affected. Additional
market pressure and future model design effects are likely regarding side impact
performance at higher crash speeds. This will result as the federal government
continues its consumer information side impact crash test program at elevated
impact speeds.
A new government requirement for vehicle interior impact protection continues
to significantly affect upper body structure and interior trim designs of future
model passenger cars and light trucks and vans. The phase-in for this rulemaking
began on September 1, 1998, and will apply to all these vehicles in the 2003
model year.
NHTSA currently is considering changing the existing fuel system crash
integrity requirements of Federal Motor Vehicle Safety Standard 301. If any
significant changes are adopted, some undetermined redesign, cost, and weight
increases can be expected for most of GM's vehicles. See Item 3, Legal
Proceedings, Other Matters.
With the passage of the Anti-Car Theft Act of 1992, implementation costs
affected approximately 22 passenger car assembly plants and 4 light-duty truck
plants. For the affected truck plants, the major expenditures were for new label
printer installations and additional stamping equipment.
Automotive Fuel Economy
The Energy Policy and Conservation Act passed in 1975 provided for
production-weighted average fuel economy standards for passenger cars for 1978
and thereafter. Based on EPA combined city-highway test data, the GM 1999 model
year domestic passenger car fleet is projected to attain a Corporate Average
Fuel Economy (CAFE) of 27.6 miles per gallon (mpg) versus the standard of 27.5
mpg. The CAFE estimate for 2000 model year domestic passenger cars is projected
at 28.1 mpg versus the standard of 27.5 mpg.
For GM's imported passenger cars, 1999 model year CAFE is projected to be
27.9 mpg versus a standard of 27.5 mpg. The CAFE estimate for 2000 model year
import passenger cars is 24.8 mpg versus the standard of 27.5 mpg. Projected
shortfalls to the standard will be offset by credits from previous model years.
I-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive Fuel Economy (concluded)
Fuel economy standards for light-duty trucks became effective in 1979.
General Motors' light truck CAFE fleet average for the 1999 model year is
projected to be 20.0 mpg versus a standard of 20.7 mpg. GM's 2000 model year
truck CAFE is projected at 21.0 mpg versus a standard of 20.7 mpg. Projected
shortfalls to the standard are expected to be offset by credits from future
model years.
GM's ability to meet increased CAFE standards is contingent on various future
economic, consumer, legislative, and regulatory factors that GM cannot control
and cannot predict with certainty. If GM could not comply with any new CAFE
standards, GM could be subject to sizeable civil penalties and could have to
close plants or severely restrict product offerings to remain in compliance. It
is expected that the Kyoto Protocol on climate change will lead to continued
pressure to increase fuel economy levels.
End of Life Vehicles
The proposed European Directive on End-of-Life Vehicles aims at the
prevention of waste from vehicles at the end of their life and encourages the
re-use, recycling, and recovery of vehicles and their components. At the end of
July 1999, it was determined by the Environment Ministers (Council) that
manufacturers are financially responsible for the take-back of vehicles put on
the market as of January 2001 and all vehicles as of 2006 (vehicles built prior
to 2001 and retired from use after 2006). However, on February 3, 2000, the
European Parliament amended the Council's text. While it is clear that the last
owner not incur any costs for turning in an end-of-life vehicle it is currently
undecided who has the responsibility for paying for the costs of taking back
vehicles after 2006. These differences are expected to be reconciled during the
first quarter of 2000. If left undefined, member states will be allowed to
choose the most appropriate solution for their country. The original January
2001 implementation date has been pushed back; the Directive is currently
projected to be effective in early 2002.
Seasonal Nature of Business
In the automotive business, there are retail sales fluctuations of a seasonal
nature, so that production varies from month to month. Certain changeovers occur
throughout the year for reasons such as new market entries and new vehicle
changes; however, the changeover period related to the annual new model
introduction has traditionally occurred in the third quarter of each year. For
this reason, third quarter operating results are, in general, less favorable
than those in the other three quarters of the year, depending on the magnitude
of the changeover needed to commence production of new models incorporating, for
example, design modifications related to more fuel-efficient vehicle packaging,
stricter government standards for safety and emission controls, and
consumer-oriented improvements in performance, comfort, convenience, and style.
Segment Reporting Data
Operating segment and principal geographic area data for 1999, 1998, and 1997
are summarized in Note 26 of Notes to the GM Consolidated Financial Statements
in Part II.
* * * * * *
The Registrant makes no attempt herein to predict the future trend of its
business and earnings or the effect thereon of the results of changes in general
economic, industrial, regulatory, and international conditions.
ITEM 2. Properties
The Corporation, excluding its Financing and Insurance Operations, has 182
locations operating in 33 states and 106 cities in the United States. Of these,
20 are engaged in the final assembly of GM cars and trucks; 42 are service parts
operations responsible for distribution or warehousing; 11 major plants,
offices, and research facilities relate to the operations of Hughes Electronics
Corporation; and the remainder are offices or involved primarily in the testing
of vehicles or the manufacture of automotive components and power products. In
addition, the Corporation has 21 locations in Canada and assembly,
manufacturing, distribution, or warehousing operations in 51 other countries,
including equity interests in associated companies which conduct assembly,
manufacturing, or distribution operations. The major facilities outside the
United States and Canada, which are principally vehicle manufacturing and
assembly operations, are located in Germany, the United Kingdom, Brazil, Mexico,
Australia, Belgium, Spain, China, Thailand, Argentina, Portugal, and Poland.
Most facilities are owned by the Corporation or its subsidiaries. Leased
properties consist primarily of warehouses and administration, engineering, and
sales offices. The leases for warehouses generally provide for an initial period
of five years and contain renewal options. Leases for sales offices are
generally for shorter periods.
Properties of the Registrant and its subsidiaries include facilities which,
in the opinion of management, are suitable and adequate for the manufacture,
assembly, and distribution of their products.
Additional information regarding worldwide expenditures for plants and
equipment is presented under Management's Discussion and Analysis in Part II.
I-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 3. Legal Proceedings
(a) Material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Corporation became, or was,
a party during the year ended December 31, 1999, or subsequent thereto, but
before the filing of this report are summarized below.
Environmental Matters
In August, 1996, the California Air Resources Board (CARB) ordered General
Motors to recall about 11,500 1992 MY "S" Trucks. The CARB claims that the
engines in these trucks, known by their emissions engine family designator as
N3G4.3TBXEB2, exceeded the applicable new motor vehicle emissions standard for
oxides of nitrogen (Nox). In addition to the ordered recall, the CARB threatened
civil penalties of up to $57 million. General Motors believes that it has valid
defenses to all CARB's claims and has requested and been granted an
administrative review of the penalties and recall order. General Motors'
defenses include the failure of CARB's outside contractor test laboratory to
comply with the Federal Test Procedure used to identify non-compliant engine
families. The administrative case is in the discovery stage.
* * *
In December 1998, the Louisiana Department of Environmental Quality (LDEQ)
issued a Penalty Assessment in the amount of $100,000 involving the plant in
Monroe, Louisiana operated by Delphi Automotive Systems. Although Delphi sold
the plant to a third party in October, 1998, GM retains responsibility for
certain pre-sale environmental issues, including the alleged permit violations
covered by the Penalty Assessment. GM filed a request for hearing and is
pursuing settlement discussions with LDEQ.
* * *
Other Matters
On April 26 and 27, 1996, two purported class actions, Keith McGill v.
General Motors Corporation and Richard Dolowich v. General Motors Corporation,
were filed against General Motors in the Supreme Court of the State of New York,
Counties of Bronx and Suffolk, alleging defective rear disc brake caliper pins
in the "GM W-Body car". These actions have been consolidated in the Supreme
Court of the State of New York, County of Bronx. The Dolowich suit is brought on
behalf of all persons and entities in the United States who currently own or
lease or previously owned or leased a 1988-1993 Buick Regal, Oldsmobile Cutlass
Supreme, Pontiac Grand Prix or Chevrolet Lumina. The McGill suit includes the
same model year vehicles, but is brought on behalf of persons and entities
residing in the State of New York who purchased or leased such vehicles and
still own them. Three additional purported nationwide class actions, brought on
behalf of current and previous owners of the same vehicles, have been filed in
federal courts in New Jersey, Garcia v. General Motors, and Pennsylvania, Neff
v. General Motors and Marcel v. General Motors. Two additional purported class
actions involving the same vehicles were filed, one in the Superior Court of New
Jersey for Burlington County, Bishop v. General Motors Corporation and another
in the United States District Court for the Eastern District of Pennsylvania,
Cohen v. General Motors Corporation. Together, the complaints allege violation
of state consumer protection laws, fraud, negligent misrepresentation, and
breach of express and implied warranty, and seek unspecified amounts of economic
damages, punitive damages not less than $20 million, attorneys' fees and costs,
and injunctive relief. The Neff, Marcel and Cohen actions have been consolidated
in Pennsylvania State Court. The Garcia and Bishop actions have been
consolidated in New Jersey State Court. On November 11, 1996, the New Jersey
state court rendered a decision certifying a class of all past and present
owners of 1988 through 1993 model year Buick Regals, Chevrolet Luminas,
Oldsmobile Cutlass Supremes and Pontiac Grand Prix. The New Jersey Appellate
Division denied GM's motion for leave to appeal, but noted that the trial court
is required to monitor compliance with the requirements to maintain a class. GM
intends to vigorously defend this matter.
* * *
Thirty-nine class actions have been filed in state, federal, and Canadian
courts against the Corporation, claiming that 1973-1987 model Chevrolet and GMC
full-size pickup trucks are defective because their fuel tanks are mounted below
the cab and outside the frame rails. Twenty-four federal court class actions
were transferred to the federal court in Philadelphia, Pennsylvania by the
Judicial Panel on Multidistrict Litigation. In these actions, plaintiffs claimed
that the fuel tank locations make the vehicles unreasonably susceptible to
fuel-fed fires following side-impact collisions. Plaintiffs alleged breach of
contract and warranty, negligence, fraud and negligent misrepresentation, as
well as violation of various state consumer protection laws. The lawsuits seek
compensatory and punitive damages and injunctions requiring notice to owners,
repairs, retrofitting and "disgorgement" of revenues.
I-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (continued)
An agreement for a nationwide settlement of the class actions pending in
federal and state courts received final court approval on December 19, 1996, by
a state court in Louisiana. The settlement, which is not expected to have a
material effect on the consolidated financial statements of General Motors,
provides for owners of 1973 to 1991 full-size pickup trucks and cab chassis with
outside-the-frame fuel tanks, as of July 3, 1996, to receive certificates for
$1,000 toward the purchase of any new General Motors passenger car or light
truck, except Saturns. The certificates can be used for the first 15 months at
$1,000 or transferred one time, whereupon the transferee would be able to use
the certificate for $500 ($250 if used with a General Motors rebate) toward the
purchase of an eligible vehicle until expiration of the 15-month period. After
the first 15 months, original recipients of the certificates may use them for an
additional 18 months at $500 or transfer them, whereupon the transferee would be
able to use the certificates for $250 towards the purchase of an eligible
vehicle. For fleets and governmental entities, after the first 15 months, the
certificates are reduced to $250 for an additional 35 months, but are not
transferable, except to other departments or agencies of the same governmental
entity.
The settlement also provides for approximately $4 million to fund motor
vehicle fire safety research. Research funds will be used to benefit motor
vehicle safety generally, and research will not be done on the pickup trucks.
The court ordered General Motors to pay plaintiffs' attorneys' fees and costs
totaling approximately $28 million.
The Louisiana Court of Appeal reversed the trial court's certification of the
class (and, indirectly, its approval of the settlement) on the ground that the
findings required to certify a class had not been made and remanded the case to
the trial court for the required findings. The Louisiana Supreme Court denied
review of that reversal. On January 20, 1999, the trial court made supplemental
findings, recertified the settlement class, and reaffirmed its approval of the
settlement. After the appeal time had run, over GM's objections, plaintiffs
obtained an order from the trial court modifying certain express provisions of
the approved settlement. Those changes are directly contrary to the order
approving the settlement and two prior consent orders. GM appealed to the
Louisiana Court of Appeal which granted a stay of the order modifying the
settlement and ordered that the appeal be permitted. Certificates will not be
issued until the appeal is concluded.
There are also pending individual product liability claims and lawsuits
involving allegations of defects in the design of such vehicles resulting in
fuel-fed fires following side-impact collisions. GM intends to defend these
cases vigorously.
* * *
On December 2, 1996, a purported class action, Alma Rose Rangel, et al. v.
General Motors Corporation, was filed in District Court, Webb County, Texas,
claiming that the Type III door latches used in approximately 40 million 1978 to
1986 model GM passenger cars and light trucks are defective. Plaintiffs allege
breaches of express and implied warranties, negligence and gross negligence, and
seek compensatory and punitive damages and attorneys' fees. No determination has
been made that the case can proceed as a class action. GM has removed the case
to the United States District Court, Southern District of Texas, Laredo
Division, and intends to oppose certification of a class and defend the case
vigorously. On February 27, 1998, Johnny McLain v. General Motors Corporation
was filed in circuit Court, Walker County, Alabama. GM removed the case to the
United States District Court, Northern District of Alabama, and moved to dismiss
that case. On August 19, 1998, Thomas Haenish v. General Motors Corporation was
filed in state court, Cook County, Illinois. GM removed the case to the United
States District Court, Northern District of Illinois, and moved to dismiss the
complaint. GM's motion was granted. The Judicial Panel on Multidistrict
Litigation has granted GM's motion to consolidate such actions for coordinated
pretrial proceedings and transferred the cases to a federal court in Chicago. GM
intends to vigorously defend these cases. Separately, a petition to open a
defect investigation of the Type III door latches was denied by the National
Highway Safety Traffic Administration.
* * *
Nine separate putative class actions have been filed alleging defects in
vehicle paint. Three of those cases have been dismissed. No determination has
been made as to whether any of the six pending cases described below may proceed
as a class action.
I-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (continued)
On March 24, 1995, a purported nationwide class action (Christian Amedee and
Louis Fuxan v. General Motors Corporation, et al), was filed in the Civil
District Court for the Parish of New Orleans, State of Louisiana, alleging that
the paint or paint application process used by GM at several unspecified North
American assembly plants was defective due to the omission of a surface layer
primer, allegedly causing the paint to prematurely delaminate, deteriorate and
peel. Plaintiffs seek unspecified compensatory damages, equitable relief,
interest, costs and attorneys' fees.
On April 8, 1998, the Corporation was served with a putative nationwide
class action filed in the Circuit Court of Cook County, Illinois, Chancery
Division (Craig Friedman, Robert Bengston and Debra Bengston v. General Motors
Corporation). GM removed the case to Federal Court, where it is currently
pending as Cherise Miller, Davie Carie and Donald Teringo v. General Motors
Corporation. The named plaintiffs purport to represent a class of all persons
who now or formerly owned or leased a 1990 through 1997 model year GM vehicle
which was painted without a primer surface layer and which subsequently
experienced peeling paint. Plaintiffs assert claims for violation of the
Illinois Consumer Protection Act and misrepresentation by omission and seek
unquantified compensatory damages, punitive damages, pre-judgment interest,
costs and attorneys' fees.
On or about July 6, 1998, the Corporation was served with a putative class
action complaint filed in the Superior Court for the City and County of San
Francisco, California (Eddie Glorioso v. General Motors Corporation). On or
about July 23, 1998, the Corporation was served with a virtually identical
complaint filed in the Superior Court for the County of Almeida, California
(Scott Arnold v. General Motors Corporation). The two cases have been
consolidated in San Francisco County where they have been stayed. The named
plaintiffs purport to represent a class of all persons or entities resident in
California which then or formerly owned or leased a 1985 through 1997 model year
GM vehicle which was painted without a primer surface layer and which
subsequently exhibited peeling or chipping of the paint. Each complaint asserts
claims for breach of express warranty, violation of California's Song Beverly
Consumer Warranty Act, and unfair competition and/or fraudulent business
practices. Plaintiffs seek restitution of all amounts paid by class members for
GM vehicles and/or disgorgement of related profits or revenues, equitable
relief, actual damages, prejudgment interest, costs and attorneys' fees.
On May 16, 1999, the Corporation was served with a putative class action
filed in the Court of Common Pleas of Philadelphia County, Pennsylvania (Scott
Haverdink v. General Motors Corporation). The named plaintiff purports to
represent a class of Pennsylvania residents who purchased or leased model year
1985 through 1997 GM vehicles which have exhibited peeling paint and alleges
that vehicles painted using an application process which omits a primer surface
layer are inherently defective. The Complaint includes claims of breach of
express warranty breach of contract and alleged violation of the Pennsylvania
Unfair Trace Practices Consumer Protection Law.
On June 2, 1999, a statement of claim against General Motors Corporation and
General Motors of Canada Limited was filed in support of a putative class action
in the Supreme Court of British Columbia (Darryl Oshanek v. General Motors
Corporation). The named plaintiff purports to represent a class of consumers
resident in British Columbia who purchased 1986 through 1997 model year GM
vehicles which have experienced peeling paint and asserts a single count under
British Columbia's Deceptive Trade Practices Act.
* * *
On July 9, 1999, a jury in a Los Angeles Superior Court in the matter of
Anderson et. al, v. General Motors Corporation, returned a verdict of $4.9
billion against General Motors in a product liability lawsuit involving a
post-collision, fuel fed fire in a 1979 Chevrolet Malibu. The initial jury award
consisted of $102 million in compensatory damages and $4.8 billion in punitive
damages. After trial, the trial court reduced the punitive damages to $1.1
billion.
This case arose out of an accident on December 24,1993. While the plaintiffs
were stopped at a red light, they were struck in the rear by a 1977 Buick Regal
going approximately 70 mph. The driver of the Regal was intoxicated, having a
blood alcohol level of .20, almost three times the California limit. The ensuing
post-crash fire burned all of the occupants of the Malibu with the children
receiving the most severe burns. Plaintiffs claimed that the Malibu's fuel tank,
which was located behind the rear axle, should have been located over the axle.
Alternatively they claimed the tank should have been shielded or incorporated a
bladder.
I-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (continued)
GM believes that, by any measure, the 1979 Malibu was a safe passenger car.
The Malibu's fuel tank location was similar to that in most other vehicles of
the same size and vintage and its design met or exceeded the applicable FMVSS
301 standard, having passed a 50 mph rear-impact test that few other cars on the
market in 1979 would have passed. Even the alternative designs suggested by the
plaintiffs would have been compromised in such a severe crash. GM was not
allowed to introduce other compelling evidence that the Malibu's fuel system was
well-designed. Lastly, although the jury was asked to apportion the non-economic
compensatory damages between GM and the driver of the Regal, they were not
informed about his intoxication.
GM believes that the design of the subject Chevrolet Malibu was not
responsible for plaintiff's injuries, that numerous evidentiary and procedural
reversible errors occurred at the trial and that as a matter of law, GM's
conduct does not support any punitive damages. The trial court has entered an
order which stays execution of the judgment pending resolution of all appeals by
GM and has released the bond GM had posted for the punitive and compensatory
damages, the cost of which was not material to the Corporation. GM will continue
to vigorously pursue its appellate rights, including efforts to secure a new
trial and the complete elimination of responsibility to pay any damages in this
matter consistent with GM's view that the design of the Chevrolet Malibu was not
responsible for plaintiffs' injuries.
* * *
Eleven purported class actions alleging that certain antilock braking systems
on 1989 to 1996 light duty GM trucks are defective were consolidated by the
Judicial Panel on Multidistrict Litigation for coordinated pretrial proceedings
as In Re General Motors Anti-Lock Brake Products Liability Litigation, USDC,
Eastern District of Missouri, Eastern Division. On June 11, 1997, GM's motion to
dismiss the consolidated complaint was granted. The dismissal was affirmed by
the court of appeals for the Eighth Circuit. Subsequently, Michael Siegel v.
General Motors Corporation was filed in the Circuit Court of Cook County,
Illinois. GM has removed the case to the federal court and a conditioned
transfer order transferring it to the Multidistrict Court has been entered.
* * *
In October, 1994, a California jury awarded a total of approximately $90
million in damages against Hughes, which include approximately $10 million of
actual damages and punitive damages of $40 million to each of two former Hughes
employees, Lane (race discrimination/retaliation) and Villalpando (retaliation),
based on claims of mistreatment and denials of promotions. The trial court
granted Hughes' motion to set aside the verdicts because of insufficient
evidence and ordered a new trial of the matter. On January 6, 1997, the Court of
Appeal reversed the trial court's decision that had set aside the verdicts and
ordered a new trial. The Court of Appeal also reinstated the jury verdicts,
while reducing the two $40 million punitive damage awards to $5 million and
approximately $3 million, resulting in an aggregate judgment of approximately
$17 million. Hughes' petition for review by the California Supreme Court was
granted in November, 1997. On March 6, 2000, the California Supreme Court
reversed the judgment of the Court of Appeal, remanding the case with
instructions to set aside the verdicts as to actual and punitive damages and
affirming the order of the trial court to proceed with a new trial.
* * *
General Electric Capital Corporation (GECC) and DIRECTV, Inc. (DIRECTV)
entered into a contract on July 31, 1995, in which GECC agreed to establish and
manage a private label consumer credit program for consumer purchases of
hardware and related DIRECTV programming. Under the contract, GECC also agreed
to provide certain related services to DIRECTV, including credit risk scoring,
billing, and collections services. DIRECTV agreed to act as a surety for loans
complying with the terms of the contract. Hughes guaranteed DIRECTV's
performance under the contract. A complaint and counterclaim have been filed by
the parties in the U.S. District Court for the District of Connecticut
concerning GECC's performance and DIRECTV's obligation to act as a surety. GECC
claims damages from DIRECTV in excess of $140 million. DIRECTV is seeking
damages from GECC in excess of $45 million. Hughes intends to vigorously contest
GECC's allegations and pursue Hughes' own contractual rights and remedies.
Hughes does not believe that the litigation will have a material adverse impact
on its results of operations or financial position. Pretrial discovery is
completed. No specific trial date has been set, but a trial may be held in 2000.
* * *
I-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (continued)
In November 1996, Personalized Media Communications, Inc. (PMC) brought an
International Trade Commission proceeding against DIRECTV, U.S. Satellite
Broadcasting Company (USSB), Hughes Network Systems, and other manufacturers of
receivers for the DIRECTV system to prevent importation of certain receivers
manufactured in Mexico, alleging infringement of one of its patents. During
1997, the International Trade Commission held for DIRECTV and other respondents
on all claims at issue, finding each to be invalid. PMC appealed these adverse
rulings to the Court of Appeals for the Federal Circuit. During 1998, the Court
of Appeals affirmed the lower court's holdings as to three of the claims, and
remanded to the International Trade Commission for further deliberation on a
remaining claim. PMC then moved for dismissal of the proceeding, which was
granted, terminating the action. Also in 1996, PMC filed a related action in the
U.S. District Court for the Northern District of California. This case has been
stayed pending outcome of the International Trade Commission proceeding. The
complaint alleges infringement and willful infringement of three PMC patents,
and seeks unspecified damages, trebling of damages, an injunction, and
attorneys' fees. Hughes denies that it engaged in acts of infringement of the
asserted patents and intends to vigorously contest these claims.
* * *
There is a pending grand jury investigation into whether Hughes should be
accused of criminal violations of the export control laws arising out of the
participation of two of its employees on a committee formed to review the
findings of Chinese engineers regarding the failure of a Long March rocket in
China in 1996. Hughes is also subject to the authority of the State Department
to impose sanctions for non-criminal violations of the Arms Export Control Act.
The possible criminal and/or civil sanctions could include fines as well as
debarment from various export privileges and participating in government
contracts. If Hughes were to enter into a settlement of this matter prior to the
closing of The Boeing Company (Boeing) transaction (see Note 27 to the GM
consolidated financial statements) that involves a debarment from sales to the
U.S. government or a material suspension of Hughes' export licenses or other
material limitation on projected business activities of the satellite systems
manufacturing businesses, Boeing would not be obligated to complete the
purchase of Hughes' satellite systems manufacturing businesses. Hughes does not
expect the grand jury investigation or State Department review to result in a
material adverse effect upon its business. However, there can be no assurance
as to such a favorable outcome.
* * *
In connection with the 1997 spin-off of the defense electronics business of
Hughes' predecessor and the subsequent merger of that business with Raytheon
Company (Raytheon), the terms of the merger agreement provided processes for
resolving disputes that might arise in connection with post-closing financial
adjustments that were also called for by the terms of the merger agreement.
These financial adjustments might require a cash payment from Raytheon to Hughes
or vice versa. Disputes currently exist 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 Hughes has proposed.
* * *
On June 3, 1999, the National Rural Telecommunications Cooperative (NRTC)
filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc.
(together "DIRECTV") in the United States District Court for the Central
District of California, alleging that DIRECTV has breached the DBS Distribution
Agreement (the "DBS Agreement") with the NRTC. The DBS Agreement provides the
NRTC with certain rights, in certain specified portions of the United States,
with respect to DIRECTV programming delivered over 27 of the 32 frequencies at
the 101 degrees west longitude orbital location. The NRTC claims that DIRECTV
has wrongfully deprived it of the exclusive right to distribute programming
formerly provided by USSB over the other five frequencies at 101 degrees.
DIRECTV denies that the NRTC is entitled to exclusive distribution rights to the
former USSB programming because, among other things, the NRTC's exclusive
distribution rights are limited to programming distributed over 27 of the 32
frequencies at 101 degrees. The NRTC's complaint seeks, in the alternative, the
right to distribute former USSB programming on a non-exclusive basis and the
recovery of related revenues from the date USSB was acquired by Hughes. DIRECTV
maintains that the NRTC's right under the DBS Agreement is to market and sell
the former USSB programming as its agent and is not entitled to the claimed
revenues. DIRECTV intends to vigorously defend against the NRTC claims. DIRECTV
has also filed a counterclaim against the NRTC seeking a declaration of the
parties' rights under the DBS Agreement.
I-10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (concluded)
On August 26, 1999, the NRTC filed a second lawsuit against DIRECTV in which
it alleges that DIRECTV has breached the agreement it has with NRTC. In this
lawsuit, the NRTC is asking the court to require DIRECTV to pay the NRTC a
proportionate share of unspecified financial benefits that DIRECTV derives from
programming providers and other third parties. DIRECTV denies that it owes any
sums to the NRTC on account of the allegations, in these matters and plans to
vigorously defend itself against these claims.
Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two
largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV in
United States District Court in Los Angeles. The plaintiffs allege, among other
things, that DIRECTV has interfered with their contractual relationship with the
NRTC. The plaintiffs plead that their rights and damages are derivative of the
rights and claims asserted by the NRTC in its two cases against DIRECTV. The
plaintiffs also allege that DIRECTV has interfered with their contractual
relationships with manufacturers and distributors by preventing those parties
from selling receiving equipment to the plaintiffs' dealers. DIRECTV denies that
it has wrongly interfered with any of the plaintiffs' business relationships and
will vigorously defend the lawsuit. Although an amount of loss, if any, cannot
be estimated at this time, an unfavorable outcome could be reached in the NRTC
and Pegasus litigation that could be material to Hughes' results of operations
or financial position.
* * *
EchoStar Communications Corporation and others commenced an action in the
United States District Court in Colorado on February 1, 2000 against DIRECTV,
Hughes Network Systems, and Thomson Consumer Electronics, Inc. seeking, among
other things, injunctive relief and unspecified damages, including treble
damages, in connection with allegations that the defendants have entered into
agreements with retailers and program providers and engaged in other conduct
that violates the antitrust laws and constitutes unfair competition. DIRECTV
believes that the complaint is without merit and intends to vigorously defend
against the allegations raised. Although an amount of loss, if any, cannot be
estimated at this time, an unfavorable outcome could be reached that could be
material to Hughes' results of operations or financial position.
* * *
(b) Previously reported legal proceedings which have been terminated, either
during the year ended December 31, 1999, or subsequent thereto, but before the
filing of this report are summarized below:
With respect to the previously reported action commenced by Comsat
Corporation (Comsat) on or about October 25, 1996 against PanAmSat Corporation
(PanAmSat), such action has been dismissed without prejudice.
* * *
With respect to the previously reported suits challenging GM's split-off of
Electronic Data Systems Corporation (EDS), i.e., Stephen A. Solomon v. General
Motors Corporation, et al and TRV Holding Company v. General Motors Corporation
et al, filed in Delaware Chancery Court on May 13 and 18, 1994, respectively,
and Ward et al, as Trustees for the Eisenberg Children's Irrevocable Trust II v.
General Motors Corporation, et al, filed in Delaware Chancery Court on November
15, 1995, the Supreme Court of the State of Delaware has affirmed the final
judgment of the Court of Chancery dismissing all of the consolidated Class E
stockholder class actions and stockholder derivative actions. All Class E
stockholder litigation is now concluded.
* * * * * *
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
I-11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4A. Executive Officers of the Registrant
The names and ages of all executive officers of the Registrant at February
29, 2000 and their positions and offices with the Registrant on that date are as
follows:
Name and (Age) Positions and Offices
- -------------- -------------------------------------------
John F. Smith, Jr. (61) Chairman of the Board;
Chief Executive Officer;
Member, Investment Funds Committee
Harry J. Pearce (57) Vice Chairman of the Board
G. Richard Wagoner, Jr. (47) President and Chief Operating Officer
J. Michael Losh (53) Executive Vice President; Chief Financial
Officer
Louis R. Hughes (51) Executive Vice President; New Business
Strategies
Ronald L. Zarrella (50) Executive Vice President; President,
GM North America
John D. Finnegan (51) Executive Vice President; President, GMAC
There are no family relationships, as defined, between any of the above
executive officers, and there is no arrangement or understanding between any of
the above executive officers and any other person pursuant to which he was
selected as an officer. Each of the above executive officers was elected by the
Board of Directors to hold office until the next annual election of officers and
until his successor is elected and qualified or until his earlier resignation or
removal. The Board of Directors elects the officers in conjunction with each
annual meeting of the stockholders.
I-12
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4A. Executive Officers of the Registrant - concluded
Mr. John F. Smith, Jr. has been associated with General Motors since 1961.
He was elected Executive Vice President in charge of International Operations in
1988. Effective August 1990, he was elected Vice Chairman of the Board of
Directors. On April 6, 1992, Mr. Smith was elected President and Chief Operating
Officer. Effective November 1992, he was elected Chief Executive Officer and
President. He served as President until October 1998. On January 1, 1996, Mr.
Smith became Chairman of the Board of Directors.
Mr. Harry J. Pearce has been associated with General Motors since 1985. In
May 1987, he was elected Vice President and General Counsel of General Motors.
Effective November 1992, he was elected Executive Vice President of General
Motors with responsibility for the Legal Staff, Industry-Government Relations,
Environmental and Energy, Worldwide Economics, Electronic Data Systems
Corporation and GM Hughes Electronics Corporation (now Hughes Electronics
Corporation). In July 1994, he assumed responsibility for GM's Strategic
Decision Center, Corporate Communications, Allison Transmission Division,
Electro-Motive Division (now GM Locomotive Group), Corporate Relations,
Worldwide Executive Compensation and Corporate Governance, and the Business
Support Group. He remained General Counsel through August 1, 1994. Effective
January 1996, Mr. Pearce was elected a director and became Vice Chairman of the
Board of Directors and assumed responsibility for Information System Services.
In 1997 he assumed responsibility for the Enterprise Activities Group and Global
Human Resources and GM University.
Mr. G. Richard Wagoner, Jr. has been associated with General Motors since
1977. He was elected Vice President in charge of finance for General Motors
Europe in June 1989. In July 1991, he was elected President and Managing
Director of General Motors do Brasil. Effective November 1992, he was elected
Executive Vice President and Chief Financial Officer of General Motors. In July
1994, he was named President of North American Operations. In October 1998, he
was elected a director, President and Chief Operating Officer of General Motors.
Mr. J. Michael Losh has been associated with General Motors since 1964. In
July 1984, he was elected Vice President of General Motors and General Manager
of Pontiac Division. He was named General Manager of Oldsmobile Division in June
1989. Effective May 1992, he was elected Group Executive in charge of North
American Vehicle Sales, Service, and Marketing. In July 1994, he was elected
Executive Vice President and Chief Financial Officer of General Motors.
Mr. Louis R. Hughes has been associated with General Motors since 1966. In
April 1989, he was elected Chairman and Managing Director of Adam Opel AG. He
was elected President of General Motors Europe and Vice President and Group
Executive of General Motors in April 1992. Effective November 1992, he was
elected Executive Vice President, in charge of International Operations of
General Motors. In September 1994, he was named Executive Vice President and
President of International Operations. In October, 1998 he was elected Executive
Vice President, New Business Strategies.
Mr. Ronald L. Zarrella has been associated with General Motors since 1994. In
December 1994, he was elected Vice President of General Motors and Group
Executive in charge of GM's North American Vehicle Sales, Service and Marketing
Group. In October 1998, he was elected Executive Vice President of General
Motors and President of General Motors North America.
Mr. John D. Finnegan has been associated with General Motors since 1976. In
1992, he was elected as Executive Vice President and Chief Financial Officer of
General Motors Acceptance Corporation. During 1994, he added the
responsibilities of Chairman and President of GMAC Mortgage Corporation.
Effective December 1995, he was named Vice President and Treasurer of General
Motors. In November 1997, he was elected Vice President and Group Executive of
General Motors and President of General Motors Acceptance Corporation. Effective
May 1999, he was elected Chairman of General Motors Acceptance Corporation and
Executive Vice President of General Motors.
I-13
PART II
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
General Motor's (GM's) common stocks are listed on the stock exchanges
specified on the cover page of this Form 10-K under the trading symbols (GM) and
(GMH). GM's Dividend Policy is described in Note 20 to the GM Consolidated
Financial Statements in Part II. As of December 31, 1999, there were 499,809
holders of record of $1-2/3 par value common stock and 192,866 holders of record
of GM Class H common stock. As of December 31, 1998, there were 525,583 holders
of record of $1-2/3 par value common stock and 205,904 holders of record of GM
Class H common stock. The following table sets forth the high and low sale
prices of GM's common stocks as reported on the composite tape and the quarterly
dividends declared for the last two years, not adjusted to account for the
spin-off of Delphi which occurred during the second quarter of 1999.
1999 Quarters
----------------------------------------
1st 2nd 3rd 4th
Cash dividends per share of
common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Class H $- $- $- $-
Price range of common stocks
$1-2/3 par value (1): High $93.88 $94.88 $72.44 $79.06
Low $69.19 $61.06 $59.75 $60.69
Class H (1): High $53.00 $63.88 $62.44 $97.63
Low $38.50 $48.94 $48.75 $55.94
1998 Quarters
----------------------------------------
1st 2nd 3rd 4th
Cash dividends per share of
common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Class H $- $- $- $-
Price range of common stocks
$1-2/3 par value (1): High $74.25 $76.69 $74.75 $74.94
Low $55.06 $66.13 $54.44 $47.06
Class H (1): High $48.00 $57.88 $50.81 $42.38
Low $31.50 $42.75 $35.00 $30.38
- ------------------
(1)The principal market is the New York Stock Exchange, and prices are based on
the Composite Tape. $1-2/3 par value common stock is also listed on the
Chicago and Philadelphia stock exchanges and on the Pacific Exchange.
II-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. Selected Financial Data (Unaudited)
Years Ended December 31
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Millions Except Per Share Amounts)
Total net sales and revenues $176,558 $155,445 $172,580 $158,281 $154,954
Income from continuing
operations before
cumulative effect of
accounting changes $5,576 $3,049 $6,483 $4,100 $4,726
Income (loss) from
discontinued operations 426 (93) 215 863 2,207
Cumulative effect of
accounting changes - - - - (52)(1)
-------- -------- -------- -------- -------
Net income $6,002 $2,956 $6,698 $4,963 $6,881
===== ===== ===== ===== =====
$1-2/3 par value common stock
Basic earnings per share
(EPS) from
continuing operations $8.70 $4.40 $8.52 $5.08 $5.57
Basic earnings (loss)
per share from
discontinued operations $0.66 $(0.14) $0.18 $0.98 $1.71
Diluted EPS from
continuing operations $8.53 $4.32 $8.45 $5.04 $5.52
Diluted earnings (loss)
per share from
discontinued operations $0.65 $(0.14) $0.17 $0.98 $1.69
Cash dividends declared
per share $2.00 $2.00 $2.00 $1.60 $1.10
Class H common stock (3)
Basic EPS from continuing
operations $ - $ - $2.30 $1.83 $1.39
Basic EPS from discontinued
operations $ - $ - $0.87 $1.05 $1.38
Diluted EPS from continuing
operations $ - $ - $2.30 $1.83 $1.39
Diluted EPS from discontinued
operations $ - $ - $0.87 $1.05 $1.38
Cash dividends declared
per share $ - $ - $1.00 $0.96 $0.92
Class H common stock (4)
Basic (loss) earnings
per share from
continuing operations $(0.77) $0.68 $0.02 $ - $ -
Diluted (loss) earnings
per share from
continuing operations $(0.77) $0.68 $0.02 $ - $ -
Cash dividends declared
per share $ - $ - $ - $ - $ -
Class E common stock
Basic EPS from discontinued
operations $ - $ - $ - $0.04 $1.96
Diluted EPS from discontinued
operations $ - $ - $ - $0.04 $1.96
Cash dividends declared
per share $ - $ - $ - $0.30 $0.52
Total assets $274,730 $246,688 $221,767 $216,965 $209,520
Long-term debt (2) $7,415 $7,118 $5,669 $5,352 $4,100
GM-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts $218 $220 $222 $ - $ -
Stockholders' equity $20,644 $15,052 $17,584 $23,413 $23,310
- -------------------
Reference should be made to the notes to GM's consolidated financial statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations.
(1)GM adopted the provisions of the EITF consensus on Issue No. 95-1, effective
January 1, 1995, which resulted in an unfavorable cumulative effect of $52
million after-tax or $0.07 diluted loss per share of $1-2/3 par value common
stock.
(2)Calculated from Automotive, Communications Services, and Other Operations
only.
(3)Prior to its recapitalization on December 17, 1997.
(4)Subsequent to its recapitalization on December 17, 1997.
* * * * * *
II-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the Hughes
Electronics Corporation (Hughes) consolidated financial statements and MD&A for
the period ended December 31, 1999, included as Exhibit 99 to this GM Annual
Report on Form 10-K for the period ended December 31, 1999, and related Hughes
Annual Report on Form 10-K filed separately with the Securities and Exchange
Commission (SEC); and the General Motors Acceptance Corporation (GMAC) Annual
Report on Form 10-K for the period ended December 31, 1999, filed separately
with the SEC. The financial data related to Delphi Automotive Systems
Corporation (Delphi) is presented as discontinued operations for all periods
presented (see Note 2 to the GM consolidated financial statements). Hughes,
prior to the December 17, 1997 restructuring of the company, is hereinafter
referred to as "former Hughes," and Hughes, subsequent to the December 17, 1997
restructuring of the company, is hereinafter referred to as "Hughes." All
earnings per share amounts included in the MD&A are reported as diluted.
GM presents separate supplemental consolidating financial information for the
following businesses: Automotive, Communications Services, and Other Operations,
and Financing and Insurance Operations.
GM's reportable operating segments within its Automotive, Communications
Services, and Other Operations business consist of:
- GM Automotive (GMA) is comprised of four regions: GM North America (GMNA),
GM Europe (GME), GM Asia/Pacific (GMAP), and GM Latin
America/Africa/Mid-East (GMLAAM). GMNA designs, manufactures, and markets
vehicles primarily in North America under the following nameplates:
Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, and Saturn. GME,
GMAP, and GMLAAM meet the demands of customers outside North America with
vehicles designed, manufactured, and marketed under the following
nameplates: Opel, Vauxhall, Holden, Isuzu, Saab, Buick, Chevrolet, GMC,
and Cadillac.
- Hughes includes activities relating to digital entertainment, information
and communications services, and satellite-based private business
networks.
- The Other segment includes the design, manufacturing and marketing of
locomotives and heavy-duty transmissions, the elimination of intersegment
transactions, and certain non-segment specific revenues and expenditures.
GM's reportable operating segments within its Financing and Insurance
Operations business consist of GMAC and Other. GMAC provides a broad range of
financial services, including consumer vehicle financing, full-service leasing
and fleet leasing, dealer financing, car and truck extended service contracts,
residential and commercial mortgage services, commercial, vehicle, and
homeowners' insurance, and asset-based lending. The Financing and Insurance
Operations' Other segment includes financing entities operating in Canada,
Germany, and Brazil which are not associated with GMAC.
The disaggregated financial results for GMA have been prepared using a
management approach, which is consistent with the basis and manner in which GM
management internally disaggregates financial information for the purpose of
assisting in making internal operating decisions. In this regard, certain common
expenses were allocated among regions less precisely than would be required for
stand-alone financial information prepared in accordance with generally accepted
accounting principles (GAAP) and certain expenses (primarily certain U.S. taxes
related to non-U.S. operations) were included in the Automotive, Communications
Services, and Other Operations' Other segment. The financial results represent
the historical information used by management for internal decision making
purposes; therefore, other data prepared to represent the way in which the
business will operate in the future, or data prepared on a GAAP basis, may be
materially different.
RESULTS OF OPERATIONS
In 1999, GM's consolidated income from continuing operations totaled $5.6
billion or $8.53 per share of $1-2/3 par value common stock, compared with $3.0
billion or $4.32 per share of $1-2/3 par value common stock and $6.5 billion or
$8.45 per share of $1-2/3 par value common stock in 1998 and 1997, respectively.
The 1999 financial results were impacted by net charges of $110 million
after-tax, or $0.09 per share of $1-2/3 par value common stock, which included
an increase to income of $553 million after-tax, or $0.84 per share of $1-2/3
par value common stock, related to the reversal of a liability for benefits
payable to excess U.S. hourly employees (see below and Note 4 to the GM
consolidated financial statements); a charge of $408 million after-tax, or $0.62
per share of $1-2/3 par value common stock, related to the benefit increase
granted to hourly retirees in connection with the United Auto Workers (UAW)
agreement (GM expenses this benefit in the period that the contract with the UAW
is ratified; see GMA Financial Review below for more information); a charge of
$165 million after-tax, or $0.17 per share of $1-2/3 par value common stock and
$0.39 per share of GM Class H common stock, related to Hughes' decision to
discontinue certain of its wireless manufacturing operations at Hughes Network
Systems (HNS); and a charge of $90 million after-tax, or $0.14 per share of
$1-2/3 par value common stock, related to a U.S. salaried early retirement
program (approximately 1,700 people elected participation in this program).
Excluding the impact of these special items, income from continuing operations
was $5.7 billion or $8.62 per share of $1-2/3 par value common stock.
II-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS (concluded)
The 1998 financial results were impacted by charges of $272 million of
special items, which included $228 million after-tax, or $0.34 per share of
$1-2/3 par value common stock, resulting from GM's 1998 competitiveness studies
(see Competitiveness Studies below and Note 3 to the GM consolidated financial
statements) and $44 million after-tax, or $0.06 per share of $1-2/3 par value
common stock, related to work schedule modifications at Opel Belgium.
Additionally, the 1997 financial results were impacted by two significant items:
a $4.3 billion tax-free gain, or $5.87 per share of $1-2/3 par value common
stock, resulting from the December 17, 1997 completion of the strategic
restructuring of former Hughes (see Hughes Financial Review); and charges of
$3.2 billion after-tax, or $4.36 per share of $1-2/3 par value common stock,
resulting from GM's 1997 competitiveness studies (see Competitiveness Studies).
Excluding the impact of these and other special items of $476 million in income
for 1997, income from continuing operations was $3.3 billion, or $4.72 per share
of $1-2/3 par value common stock and $4.9 billion, or $6.40 per share of $1-2/3
par value common stock for 1998 and 1997, respectively.
On April 12, 1999, the GM Board of Directors (GM Board) approved the complete
separation of Delphi from GM by means of a spin-off (which was tax-free to GM
and its stockholders for U.S. federal income tax purposes) which was completed
on May 28,1999 and, accordingly, the financial results related to Delphi for all
periods presented are reported as discontinued operations. GM's net income for
1999, including the income from discontinued operations totaled $6.0 billion or
$9.18 per share of $1-2/3 par value common stock compared with income of $3.0
billion or $4.18 per share of $1-2/3 par value common stock and income of $6.7
billion or $8.62 per share of $1-2/3 par value common stock in 1998 and 1997,
respectively. Additional information regarding the spin-off of Delphi is
contained in Note 2 to the GM consolidated financial statements. For information
regarding the effect of current year acquisitions, refer to Note 23 to the GM
consolidated financial statements.
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Highlights of financial performance by GM's Automotive, Communications
Services, and Other Operations business were as follows for the years ended
December 31, (in millions):
1999 1998 1997
---- ---- ----
Total net sales and revenues
GMA $146,056 $129,054 $137,675
Hughes 7,594 6,095 5,624
Other 2,457 2,012 12,796
------- --------- --------
Total net sales and revenues $156,107 $137,161 $156,095
======= ======= =======
Net income (loss)
GMA $4,981 $1,634 $449
Hughes (1) (270) 272 471
Other (669) (279) 4,245
------ ----- -----
Income from continuing operations 4,042 1,627 5,165
Discontinued operations 426 (93) 215
------ ------- ------
Net income $4,468 $1,534 $5,380
===== ===== =====
(1)Excludes amortization of GM purchase accounting adjustments of $21 million
in each of the years related to GM's acquisition of Hughes Aircraft Company
(HAC) in 1985. Such amortization was allocated to GM's Other segment which is
consistent with the basis upon which the segments are evaluated.
The amounts above and the GMA and Hughes Financial Reviews that are presented
on pages II-5 through II-11 reflect the change in GM's organizational structure
resulting from the 1997 restructuring of former Hughes. As such, the 1997
amounts for Hughes exclude Delco and Hughes Defense and for Other include Hughes
Defense.
II-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA Financial Highlights
Year Ended December 31,
-----------------------
1999 1998 1997
----- ------ ------
(Dollars in Millions)
GMNA
Total net sales and revenues $115,132 $96,497 $102,628
------- ------ -------
Pre-tax income (loss) 7,192 2,409 (249)
Income tax expense (benefit) 2,339 787 (272)
Earnings/(losses) of nonconsolidated
associates and minority interests (31) 13 (35)
------ ------- --
GMNA income (loss) $4,822 $1,635 $(12)
===== ===== ==
GME
Total net sales and revenues $26,225 $25,840 $24,918
------ ------ ------
Pre-tax income 642 740 256
Income tax expense 220 319 121
Earnings/(losses) of nonconsolidated
associates and minority interests 1 (2) (152)
---- ----- ---
GME income (loss) $423 $419 $(17)
=== === ==
GMLAAM
Total net sales and revenues $4,709 $7,553 $8,784
----- ----- -----
Pre-tax (loss) income (266) (471) 536
Income tax (benefit) expense (156) (213) 43
Earnings/(losses) of nonconsolidated
associates and minority interests 29 83 174
-- ---- ---
GMLAAM (loss) income $(81) $(175) $667
== === ===
GMAP
Total net sales and revenues $3,187 $3,044 $3,138
----- ----- -----
Pre-tax loss (76) (82) (235)
Income tax (benefit) expense (7) 9 (29)
Earnings/(losses) of nonconsolidated
associates and minority interests (149) (152) 34
--- --- ----
GMAP loss $(218) $(243) $(172)
=== === ===
GMA (1)
Total net sales and revenues $146,056 $129,054 $137,675
------- ------- -------
Pre-tax income 7,548 2,594 279
Income tax expense (benefit) 2,418 902 (149)
Earnings/(losses) of nonconsolidated
associates and minority interests (149) (58) 21
------ ------- ----
GMA income $4,981 $1,634 $449
===== ===== ===
- -----------------
(1) GMA's results include eliminations of transactions among GMNA, GME, GMLAAM,
GMAP.
II-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
<TABLE>
Vehicle Unit Deliveries of Cars and Trucks - GMA
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
GM as GM as GM as
a % of a % of a % of
Industry GM Industry Industry GM Industry Industry GM Industry
-------- -- -------- -------- -- -------- -------- -- --------
(Units in Thousands)
United States
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cars 8,700 2,591 29.8% 8,141 2,456 30.2% 8,273 2,689 32.5%
Trucks 8,719 2,426 27.8% 7,825 2,148 27.4% 7,228 2,077 28.7%
------ ----- ------ ----- ------ -----
Total United States 17,419 5,017 28.8% 15,966 4,604 28.8% 15,501 4,766 30.7%
Canada, Mexico
and Other 2,549 689 27.0% 2,406 639 26.6% 2,196 629 28.6%
------ ----- ------ ----- ------ -----
Total GMNA 19,968 5,706 28.6% 18,372 5,243 28.5% 17,697 5,395 30.5%
GME 20,138 1,979 9.8% 19,200 1,849 9.6% 18,099 1,833 10.1%
GMLAAM 3,231 536 16.6% 4,164 654 15.7% 4,383 744 17.0%
GMAP 11,610 457 3.9% 10,945 452 4.1% 13,366 593 4.4%
------ ----- ------ ----- ------ ------
Total Worldwide 54,947 8,678 15.8% 52,681 8,198 15.6% 53,545 8,565 16.0%
</TABLE>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(Units in Thousands)
Wholesale Sales
GMNA
Cars 2,992 2,731 3,095
Trucks 2,882 2,340 2,454
----- ----- -----
Total GMNA 5,874 5,071 5,549
----- ----- -----
GME
Cars 1,824 1,764 1,708
Trucks 144 118 142
------ ------ ------
Total GME 1,968 1,882 1,850
----- ----- -----
GMLAAM
Cars 350 404 495
Trucks 173 248 290
--- --- ---
Total GMLAAM 523 652 785
--- --- ---
GMAP
Cars 162 202 176
Trucks 259 217 416
--- --- ---
Total GMAP 421 419 592
--- --- ---
Total Worldwide 8,786 8,024 8,776
===== ===== =====
GMA Financial Review
GMA's income was $5.0 billion, $1.6 billion, and $449 million for 1999, 1998,
and 1997, respectively. GMA's 1999 results included $257 million of special
items which consist of the previously mentioned increase to income of $553
million after-tax related to the reversal of a liability for benefits payable to
excess U.S. hourly employees (see below and Note 4 to the GM consolidated
financial statements); a charge of $257 million after-tax related to the
previously mentioned benefit increase granted to hourly retirees in connection
with the UAW agreement; and a charge of $39 million after-tax related to the
U.S. salaried early retirement program referred to previously. All of the
previously mentioned 1998 special items totaling $272 million after-tax related
to GMA's 1998 results. GMA's portion of the 1997 special items included a charge
of $3.0 billion after-tax related to the 1997 competitiveness studies and an
increase to income of $158 million after-tax related to the previously mentioned
other 1997 special items. Excluding these special items, GMA's income was $4.7
billion or 3.2% of total net sales and revenues, $1.9 billion or 1.5% of total
net sales and revenues, and $3.3 billion or 2.4% of total net sales and revenues
for 1999, 1998, and 1997, respectively. The increase in 1999 income and net
margin (excluding the special items) was primarily due to continued improvement
in the profitability of new vehicles, higher production volumes at GMNA compared
with the prior year when work stoppages at two component plants in Flint,
Michigan halted production of wholesale units at 26 of 29 assembly plants in
North America, and lower material costs.
II-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA Financial Review (continued)
The decrease in 1998 income compared to 1997 (excluding the special items)
was primarily due to lower production volumes at GMNA resulting from the work
stoppages mentioned above, higher retail incentives, and the economic downturn
throughout Latin America, partially offset by material, engineering, and
structural cost savings.
GMA's net sales and revenues for 1999 were $146.1 billion, which represented
an increase of $17.0 billion compared with 1998. The increase was largely due to
increases in wholesale sales volumes of 762,000 units from the prior year which
were primarily due to the 1998 GMNA work stoppages previously mentioned. Total
net sales and revenues for 1998 were $129.1 billion, which represented a
decrease of $8.6 billion compared with 1997. The decrease was primarily due to a
lower number of wholesale units sold as a result of the previously mentioned
work stoppages and the economic downturn throughout Latin America.
GMA's worldwide vehicle deliveries were approximately 8,678,000, which
represented a market share of 15.8% for 1999, compared with approximately
8,198,000 deliveries and a 15.6% market share and approximately 8,565,000
deliveries and a 16.0% market share for 1998 and 1997, respectively. GMNA's 1999
market share was 28.6% compared with 28.5% and 30.5% for 1998 and 1997,
respectively.
GM is currently negotiating an agreement (which was announced in November
1999) with Commerce One, a recognized leader in business-to-business electronic
procurement solutions, for development of an automotive focused e-commerce
marketsite called the GM TradeXchange. In connection with this agreement, GM,
Ford Motor Company, and DaimlerChrysler Corporation jointly announced on
February 25, 2000 that they are planning to combine their efforts to form a
business-to-business integrated supplier exchange through a single global
portal. This venture will create the world's largest virtual marketplace. The
new enterprise will offer open participation to all auto manufacturers around
the world, and their respective market of suppliers, partners, and dealers.
Eventually, this marketplace could be expanded to encompass other industries.
The three automakers plan to have equal ownership in the new venture which would
operate as a separate independent business. A definitive agreement for the
venture is expected to be reached during the first quarter of 2000, subject to
appropriate governmental and other approvals. Until then, all services currently
associated with the existing exchange will continue to be offered.
GMNA reported income of $4.8 billion for 1999 compared with income of $1.6
billion and a loss of $12 million for 1998 and 1997, respectively. GMNA's 1999
results were impacted by all of the 1999 special items referred to above
relating to GMA. GMNA's portion of the 1998 and 1997 special items included a
charge of $80 million after-tax related to the 1998 competitiveness studies and
a charge of approximately $2.4 billion after-tax related to the 1997
competitiveness studies. Excluding these special items, GMNA's income was $4.6
billion, $1.7 billion, and $2.4 billion for 1999, 1998, and 1997, respectively.
The improvement in 1999 income from 1998 (excluding the special items) was
primarily due to the prior year's work stoppages, higher wholesale sales
volumes, continued improvement in the cost and profitability of new vehicles,
lower material costs, and reduced warranty expense resulting from improved
quality. This improvement was partially offset by increased manufacturing costs
and pre-production and launch costs associated with the new LeSabre, Impala,
Monte Carlo, Saturn LS, DeVille, Aurora, Tahoe, Suburban, Yukon, and Yukon XL
models as well as increased engineering costs for further innovation in GM's
portfolio. Net price was unfavorable for 1999 at (0.3)% year-over-year. Net
price comprehends the percent increase/decrease a customer pays in the current
period for the same comparably equipped vehicle produced in the previous year's
period.
The decrease in GMNA income for 1998 compared to 1997 (excluding the special
items) was primarily due to the previously discussed work stoppages, minimized
by strong cost performance which more than offset price reductions driven by
competitive market pressures. The 1998 cost performance resulted from quality
initiatives, material performance, and reduced structural cost.
The 1999 UAW labor contract was ratified on October 13, 1999, covering a
four-year term from 1999-2003. The contract included an annual salary increase
of 3% per year, an up-front signing bonus of $1,350 per UAW employee which will
be amortized evenly over the life of the contract, and pension benefit
increases. In addition, retiree benefit increases include lump sum payments and
a $1.25 monthly benefit increase per year of service. The retiree lump sum
payments resulted in the previously mentioned charge against GM's 1999 fourth
quarter earnings of approximately $408 million after-tax (of which $151 million
was allocated to GM's Other segment). The other pension benefit increases will
be paid out of plan assets.
The 1999 contract includes job security and sourcing provisions containing an
employment floor set at 95% of 1996 employment levels in the event of net
outsourcing. It also requires a level of attrition replacement based on a 1999
benchmark minimum employment level, which is reduced by 5% over the life of the
contract.
The 1999 Canadian Auto Workers (CAW) labor agreement was ratified on October
24,1999, covering a three-year term from 1999-2002. The contract included an
annual salary increase of 3% per year and an up-front signing bonus of $1,000
Canadian (approximately $679 at the December 31, 1999 exchange rate) per active
CAW employee, which will be amortized evenly over the life of the contract. In
addition, hourly actives and retirees were granted pension benefit increases to
be paid out of plan assets. The 1999 labor agreement continues to provide
flexibility to cut costs and streamline operations.
II-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA Financial Review (continued)
In the past, GM recorded liabilities for termination and other postemployment
benefits to be paid pursuant to union or other contractual agreements in
connection with closed plants in North America. As of December 31, 1998, the
total of these liabilities represented approximately 5,500 employees and totaled
approximately $1.3 billion. GM reviews the adequacy and continuing need for
these liabilities on an annual basis in conjunction with its year-end production
and labor forecasts. Furthermore, GM reviews the reasonableness of these
liabilities on a quarterly basis.
There were four factors that occurred in 1999 which significantly changed the
assumptions previously used in measuring these liabilities: a stronger than
expected U.S. vehicle market; a renewed and strengthened relationship between GM
and the UAW; higher than expected levels of attrition at Delphi following the
1999 separation of Delphi from GM; and changes to the National Labor Agreement
between GM and the UAW, which was ratified in October 1999.
GM's redeployment assumptions (forecast of excess U.S. hourly employees)
are used to evaluate the postemployment benefits liabilities. These assumptions
are largely dependent on its forecast for U.S. vehicle production. Due to the
unanticipated sustained strength in the U.S. economy, which resulted in 17.4
million units produced in the U.S. in 1999, GM increased its 1999 production,
which created unanticipated demand for U.S. hourly employees.
GM's relationship with the UAW is also a key factor in determining
redeployment assumptions. On May 28, 1999, GM successfully completed the
separation of Delphi and, subsequently, in October 1999 negotiated a new
national labor agreement with the UAW, without any work stoppage.
The Delphi separation from GM also had a significant impact on GM's
redeployment assumptions. The separation of Delphi resulted in approximately
14,000 Delphi U.S. hourly employees electing retirement in order to take
advantage of provisions allowing them to retire under GM's retirement program
until January 1, 2000. The high level of retirements created a shortage of
hourly employees at Delphi, which allowed GM to place excess employees from its
closed plants into positions at Delphi plants, and limited the number of Delphi
employees who could elect to return to open positions at GM.
The 1999 UAW-GM National Agreement, ratified in October 1999, changed GM's
ability to place excess employees from closed plants into open positions at
other plants. This change has enabled GM to place workers from closed plants
much more quickly than GM management had expected and more quickly than past
experience.
As a result of these factors, in the fourth quarter of 1999, GM reversed
postemployment benefits liabilities for employees at closed plants through an
adjustment to cost of sales totaling approximately $892 million ($553 million
after-tax, or $0.84 earnings per share of $1-2/3 par value common stock). The
1999 adjustment of postemployment benefit costs reflects the decrease in the
number of excess employees at December 31, 1999, as compared with December 31,
1998, as well as a shortened duration of benefit payments based on current
redeployment assumptions. The remaining liability for postemployment benefits as
of December 31, 1999 totals approximately $295 million, representing
approximately 2,700 employees, of which approximately $222 million is expected
to be paid out in cash over the next three years. The following table summarizes
the activity from December 31, 1998 through December 31, 1999 for this liability
(dollar amounts in 000's):
<TABLE>
<CAPTION>
December 31, 1998 1999 Activity December 31, 1999
----------------- ------------- -----------------
Closed Excess Interest Excess
Plant Employees Balance Spending Accretion Adjustment Balance Employees
----- --------- ------- ----------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Buick City/
Flint V-6 (1) 2,123 $537,005 $(55,945) $29,378 $(460,219) $50,219 403
Kalamazoo 1,254 228,602 (44,923) 12,133 (152,348) 43,464 459
Flint V-8 876 223,516 (30,106) 11,450 (154,201) 50,659 659
Van Nuys 396 156,298 (17,425) 7,934 (50,548) 96,259 366
Tarrytown 79 29,803 (3,351) 1,526 (22,192) 5,786 61
Framingham 99 20,826 (1,689) 1,150 (3,795) 16,492 91
Danville 47 18,091 (1,627) 900 (13,710) 3,654 16
Other 658 72,925 (12,768) 3,235 (35,092) 28,300 615
------ ---------- --------- ------- -------- -------- -----
Total 5,532 $1,287,066 $(167,834) $67,706 $(892,105) $294,833 2,670
===== ========= ======= ====== ======= ======= =====
</TABLE>
(1)The reduction in excess employees at the Buick City assembly and Flint
V-6 engine plants was a result of redeployment to other GM and Delphi
plants (1,239) and retirement (481).
II-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA Financial Review (concluded)
GME reported income of $423 million for 1999 compared with income of $419
million and a loss of $17 million for 1998 and 1997, respectively. GME's 1998
results included after-tax charges of $44 million related to work schedule
modifications at Opel Belgium. GME's portion of the previously mentioned other
special items in 1997 included after-tax increases to income of $103 million
related to the sale of GME's interest in Avis Europe and $55 million related to
a settlement agreement with Volkswagen A.G. Additionally, 1997 results included
after-tax charges of $488 million related to the 1997 competitiveness studies.
Excluding GME special items in 1998 and 1997, GME's income was $463 million and
$313 million for 1998 and 1997, respectively. The decrease in GME's 1999 income
from 1998 (excluding the 1998 special items) was primarily due to increasing
competitive pricing pressure, and increased engineering expense associated with
the model year 2000 mid-life cycle enhancements for the Vectra and Omega and the
new model year 2001 Corsa. These decreases were partially offset by continued
material cost improvements as a result of GM's global purchasing efforts as well
as improved manufacturing performance. The increase in 1998 earnings compared to
1997 (excluding the special items) was primarily due to savings on material
costs and policy and warranty spending, as well as lower equity losses from Saab
Automobile A.B.
During 1999, the European parliament began consideration of legislation
regarding end-of-life vehicles and the responsibility of manufacturers of such
vehicles for dismantling and recycling vehicles they have sold. GME is currently
assessing the impact of this potential legislation on their results of
operations and financial position.
GMLAAM reported a loss of $81 million for 1999 compared with a loss of $175
million and income of $667 million for 1998 and 1997, respectively. Excluding
$51 million of after-tax charges related to the 1998 competitiveness studies,
GMLAAM's losses were $124 million in 1998. The decrease in 1999 losses compared
to 1998 (excluding the special items) was primarily due to nominal price
increases and reduced structural costs (reducing employee and production costs),
partially offset by lower industry volumes due to the economic crisis throughout
Latin America and increased material and freight costs driven by GM do Brasil's
and its suppliers' exposure to hard currencies. The decrease in 1998 earnings
compared to 1997 (excluding the special items) was primarily due to the economic
downturn throughout Latin America and higher incentive costs. In 1999, GMLAAM
reduced employment levels by approximately 4% in an effort to resize operations
to current conditions in addition to the approximate 11% reduction accomplished
in 1998. Capital spending has also been greatly reduced to conserve cash in the
region. Going forward, Latin America should continue its slow but steady
recovery from this economic crisis in the region.
GMAP reported a loss of $218 million in 1999 compared with losses of $243
million and $172 million for 1998 and 1997, respectively. Excluding $97 million
and $170 million of after-tax competitiveness studies charges, GMAP's losses
were $146 million and $2 million for 1998 and 1997, respectively. Increased
losses for 1999 compared to 1998 (excluding the special items) were primarily
due to start-up costs in the region and equity losses at Isuzu due to the
economic downturn in Asia, partially offset by continued strong performance in
Australia and earnings improvements at Shanghai GM. Increased losses from 1997
to 1998 (excluding the special items) were also attributable to equity losses at
Isuzu due to the economic downturn in Asia and spending associated with GMAP's
growth strategy.
GMA's effective income tax (credit) rate for 1999 was 32.0% compared with
34.8% and (53.4)% for 1998 and 1997, respectively. Excluding the previously
mentioned special items, the effective income tax rates for 1999, 1998, and 1997
were 31.7%, 34.7%, and 32.6%, respectively.
Hughes Financial Highlights
Years Ended December 31,
---------------------------------
1999 1998 1997(1)
------ ---- ----
(Dollars in Millions Except Per Share Amounts)
Total net sales and revenues $7,594 $6,095 $5,624
----- ----- -----
Pre-tax (loss) income (328) 310 734
Income tax (benefit) expense (194) (45) 237
Minority interests 32 24 25
Losses of nonconsolidated associates (189) (128) (72)
--- --- ----
Net (loss) income $(291) $251 $450
=== === ===
(Losses) earnings used for
computation of Available
Separate Consolidated Net Income (2) $(321) $272 $471
(Losses) earnings per
share attributable
to Class H common stock (3) $(0.77) $0.68 $1.18
- ------------
See notes on the following page.
II-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Hughes Financial Highlights (concluded)
(1)The 1997 amounts relate only to the telecommunications and space business of
former Hughes to reflect the changes to GM's organizational structure
resulting from the Hughes Transactions which occurred in December 1997. See
further discussion of Hughes Transactions below.
(2)Excludes amortization of GM purchase accounting adjustments of $21 million
in each of the years related to GM's acquisition of HAC in 1985. Includes
accrued preferred stock dividends of $51 million in 1999.
(3)For 1997, earnings per share attributable to GM Class H common stock are
presented on a pro forma basis. Prior to the Hughes Transactions, such
amounts were calculated based on the financial performance of former Hughes.
Since the financial highlights for 1997 relate only to the telecommunications
and space business of former Hughes, they do not reflect the earnings per
share attributable to the former GM Class H common stock on a historical
basis. The pro forma presentation, therefore, presents the financial results
which would have been achieved for 1997 relative to the GM Class H common
stock based solely on the performance of the telecommunications and space
business of former Hughes. See Hughes Financial Review for further
discussion.
Hughes Financial Review
On December 17, 1997, GM and former Hughes completed a series of transactions
(Hughes Transactions) that were designed to address strategic challenges facing
the three principal businesses of former Hughes (consisting of the defense
electronics, automotive electronics, and telecommunications and space
businesses). The Hughes Transactions included the tax-free spin-off of the
defense electronics business of former Hughes (Hughes Defense) to holders of
GM's $1-2/3 par value and Class H common stocks, the transfer of Delco from
former Hughes to Delphi, and the recapitalization of Class H common stock into a
new GM tracking stock, GM Class H common stock, that is linked to the remaining
telecommunications and space businesses of Hughes. The Hughes Transactions were
followed immediately by the merger of Hughes Defense with Raytheon Company. The
1997 financial information presented for Hughes relates only to the
telecommunications and space businesses of former Hughes.
Total net sales and revenues increased to $7.6 billion in 1999, compared with
$6.1 billion in 1998 and $5.6 billion in 1997. The DIRECTV businesses were the
primary contributors to the growth in revenues for 1999. This was a result of a
significant increase in subscribers in both the U.S. and Latin America and
additional revenues for the U.S. DIRECTV businesses from the PRIMESTAR and U.S.
Satellite Broadcasting Company (USSB) acquisitions. Also contributing to the
growth in 1999 revenues were increased sales of DIRECTV receiver equipment and a
$155 million pre-tax gain that resulted from the settlement of a patent
infringement case. The 1999 revenue growth was partially offset by decreased
revenues at the satellite systems manufacturing businesses which was principally
due to contract revenue adjustments and delayed revenue recognition that
resulted from increased development costs and schedule delays on several new
product lines, decreased activity associated with a contract with ICO Global
Communications, and a decrease in interest income due to a decrease in cash and
cash equivalents. The 1998 increase from 1997 was primarily due to subscriber
growth at the U.S. DIRECTV businesses, an increase at PanAmSat Corporation
(PanAmSat) resulting primarily from the May 1997 PanAmSat merger and increased
operating lease revenues for video, data, and Internet-related services, higher
commercial satellite sales, and higher sales of DIRECTV receiver equipment.
Hughes had a pre-tax loss of $328 million in 1999, compared with pre-tax
income of $310 million in 1998 and $734 million in 1997. The pre-tax loss for
1999 included a $272 million pre-tax charge related to discontinued wireless
product lines at Hughes Network Systems (HNS), a pre-tax charge of $125 million
for the satellite systems manufacturing businesses that resulted from increased
development costs and schedule delays on several new product lines, a one-time
pre-tax charge of $92 million resulting from the termination of the Asia-Pacific
Mobile Telecommunications Satellite contract, an $85 million decrease in
interest income as discussed above, and a $105 million increase in interest
expense. The larger pre-tax loss in 1999 was also a result of increased
subscriber acquisition costs and higher depreciation and amortization that
resulted from 1999 acquisitions. These charges were offset by the $155 million
pre-tax gain from the settlement of a patent infringement case and increased
profitability due to the growth in revenues discussed above. The decrease in
1998 pre-tax income primarily resulted from the $490 million pre-tax gain
recognized in connection with the PanAmSat merger in 1997, goodwill amortization
associated with the PanAmSat merger, and a provision for uncollectible amounts
due from certain wireless customers, offset by a decrease in interest expense
and an increase in interest income.
Hughes recognized an income tax benefit in 1999 of $194 million, compared to
an income tax benefit of $45 million in 1998 and income tax expense of $237
million in 1997. The increased income tax benefit for 1999 compared to 1998 is
due to the losses incurred in 1999. 1998 taxes benefited from an increase in
research and development credits related to prior years and the favorable
resolution of certain tax contingencies.
(Losses) earnings used for computation of Available Separate Consolidated Net
Income (Loss) in 1999 was a loss of $321 million, compared with earnings of $272
million in 1998 and earnings of $471 million in 1997. 1999 included $51 million
of accrued preferred stock dividends.
II-10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Hughes Financial Review (continued)
Hughes has filed a shelf registration statement with the SEC with respect to
an issuance of up to $2.0 billion of debt securities from time to time.
No amounts have been issued as of December 31, 1999.
On March 1, 2000, Hughes announced that DIRECTV Japan's operations will be
discontinued and that its subscribers would migrate to SkyPerfecTV, a Japanese
company providing direct-to-home satellite broadcasting. As a result of this
transaction, Hughes will acquire a 6.8% interest in SkyPerfecTV, which is
expected to complete an IPO during its fiscal year ending March 31, 2001. Hughes
will be required to fund a substantial portion of the costs to be incurred over
the next six to nine months to exit the DIRECTV Japan business. Hughes will
accrue such exit costs during the first quarter of fiscal 2000. The first
quarter charge will be offset by the fair value of the SkyPerfecTV interest
received; however, the amounts are not yet estimable. In addition, Hughes will
continue to record its share of DIRECTV Japan's operating losses during fiscal
2000.
On January 13, 2000, Hughes announced that it had reached an agreement to
sell its satellite systems manufacturing businesses to The Boeing Company for
approximately $3.8 billion in cash. The final transaction, which is subject to
regulatory approval, is expected to close in the second or third quarter of
2000 and result in an after-tax gain in excess of $1.0 billion.
Also on January 13, 2000, Hughes announced the discontinuation of its mobile
cellular and narrowband local loop product lines at Hughes Network Systems. As
a result of this decision, Hughes recorded a fourth quarter 1999 pre-tax charge
to continuing operations of approximately $272 million. The charge represents
the write-off of receivables and inventories, licenses, software, and equipment
with no alternative use.
In September and November of 1999, DIRECTV Japan raised approximately $281
million in total through the issuance of
bonds, convertible into common stock, to five of its major shareholders,
including approximately $245 million issued to Hughes.
On July 28, 1999, Galaxy Latin America, LLC (GLA) acquired Galaxy Brasil,
Ltda. (GLB), the exclusive distributor of DIRECTV in Brazil, from Tevecap S.A.
for approximately $114 million plus the assumption of debt. In connection with
the transaction, Tevecap also sold its 10% equity interest in GLA to Hughes and
The Cisneros Group of Companies, the remaining GLA partners, which increased
Hughes' ownership interest in GLA to 77.8%. As part of the transaction, Hughes
also increased its ownership interest in SurFin from 59.1% to 75.0%. The total
consideration paid in the transactions amounted to approximately $101 million.
On May 20, 1999, Hughes acquired by merger all of the outstanding capital
stock of USSB, a provider of premium subscription television programming via the
digital broadcasting system that it shares with DIRECTV. The total consideration
of approximately $1.6 billion paid in July 1999 consisted of approximately $360
million in cash and 22.6 million shares of GM Class H common stock.
On May 11, 1999, Hughes announced that it would collaborate with America
Online, Inc. (AOL) on a new service that would combine digital satellite
television programming from DIRECTV with AOL's new interactive television
Internet service. 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. In June
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 is committed to increase its
sales and marketing expenditures over the next three years by approximately $1.5
billion related to its DirecPC/AOL-Plus, DlRECTV, DlRECTV/AOL TV, and DirecDuo
products and services.
As part of the alliance described above, AOL invested $1.5 billion in shares
of GM Series H 6.25% Automatically Convertible Preference Stock. GM immediately
invested the $1.5 billion received from AOL in shares of Hughes Series A
Preferred Stock which is designed to correspond to the financial terms of the GM
Series H 6.25% Automatically Convertible Preference shares. Dividends on the
Hughes Series A Preferred Stock are payable to GM quarterly at an annual rate of
6.25%. For further discussion, see Note 18 to the GM consolidated financial
statements.
On April 28, 1999, Hughes completed the acquisition of PRIMESTAR's 2.3
million subscriber medium-power direct-to-home satellite business. The purchase
price consisted of $1.1 billion in cash and 4.9 million shares of GM Class H
common stock, for a total purchase price of $1.3 billion. As part of the
agreement to acquire PRIMESTAR, Hughes agreed to purchase the high-power
satellite assets and related orbital frequencies of Tempo Satellite Inc., a
wholly-owned subsidiary of TCI Satellite Entertainment, Inc. The purchase price
for the Tempo Satellite assets consisted of $500 million in cash. 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 February 1999, Hughes acquired an additional ownership interest in Grupo
Galaxy Mexicana, S.R.L. de C.V. (GGM), a Latin American local operating company
which is the exclusive distributor of DIRECTV in Mexico, from Grupo MVS, S.R.L.
de C.V. Hughes' equity ownership represents 49.0% of the voting equity and all
of the non-voting equity of GGM. In October 1998, Hughes acquired from Grupo MVS
an additional 10.0% interest in GLA, increasing Hughes' ownership interest to
70.0%. Hughes also acquired an additional 19.8% interest in SurFin, a company
providing financing of subscriber receiver equipment for certain local operating
companies located in Latin America and Mexico, increasing Hughes' ownership
percentage from 39.3% to 59.1%. The aggregate purchase price for these
transactions was $197 million in cash.
II-11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financing and Insurance Operations
- ----------------------------------
Highlights of financial performance by GM's Financing and Insurance Operations
business were as follows for the years ended December 31, (in millions):
1999 1998 1997
---- ---- ----
Total net sales and revenues
GMAC $20,218 $17,914 $16,595
Other 233 370 (110)
------ ------ ------
Total net sales and revenues $20,451 $18,284 $16,485
====== ====== ======
Net income
GMAC $1,527 $1,325 $1,301
Other 7 97 17
------ ------ ------
Total $1,534 $1,422 $1,318
===== ===== =====
GMAC Financial Highlights
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(Dollars in Millions)
Financing revenues
Retail and lease financing $4,303 $3,869 $3,571
Operating leases 7,429 7,233 7,260
Wholesale, commercial and other loans 2,046 1,629 1,746
------ ------ ------
Total financing revenues 13,778 12,731 12,577
Interest and discount 6,526 5,787 5,256
Depreciation on operating leases 4,892 4,693 4,677
----- ----- -----
Net financing revenue 2,360 2,251 2,644
Mortgage revenue 2,982 2,030 1,499
Insurance premiums earned 1,794 1,859 1,360
Other income 1,664 1,295 1,159
----- ----- -----
Net financing revenue and other 8,800 7,435 6,662
Expenses 6,313 5,498 4,448
----- ----- -----
Pre-tax income 2,487 1,937 2,214
Income tax expense 960 612 913
------ ------ ------
Net income $1,527 $1,325 $1,301
===== ===== =====
Net income from automotive and other
financing operations $1,057 $984 $910
Net income from insurance operations 210 226 224
Net income from mortgage operations 260 115 167
------ ------ ------
Net income $1,527 $1,325 $1,301
===== ===== =====
II-12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review
In 1999, net income from automotive and other financing operations totaled
$1.1 billion, which is 7.4% and 16.2% higher than 1998 and 1997, respectively.
Earnings in 1999 were higher due to increased financing volumes and reduced
credit losses, partially offset by a higher effective tax rate. The increase in
1998 from 1997 was primarily attributable to retail asset growth, reduced credit
losses, and a lower effective income tax rate, partially offset by lower net
interest margins and lower wholesale volume. Net income from insurance
operations totaled $210 million in 1999 compared to $226 million and $224
million in 1998 and 1997, respectively. The decrease was primarily attributable
to pricing pressure in the personal lines insurance business. Net income was
relatively unchanged from 1997 to 1998. Net income from mortgage operations
totaled $260 million in 1999 compared to $115 million and $167 million in 1998
and 1997, respectively. The strong year-over-year performance reflects
improvement across all sectors. The unusually low earnings in 1998 were largely
due to reduced mortgage asset values from higher prepayment levels.
During 1999, GMAC financed 40.5% of new GM vehicle retail deliveries in the
United States, down from 41.3% in 1998 and up from 33.1% in 1997. The decline in
financing penetration from 1998 was primarily the result of competitive market
conditions. The increase in 1998 over 1997 resulted from GMAC's special rate
financing and lease incentive programs sponsored by GM.
GMAC's automotive financing revenue totaled $13.8 billion in 1999, compared
with $12.7 billion and $12.6 billion for 1998 and 1997, respectively. The
increases were mainly due to higher average retail, operating lease, and other
loan receivable balances which resulted from continued retail financing
incentives sponsored by GM.
GMAC's worldwide cost of borrowing, including the effects of derivatives, for
1999 averaged 5.67%, a decrease of 32 and 63 basis points from the comparable
periods of 1998 and 1997, respectively. Total borrowing costs for U.S.
operations averaged 5.66% for 1999, compared to 5.89% and 6.39% for 1998 and
1997, respectively. The lower average borrowing costs since 1997 were largely a
result of lower short-term market interest rates.
Net automotive financing revenue combined with mortgage revenue, insurance
premiums, and other income increased to $8.8 billion, compared with $7.4 billion
and $6.7 billion in 1998 and 1997, respectively. The increase in 1999 over 1998
was primarily due to results from mortgage operations. The increase in 1998 over
1997 was primarily due to results from mortgage and insurance operations,
partially offset by reduced net automotive financing margins.
Expenses increased by $815 million and $1.1 billion in 1999 and 1998,
respectively. The increases in 1999 were a result of higher costs for salaries
and benefits and other operating charges which reflect continued growth and
acquisitions at GMAC Mortgage Group, Inc. The increase in 1999 over 1998 also
includes an increase in goodwill amortization related to GMAC acquisitions.
GMAC's effective income tax rate for 1999 was 38.6%, compared with 31.6% in
1998 and 41.2% in 1997. The differences in the effective tax rates from 1997 to
1999 can be attributed to a decrease in U.S. and foreign taxes assessed on
foreign source income during 1998.
Competitiveness Studies
As a result of pricing pressure and excess capacity, GM initiated studies in
1997 concerning the long-term competitiveness of all facets of their businesses.
These studies include periodic evaluations of the carrying value of long-lived
assets to be held and used, when events and circumstances warrant such review.
These evaluations and reviews are generally done in conjunction with the annual
business planning cycle. (Additional information regarding the competitiveness
studies is contained in Note 3 to the GM consolidated financial statements.)
Based on the results of these reviews, GM did not record any pre-tax charges
against income in 1999. In 1998 and 1997, GM recorded pre-tax charges against
income totaling $224 million ($228 million after-tax, or $0.34 per share of
$1-2/3 par value common stock) and $5.1 billion ($3.2 billion after-tax, or
$4.36 per share of $1-2/3 par value common stock), respectively.
In 1998, the pre-tax charges were comprised of $105 million ($80 million
after-tax) for GMNA, $82 million ($51 million after-tax) for GMLAAM, and $37
million ($97 million after-tax) for GMAP. Overall, these charges had the effect
of increasing 1998 cost of sales, depreciation and amortization, and other
expenses by $92 million, $67 million, and $65 million, respectively. In 1997,
the pre-tax charges were comprised of $3.8 billion ($2.4 billion after-tax) for
GMNA, $848 million ($488 million after-tax) for GME, $174 million ($170 million
after-tax) for GMAP, and $205 million ($128 million after-tax) for GM
Automotive, Communications Services, and Other Operations' Other segment. These
charges reduced 1997 net sales and revenues by $548 million and increased cost
of sales, depreciation and amortization, and other expenses by $1.4 billion,
$3.0 billion, and $72 million, respectively. Amounts related to capacity
reduction and other expenses that were recorded in 1998 and 1997 that still
remain as of December 31, 1999 total $795 million. Going forward, GM's future
cash requirements relating to the 1998 and 1997 charges are expected to occur
primarily over the next five years, with anticipated spending of approximately
61% in 2000 and 15% in 2001.
II-13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Competitiveness Studies (concluded)
The competitiveness studies charges include amounts for underperforming
assets pursuant to GM's policy for the valuation of long-lived assets. Future
investments relating to underperforming product lines will be expensed. Charges
also include amounts for voluntary early retirement and other separation
programs, recorded when the employee accepts the offer in accordance with GM's
policy for such programs; postemployment benefits payable to employees, pursuant
to contractual agreements; costs associated with the disposal of assets at
facilities subject to capacity reductions; and charges for losses on contracts
associated with pricing pressures on used vehicles and the related effect on
GM's retail-lease commitments.
GM will continue to monitor the competitiveness of all aspects of its
businesses, and further competitiveness studies will be undertaken when and if
market conditions warrant.
Year 2000
During 1999, GM successfully completed its comprehensive, worldwide program
to address the Year 2000 issue. Final preparations included deployment of GM
command centers around the world to monitor the transition to the new
millennium. As expected, GM did not experience any material adverse effects on
its business, products, results of operations, or financial condition as a
result of the Year 2000 issue.
GM will continue to monitor its own operations, and the operations of third
parties that are critical to GM's operations, for potential Year 2000-related
problems. However, GM does not anticipate that it will discover any future
Year 2000 issues that will have a material effect on its business, products,
results of operations, or financial condition.
GM's direct Year 2000 program cost was expensed as incurred with the
exception of capitalizable replacement hardware. Total incremental spending by
GM was not material to the Corporation's operations, liquidity or capital
resources.
In addition to the work for which GM has direct financial responsibility, EDS
provided Year 2000-related services to GM, as required under a Master Service
Agreement. EDS provided these services as part of normal fixed price services
and other ongoing payments to EDS.
GM's current forecast of total direct expenditures, including the value of
services performed by EDS attributable to GM's Year 2000 program, will
approximate $615 million. This amount includes the following:
- - An estimated $410 million in direct GM expenditures. This estimate includes
GM's additional payment to EDS of approximately $62 million at the end of the
first quarter of 2000, since the systems remediated by EDS under the Master
Service Agreement did not cause a significant business disruption resulting
in material financial loss to GM due to the millennium change; and
- - Approximately $205 million representing the value of Year 2000 services that
EDS is providing to GM as part of normal fixed price services and other
ongoing payments to EDS under the Master Service Agreement. This estimate
does not include the $62 million additional payment from GM to EDS at the end
of the first quarter of 2000 mentioned above.
GM incurred approximately $142 million of Year 2000 expense through 1997 and
1998, and an additional $187 million during 1999. Thus, the total direct
expenditures by GM, and value of Year 2000-related services performed by EDS
attributable to GM's Year 2000 program, for the period from January 1997 through
December 1999, amounted to approximately $534 million.
LIQUIDITY AND CAPITAL RESOURCES
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Cash, marketable securities, and $3.0 billion of assets of the Voluntary
Employees' Beneficiary Association (VEBA) trust invested in fixed-income
securities, at December 31, 1999, totaled $14.4 billion compared with $13.1
billion at December 31, 1998. The increase in cash and marketable securities
from 1998 to 1999 was primarily due to stronger operating cash flows due to the
previously mentioned work stoppage in 1998. The total VEBA assets in the VEBA
trust used to pre-fund part of GM's other postretirement benefits liability
approximated $6.3 billion and $4.6 billion at December 31, 1999 and 1998,
respectively.
Net liquidity, calculated as cash and marketable securities less the total of
loans payable and long-term debt, was $2.0 billion at December 31, 1999, an
increase of $214 million from the prior year. GM previously indicated that it
had a goal of maintaining $13.0 billion of cash and marketable securities in
order to continue funding product development programs throughout the next
downturn in the business cycle. This $13.0 billion target includes cash to pay
certain costs that were pre-funded in part by VEBA contributions.
Long-term debt was $7.4 billion at December 31, 1999, an increase of $297
million from the prior year. The ratio of long-term debt to long-term debt and
GM investment in Automotive, Communications Services, and Other Operations was
43.7% and 58.1% at December 31, 1999 and 1998, respectively. The ratio of
long-term debt and short-term loans payable to the total of this debt and GM
investment was 49.6% and 61.8% at December 31, 1999 and 1998, respectively.
II-14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive, Communications Services, and Other Operations (concluded)
- ---------------------------------------------------------
GM believes it has sufficient resources to meet anticipated future cash flow
requirements. In addition to cash flows from operations, GM maintains
substantial lines of credit with various financial institutions. Additional
information on GM's available credit facilities is contained in Note 14 to the
GM consolidated financial statements.
Financing and Insurance Operations
- ----------------------------------
Financing and Insurance Operations are conducted by GMAC, certain of its
subsidiaries, and other financing entities operating in Canada, Germany, and
Brazil. At December 31, 1999, GMAC owned assets and serviced automotive
receivables totaling $162.3 billion, an increase of $23.2 billion over year-end
1998. Total consolidated assets of GMAC at December 31, 1999 were $148.8
billion, $17.0 billion above the previous year. The year-to-year increases were
primarily the result of higher commercial and other loan receivables, serviced
retail and wholesale loan receivables, operating lease assets, intangible
assets, and receivables due from Automotive, Communications Services, and Other
Operations. These increases were partially offset by a decline in real estate
mortgage inventory held for sale.
Consolidated automotive and commercial finance receivables serviced by GMAC,
including sold receivables, amounted to $97.0 billion and $79.9 billion at
December 31, 1999 and 1998, respectively. The year-to-year increase was
primarily a result of a $7.4 billion increase in commercial and other loan
receivables, a $5.1 billion increase in serviced retail receivables, and a $4.7
billion increase in serviced wholesale receivables. The change in commercial and
other loan receivables was due to the acquisition of Bank of New York Financial
Corporation (BNYFC) in July 1999 and increases in secured notes. The increase in
wholesale receivable balances over the prior year was a result of the 1998 work
stoppages previously mentioned and higher penetration. Continued retail
financing incentives sponsored by GM contributed to the increase in serviced
retail receivables. Principal balances of active trusts of sold wholesale
receivables (including retained subordinated interests) during 1999 increased
$5.1 billion, due to the completion of two sales in 1999. There were no sales of
wholesale receivables during 1998. Additionally, outstanding principal balances
of sold retail automotive receivables (including retained subordinated
interests) increased by $1.6 billion due to the completion of three sales during
1999 compared to one sale in 1998.
GMAC's liquidity, as well as its ability to profit from ongoing acquisition
activity, is in large part dependent upon its timely access to capital and the
costs associated with raising funds in different segments of the capital
markets. In this regard, GMAC regularly accesses the short-term, medium-term,
and long-term debt markets, principally through commercial paper, notes, and
underwritten transactions.
As of December 31, 1999, GMAC's total borrowings were $121.2 billion compared
with $106.2 billion at December 31, 1998. Approximately 79% of this debt
represented funding for operations in the United States and the remaining 21%
represented borrowings for operations in Canada (9%), Germany (3%), and other
countries (9%). GMAC's 1999 year-end ratio of total debt to total stockholder's
equity was 10.9:1 compared to 10.8:1 for year-end 1998. The higher year-to-year
debt balances were principally used to fund increased asset levels. Total
short-term notes outstanding at December 31, 1999, amounted to $50.8 billion
compared with $49.5 billion at year-end 1998.
GMAC and its subsidiaries maintain substantial bank lines of credit, which
totaled $46.2 billion at December 31, 1999 and $42.9 billion at December 31,
1998, respectively. The unused portion of these credit lines totaled $35.6
billion at December 31, 1999, $2.4 billion higher than at December 31, 1998.
Book Value Per Share
Book value per share of $1-2/3 par value common stock increased to $27.02
from $20.00 at December 31, 1999 and 1998, respectively. Book value per share of
GM Class H common stock increased to $16.21 at December 31, 1999 from $12.00 at
December 31, 1998. Book value per share was determined based on the liquidation
rights of the various classes of common stock.
Stock Repurchases
During 1999, GM used $2.6 billion to acquire approximately 36 million shares
of $1-2/3 par value common stock to complete the Corporation's $4.0 billion
stock repurchase program announced in February 1998. GM also used approximately
$727 million and $13 million to repurchase shares of $1-2/3 par value common
stock and GM Class H common stock, respectively, for certain employee benefit
plans and $501 million to repurchase and retire Series B preference stock during
the year-ended December 31, 1999.
II-15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Return on Net Assets (RONA)
As part of its shareholder value initiatives, GM has adopted RONA as a
performance measure to heighten management's focus on balance sheet investments
and the return on those investments. GM's RONA calculation is based on
principles established by management and approved by the GM Board. GM's calendar
year 1999 RONA for continuing operations, excluding Hughes, was 14.0%.
CASH FLOWS
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Net cash provided by operating activities was $16.2 billion, $8.7 billion,
and $9.6 billion in 1999, 1998, and 1997, respectively. The increase in net cash
provided by operating activities in 1999 primarily resulted from increased
income from continuing operations and the net changes in operating assets and
liabilities. These were primarily related to increases in accounts payable
resulting from an extension of payment terms and increases in accrued
liabilities primarily related to increased sales incentive allowances in North
America and increased customer deposits resulting from increased volumes. These
increases were offset partially by increases in pension and VEBA contributions.
The decrease in net cash provided by operating activities in 1998 as compared to
1997 primarily resulted from a decrease in cash generated from lower net income
primarily due to the work stoppages previously discussed, partially offset by
lower VEBA contributions in 1998.
Net cash used in investing activities was $14.1 billion, $7.0 billion, and
$7.1 billion in 1999, 1998, and 1997, respectively. The increase in net cash
used in investing activities in 1999 was primarily attributable to increased net
cash used for investments in companies, investments in marketable securities,
and operating leases. Net cash used in investing activities was relatively
unchanged in 1998 from 1997 because the increase in cash due to the net change
in investments in other marketable securities and operating leases in 1998 was
offset by the proceeds from borrowings of Hughes Defense prior to the spin-off
of Hughes Defense in 1997.
Net cash used in financing activities was $2.3 billion, $2.8 billion, and
$6.6 billion in 1999, 1998, and 1997, respectively. The decrease in net cash
used for financing activities in 1999 was primarily due to proceeds from issuing
preference stocks related to the strategic alliance between Hughes and America
Online, Inc. in the second quarter of 1999 (see Note 18 to the GM consolidated
financial statements for more information) and net increases in short-term loans
payable, partially offset by increases in stock repurchases to complete the
Corporation's stock repurchase program and net decreases in long-term debt. The
decrease in net cash used for financing activities in 1998 from 1997 was
primarily due to a $2.6 billion net increase in loans payable and long-term debt
and a decrease in cash used for stock repurchases.
Financing and Insurance Operations
- ----------------------------------
Net cash provided by operating activities during 1999 totaled $10.8 billion,
an increase from the $5.6 billion and $4.0 billion provided during the
comparable 1998 and 1997 periods, respectively. The additional operating cash
flow was primarily the result of an increase in proceeds from sales of mortgage
loans and mortgage-related securities held for trading and a reduction in
originations and purchases of mortgage loans and acquisitions of
mortgage-related securities held for trading. These increases were partially
offset by a decline in the net payables due to Automotive, Communications
Services, and Other Operations, and other liabilities.
Net cash used for investing activities during 1999 totaled $20.9 billion,
compared with $22.6 billion and $12.1 billion during the same periods in 1998
and 1997, respectively. Net cash usage from 1998 to 1999 decreased primarily as
a result of increased proceeds from sales of receivables, largely offset by net
increases in acquisitions of finance receivables primarily related to the BNYFC
acquisition, net increases in operating lease acquisitions related to strong
lease incentive programs, and net investments in companies. The increase in net
cash used in 1998 from 1997 was primarily a result of lower net finance
receivable activity and a decrease in sales of retail receivables proceeds.
Net cash provided by financing activities during 1999 totaled $10.8 billion,
compared with $17.7 billion and $8.3 billion during the same periods in 1998 and
1997, respectively. The decrease in net cash provided from 1998 to 1999 was
primarily the result of a reduction in short-term debt, partially offset by a
net increase in long-term debt which was primarily used to fund the increases in
finance receivables, operating lease assets, and current year acquisitions (see
Note 23 to the GM consolidated financial statements). From 1997 to 1998 the
increase in net cash provided was primarily the result of increases in short-
and long-term debt and lower dividends paid to GM.
II-16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Dividends
Dividends may be paid on common stocks only when, as, and if declared by the
GM Board in its sole discretion. GM's policy is to distribute dividends on its
$1-2/3 par value common stock based on the outlook and indicated capital needs
of the business. In November 1999, the GM Board declared a quarterly cash
dividend of $0.50 per share on $1-2/3 par value common stock, paid December 10,
1999 to holders of record as of November 11, 1999. The GM Board also declared
quarterly dividends on the Series D and Series G Depositary Shares of $0.495 and
$0.57 per share, respectively, paid February 1, 2000 to holders of record on
January 3, 2000. The Series B preference stock was redeemed on April 5, 1999,
and as a result, the amount paid on that date to the Series B shareholders of
record included accrued and unpaid dividends as part of the total redemption
price. With respect to GM Class H common stock, the GM Board determined that it
will not pay any cash dividends at this time in order to allow the earnings of
Hughes to be retained for investment in its telecommunications and space
businesses. A quarterly dividend of $8.7793 per share for the GM Series H 6.25%
Automatically Convertible Preference Stock was paid February 1, 2000, to holders
of record on January 3, 2000.
Health Care Expense and Other Postretirement Benefits
Total health care expense is comprised of health care costs for active
employees and for retirees. Expense associated with active employees consists of
two components: health care costs (including medical, dental, and vision
benefits) which have been incurred by active employees, and the expected cost of
those benefits that active employees will incur once they are retired. Expense
relating to retirees consists primarily of interest costs on the liability
accrued before retirement. The components of postretirement benefits expense,
the U.S. health care cost, and cash expenditures for GM's U.S. operations are
set forth below (excluding cash expenditures for Hughes' and former Hughes'
non-automotive employees, but including GMAC).
GM is committed to reducing the burden of continuing health care cost
increases. Since 1997, GM has pre-funded part of its other postretirement
benefits through contributions that have resulted in a 1999 year-end balance of
$6.3 billion in its VEBA trust. The VEBA assets have the effect of reducing GM's
postretirement benefits liability on the consolidated balance sheet.
Year Ended December 31, 1999
----------------------------
Postretirement Health Pay-As-You-Go
Benefits Care Cost Cost*
-------- --------- -----
(Dollars in Millions)
GM U.S. operations health care
Postretirement medical, dental,
and vision $2,324 $2,324 $ -
Retired employees pay-as-you-go - - 2,239
Active employees pay-as-you-go - 1,321 1,321
----- ----- -----
Total health care $2,324 $3,645 $3,560
===== =====
Life insurance 420
Other subsidiaries - health care
and life insurance 203
-----
Total postretirement benefits
expense $2,947
=====
* Pay-as-you-go amounts for 1998 were $2.0 billion for retirees, $1.2 billion
for active employees, and $3.2 billion in total.
The master separation agreement (the "Separation Agreement") between GM and
Delphi provides generally that other postretirement benefit liabilities related
to Delphi's U.S. salaried active and inactive employees retiring after January
1, 1999, will be assumed by Delphi. The Separation Agreement provided that
Delphi's U.S. hourly employees would continue to participate in the
postretirement benefit plan for hourly workers administered by GM until full
separation from GM. Generally, Delphi would assume the postretirement benefit
obligations for U.S. hourly employees who retire after October 1, 1999, and GM
would retain postretirement benefit obligations for U.S. hourly employees who
retire on or before October 1, 1999. In connection with the UAW labor contract
(see Note 1 to the GM consolidated financial statements), the October 1, 1999
date for Delphi's assumption of these retirement obligations was extended to
January 1, 2000.
As of December 31, 1999, the estimate of employee retirements exceeded the
amount used in the allocation of GM's and Delphi's postretirement benefit
liability at the time of the separation. As a result, GM increased its
postretirement benefit liability by $1.0 billion to reflect the increased
estimate of Delphi retirees as of year-end, and recorded a receivable from
Delphi (see Note 12 to the GM consolidated financial statements) in accordance
with the terms of the Separation Agreement and the UAW labor contract provision
explained above. In addition, interest shall accrue on the outstanding amount
until such amount is paid in full, at a rate of 6.75% per annum, as agreed to by
both parties. GM received $483 million from Delphi in January 2000 related to
this outstanding receivable balance. The finalization of the amount receivable
from Delphi will occur in 2000, at which time an adjustment will be recorded. GM
does not anticipate that the finalization of these retirement obligations will
have a significant effect on its financial position.
II-17
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Health Care Expense and Other Postretirement Benefits (concluded)
GM has disclosed in its consolidated financial statements certain amounts
associated with estimated future postretirement benefits other than pensions and
classified such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, GM does not admit or otherwise acknowledge that such
amounts or existing postretirement benefit plans of GM (other than pensions)
represent legally enforceable liabilities of GM.
GM Card
GM sponsors a credit card program, entitled the GM Card program, which was
introduced in the U.S. in September 1992 and subsequently in Canada, Australia,
Brazil, Mexico, Chile, and the United Kingdom. A cardholder's use of the card
generates entitlements to rebates that can be used in connection with the
cardholder's purchase or lease of a new GM vehicle.
As the sponsor of the GM Card program, GM does not provide consumer credit.
The program is used as a marketing tool to increase product sales. Independent
banks issue the GM Card and are responsible for evaluating, extending, and
funding credit to the cardholders, and are fully responsible for any credit card
losses with no recourse against GM.
In the U.S., GM Card rebates accumulate at a rate equal to 5% of all spending
for goods or services charged on the GM Card up to a maximum rebate amount of
$500 per year. The rebates, which expire in seven years, may be applied over and
above all sales allowances in the market at the time of vehicle purchase or
lease. GM is solely responsible to cardholders for rebates. Provisions for GM
Card rebates are recorded as reductions in revenue at the time of vehicle sale.
GM has the right to prospectively modify the plan.
Rebates redeemed worldwide during 1999, 1998, and 1997 were $778 million,
$705 million, and $656 million, respectively. Cardholder rebates available
worldwide for future redemption when the cardholder purchases or leases a new GM
vehicle amounted to $3.7 billion, $3.7 billion, and $3.5 billion (net of
deferred program income) at December 31, 1999, 1998, and 1997, respectively. GM
anticipates that profits from incremental sales resulting from the GM Card
program, along with deferred program income, will more than offset future rebate
costs associated with the GM Card.
Deferred Income Taxes
At December 31, 1999, GM's consolidated balance sheet included a net deferred
tax asset of approximately $16.1 billion related to net future deductible
temporary differences in the United States of which approximately $13.7 billion
related to the obligation for postretirement benefits other than pensions.
Realization of the net deferred tax asset is dependent upon profitable
operations in the United States and future reversals of existing taxable
temporary differences. Although realization is not assured, GM believes that it
is more likely than not that such benefits will be realized through the
reduction of future income taxes. Management has carefully considered various
factors in assessing the probability of realizing this deferred tax asset
including:
. The operating results of GMNA over the most recent three-year period and
overall financial forecasts of book and taxable income. Further
improvements are expected by continuing efforts to maintain GM's
competitiveness, including actions relating to reducing material costs
through global sourcing and increasing efficiency through lean
manufacturing.
. Operating results of GMAC and Hughes, which generated U.S. pre-tax income
of approximately $1.5 billion, $1.8 billion, and $3.3 billion in 1999,
1998, and 1997, respectively.
. The ability to utilize tax planning, such as capitalization of research
and experimentation costs for tax purposes, so that GM does not have, and
does not expect to generate in the near future, any significant U.S.
federal tax net operating loss carryforwards.
. The extended period of time over which the tax assets can be utilized.
Postretirement benefits become tax deductions over periods up to 50 years.
. The fact that GM has never lost deferred federal tax assets due to the
expiration of U.S. tax carryforwards.
Dividends received from foreign operations for U.S. federal income tax
purposes totaled approximately $3.5 billion, $3.1 billion, and $2.6 billion in
1999, 1998, and 1997, respectively.
II-18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Pensions
At December 31, 1999, GM's total worldwide funded position was $4.5 billion
($7.5 billion for the U.S. automotive qualified hourly/salary plans and $(3.0)
billion for all other plans worldwide). This compares to an unfunded position of
$6.3 billion a year ago ($1.2 billion for the U.S. automotive qualified
hourly/salary plans and $5.1 billion for all other plans worldwide). The
predominant factors that contributed to the funded position of the U.S.
automotive qualified plans in 1999 was the separation of Delphi combined with a
100 basis point increase in the discount rate used to measure the pension
obligation at the end of 1999 compared to 1998 (7.75% and 6.75%, respectively).
GM made pension contributions to the U.S. hourly and salary plans of $794
million in 1999, $1.1 billion in 1998, and $1.5 billion in 1997. In addition, GM
made pension contributions to all other U.S. plans of $67 million, $51 million,
and $35 million in 1999, 1998, and 1997, respectively,
On an economic basis, GM continues to maintain a fully-funded status for its
U.S. hourly and salary pension plans as of December 31, 1999. The economic basis
for measuring the U.S. hourly and salary pension liability differs from the
Statement of Financial Accounting Standards (SFAS) No. 87 basis, Employers'
Accounting for Pensions, required by GAAP, but GM believes it to be a better
measure of GM's ongoing economic exposure for pension obligations and as such
uses this as a measure to determine its funded status. The economic basis
discounts pension liabilities at the long-term asset earnings rate assumption
(currently 10.0%) rather than at a variable, year-end market rate as required by
SFAS No. 87 (currently 7.75%). In periods of low interest rates, as in the
current market environment, the SFAS No. 87 liability will generally exceed the
liability calculated on an economic basis, whereas in periods of high interest
rates the economic basis liability will generally exceed the SFAS No. 87
liability.
The Separation Agreement between Delphi and GM provides generally that
pension plan assets and liabilities related to Delphi's U.S. salaried active and
inactive employees retiring after January 1, 1999 will be assumed by Delphi.
Delphi has established defined benefit pension plans for its salaried employees
under the same terms that existed for the GM plans as of January 1, 1999. The
Separation Agreement provided that Delphi's U.S. hourly employees would continue
to participate in the defined benefit pension plan for hourly workers
administered by GM until full separation from GM. Generally, Delphi would assume
the pension obligations for U.S. hourly employees who retire after October 1,
1999, and GM would retain pension obligations for U.S. hourly employees who
retire on or before October 1, 1999. In connection with the UAW labor contract
(see Note 1 to the GM consolidated financial statements), the October 1, 1999
date for Delphi's assumption of these retirement obligations was extended to
January 1, 2000.
As of December 31, 1999, the estimate of employee retirements exceeded the
amount used in the allocation of GM's and Delphi's pension liability at the time
of the separation. As a result,GM increased its pension liability by $498
million to reflect the increased estimate of Delphi retirees as of year-end, and
recorded a receivable from Delphi (see Note 12 to the GM consolidated financial
statements) in accordance with the terms of the Separation Agreement and the UAW
labor contract provision explained above. In addition, interest shall accrue on
the outstanding amount until such amount is paid in full, at a rate of 6.75% per
annum, as agreed to by both parties. GM received $231 million from Delphi in
January 2000 related to this outstanding receivable balance. The finalization of
the amount receivable from Delphi will occur in 2000, at which time an
adjustment will be recorded. GM does not anticipate that the finalization of
these retirement obligations will have a significant effect on its financial
position.
The net obligation attributable to Delphi classified as discontinued
operations was $0 and $1.6 billion at December 31, 1999 and 1998, respectively.
Additional information related to employee benefit arrangements affected by the
Delphi separation can be found in Note 2 to the GM consolidated financial
statements.
Environmental Matters
GM is subject to various laws relating to the protection of the environment
including laws regulating air emissions, water discharges, waste management, and
environmental cleanup. GM is also in various stages of investigation and
remediation for sites where contamination has been alleged.
The liability for worldwide environmental cleanup was approximately $404
million, $500 million, and $590 million at December 31, 1999, 1998, and 1997,
respectively. In future periods, new laws or regulations, advances in
technologies, additional information about the ultimate remedy selected at new
and existing sites, and GM's share of the cost of such remedies could
significantly change GM's estimates. The net decreases in this liability from
1997 to 1999 are a result of actual expenditures.
In 1999, 1998, and 1997, GM expensed $109 million, $72 million, and $63
million, respectively, for environmental investigation, remediation, and waste
management. In addition, worldwide capital expenditures, as discussed
previously, included $81 million, $83 million, and $91 million in 1999, 1998,
and 1997, respectively, for various environmental matters.
The process of estimating such liabilities is complex and dependent primarily
on the nature and extent of historical information and physical data relating to
a contaminated site, the complexity of the site, the uncertainty as to what
remedy and technology will be required, the outcome of discussions with
regulatory agencies and other potentially responsible parties (PRPs) at
multi-party sites, and the number and financial viability of other PRPs.
II-19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Euro Conversion
On January 1, 1999, 11 of 15 member countries of the European Union
established fixed conversion rates between their existing currencies and adopted
the Euro as their new common currency. The Euro trades on currency exchanges and
the legacy currencies remain legal tender in the participating countries for a
transition period until January 1, 2002. Beginning on January 1, 2002, Euro
denominated bills and coins will be issued and legacy currencies will be
withdrawn from circulation.
GM has established plans to assess and address the impact to GM as a result
of the Euro conversion. The introduction of the Euro on January 1, 1999 has
increased the pace of price harmonization throughout Europe. GM has developed a
comprehensive program to identify, analyze, and determine the best strategy to
address this price harmonization. GM is analyzing all aspects of its pricing
strategy to minimize any potential risk of this pricing harmonization.
In addition, the Corporation has reviewed and has made required modifications
to applicable information technology systems and contracts based on the new
currency.
As of December 31, 1999, the conversion to the euro has not resulted in any
material adverse impact on GM's financial position and results of operations, or
had any material tax consequences. GM believes that the remaining transition
will not result in material adverse financial or tax consequences. GM also
believes that the Euro conversion reduces its overall foreign exchange risk as
the number of currencies in which it transacts is now reduced.
Employment and Payrolls
Worldwide employment at December 31,
(in thousands) 1999 1998(3) 1997(3)
---- ---- ----
GMNA 217 226 237
GME 81 84 79
GMLAAM 23 24 27
GMAP 10 10 10
GMAC 28 24 21
Hughes 18 15 14
Other 11 13 10
---- ---- ----
Total employees 388 396 398
=== === ===
Worldwide payrolls - continuing operations
(in billions) $21.8 $20.4 $22.3
U.S. hourly payrolls (in billions) (1)(2) $10.0 $8.8 $10.2
Average labor cost per active hour worked
U.S. hourly (1) $50.51 $46.17 $45.10
- ----------------
(1) Amounts have been adjusted to exclude Delphi's, Hughes', and former Hughes'
non-automotive employees.
(2) Includes employees "at work" (excludes laid-off employees receiving
benefits).
(3) Amounts have been adjusted to reflect the changes to GM's organizational
structure resulting from the restructuring of former Hughes which occurred
in December 1997, and the separation of Delphi in 1999.
New Accounting Standards
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an Amendment of FASB Statement No. 133. This
statement defers, for one year, the effective date of SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, to those fiscal years
beginning after June 15, 2000. SFAS No. 133 requires all derivatives to be
recorded as either assets or liabilities and the instruments to be measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives are to be recognized immediately or deferred depending on the use of
the derivative and whether or not it qualifies as a hedge. GM will adopt SFAS
No. 133 by January 1, 2001, as required. Management is currently assessing the
impact of this statement on GM's results of operations and financial position.
Forward-Looking Statements
Following are the principal important factors which may cause actual results
to differ materially from those expressed in forward-looking statements made by
the managements of GM and Hughes:
. Changes in economic conditions, currency exchange rates, or political
stability in the major markets where the corporation procures material,
components, and supplies for the production of its principal products or
where its products are produced, distributed, or sold (i.e., North America,
Europe, Latin America, and Asia-Pacific).
. Shortages of fuel or interruptions in transportation systems, labor
strikes, work stoppages, or other interruptions to or difficulties in the
employment of labor in the major markets where the corporation purchases
material, components, and supplies for the production of its products or
where its products are produced, distributed, or sold.
II-20
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Forward-Looking Statements (concluded)
. Significant changes in the competitive environment in the major markets
where the corporation purchases material, components, and supplies for the
production of its products or where its products are produced, distributed,
or sold.
. Changes in the laws, regulations, policies, or other activities of
governments, agencies, and similar organizations where such actions may
affect the production, licensing, distribution, or sale of the
corporation's products, the cost thereof, or applicable tax rates.
. The ability of the corporation to achieve reductions in cost and employment
levels, to realize production efficiencies, and to implement capital
expenditures, all at the levels and times planned by management.
. With respect to Hughes, additional risk factors include: economic
conditions, product demand and market acceptance, government action, local
political or economic developments in or affecting countries where Hughes
has operations, ability to obtain export licenses, competition, ability to
achieve cost reductions, technological risk, limitations on access to
distribution channels, the success and timeliness of satellite launches,
in-orbit performance of satellites, ability of customers to obtain
financing, and Hughes' ability to access capital to maintain its financial
flexibility. Additionally, Hughes and its 81% owned subsidiary, PanAmSat
Corporation, 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.
* * * * * *
II-21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
GM is exposed to market risk from changes in foreign currency exchange rates,
interest rates, and certain commodity and equity security prices. In order to
manage the risk arising from these exposures, GM enters into a variety of
foreign exchange, interest rate, and commodity forward contracts and options.
A discussion of GM's accounting policies for derivative instruments is
included in Note 1 to the GM consolidated financial statements and further
disclosure is provided in Notes 14, 21, and 22 to the GM consolidated financial
statements.
GM maintains risk management control systems to monitor foreign exchange,
interest rate, commodity and equity price risks, and related hedge positions.
Positions are monitored using a variety of analytical techniques including
market value, sensitivity analysis, and value-at-risk models. The following
analyses are based on sensitivity analysis tests which assume instantaneous,
parallel shifts in exchange rates, interest rate yield curves, and commodity and
equity prices. For options and instruments with non-linear returns, models
appropriate to the instrument are utilized to determine the impact of market
shifts.
Foreign Currency Exchange Rate Risk
GM has foreign currency exposures related to buying, selling, and financing
in currencies other than the local currencies in which it operates. More
specifically, GM is exposed to foreign currency risk related to uncertainty to
which future earnings or assets and liability values are exposed due to
operating cash flows and various financial instruments that are denominated in
foreign currencies. GM's most significant foreign currency exposures relate to
Canada, Mexico, Western European countries (primarily Germany, United Kingdom,
Spain, Italy, Belgium, and France), Australia, Japan, and Brazil. As of December
31, 1999 and 1998, the net fair value liability of financial instruments with
exposure to foreign currency risk was approximately $11.2 billion and $3.5
billion, respectively. The potential loss in fair value for such financial
instruments from a hypothetical 10% adverse change in quoted foreign currency
exchange rates would be approximately $1.0 billion and $161 million for 1999 and
1998, respectively.
The model assumes a parallel shift in the foreign currency exchange rates.
Exchange rates rarely move in the same direction. The assumption that exchange
rates change in a parallel fashion may overstate the impact of changing exchange
rates on assets and liabilities denominated in a foreign currency.
Interest Rate Risk
GM is subject to market risk from exposure to changes in interest rates based
on its financing, investing, and cash management activities. GM enters into
various financial instrument transactions to maintain the desired level of
exposure to the risk of interest rate fluctuations and to minimize interest
expense. More specifically, General Motors Acceptance Corporation (GMAC) and its
affiliates have also entered into contracts to provide commercial and retail
financing, to retain mortgage servicing rights, and to retain various assets
related to mortgage securitization. Certain exchange traded future and option
contracts, interest rate caps and floors, along with various investments, have
been entered into to reduce the interest rate risk related to these activities
and manage potential prepayment activity associated with mortgage servicing
rights. The GMAC Mortgage Group, Inc. (GMACMG) manages prepayment risk
associated with its capitalized mortgage servicing rights with U.S. Treasury
options and futures. Since the derivative instruments do not have identical
characteristics to the underlying mortgage servicing rights, GM is exposed to
basis risk. GMACMG mitigates this risk through a historical review of value
change in various interest rate scenarios when establishing and maintaining its
hedge program. As of December 31, 1999 and 1998, the net fair value liability of
all financial instruments held for purposes other than trading with exposure to
interest rate risk was approximately $18.8 billion and $15.9 billion,
respectively. The potential decrease in fair value resulting from a hypothetical
10% shift in interest rates would be approximately $127 million and $90 million
for 1999 and 1998, respectively. The net fair value asset of all financial
instruments held for trading purposes with exposure to interest rate risk was
approximately $2.7 billion and $3.2 billion for 1999 and 1998, respectively. The
potential loss in fair value resulting from a hypothetical 10% shift in interest
rates would be approximately $39 million and $84 million for 1999 and 1998,
respectively.
The SEC disclosures on market risk require that all financial instruments, as
defined by Statement of Financial Accounting Standards (SFAS) No. 107,
Disclosures about Fair Value of Financial Instruments, should be included in the
quantitative disclosure calculation. Operating leases are not required to be
disclosed by SFAS No. 107 and have not been presented as part of the sensitivity
analysis. This is a significant limitation to the analysis presented. While the
sensitivity analysis will show a fair market value change for the debt which
funds GM's operating lease portfolio, a corresponding change for GM's operating
lease portfolio, which had a book value of $42.8 billion and $37.1 billion as of
December 31, 1999 and 1998, respectively, was not considered by the model. As a
result, the overall impact to the fair market value of financial instruments
from a hypothetical change in interest rates may be overstated.
II-22
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Interest Rate Risk (concluded)
There are certain shortcomings inherent in the sensitivity analyses
presented. The model assumes interest rate changes are instantaneous parallel
shifts in the yield curve. In reality, changes are rarely instantaneous.
Although certain assets and liabilities may have similar maturities or periods
to repricing, they may not react correspondingly to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate with changes in market interest rates, while interest rates on other
types of assets may lag behind changes in market rates. Finance receivables are
less susceptible to prepayments when interest rates change, while prepayments on
many mortgage-related instruments are directly affected by a change in interest
rates. As such, GM's model does not address prepayment risk for
automotive-related finance receivables, but does consider prepayment risk for
mortgage-related instruments that are highly sensitive to prepayment risk.
However, in the event of a change in interest rates, actual loan prepayments may
deviate significantly from assumptions used in the model. Further, certain
assets, such as adjustable rate loans, have features, such as annual and
lifetime caps, that restrict changing the interest rates both on a short-term
basis and over the life of the asset. Finally, the ability of certain borrowers
to make scheduled payments on their adjustable rate loans may decrease in the
event of an interest rate increase.
Commodity Price Risk
GM enters into commodity forward and option contracts. Such contracts are
executed to offset GM's exposure to the potential change in prices mainly for
various non-ferrous metals used in the manufacturing of automotive components.
The net fair value asset (liability) of such contracts, excluding the underlying
exposures, as of December 31, 1999 and 1998 was approximately $151 million and
($172) million, respectively. The potential change in the fair value of
commodity forward and option contracts, assuming a 10% change in the underlying
commodity price, would be approximately $210 million and $203 million at
December 31, 1999 and 1998, respectively. This amount excludes the offsetting
impact of the price risk inherent in the physical purchase of the underlying
commodities.
Equity Price Risk
GM holds investments in various available-for-sale equity securities which
are subject to price risk. The fair value of such investments, as of December
31, 1999 and 1998, was approximately $3.2 billion and $2.3 billion,
respectively. The potential change in the fair value of these investments,
assuming a 10% change in prices, would be approximately $323 million and $230
million for 1999 and 1998, respectively.
Forward-Looking Statements
The above discussion and the estimated amounts generated from the
sensitivity analyses referred to above include forward-looking statements of
market risk which assume for analytical purposes that certain adverse market
conditions may occur. Actual future market conditions may differ materially from
such assumptions because the amounts noted previously are the result of analyses
used for the purpose of assessing possible risks and the mitigation thereof.
Accordingly, the forward-looking statements should not be considered projections
by GM of future events or losses.
* * * * * *
II-23
RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of General Motors Corporation
and subsidiaries were prepared by management, which is responsible for their
integrity and objectivity. The statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
judgments of management.
Management is further responsible for maintaining internal control designed
to provide reasonable assurance that the books and records reflect the
transactions of the companies and that established policies and procedures are
carefully followed. From a stockholder's point of view, perhaps the most
important feature in internal control is that it is continually reviewed for
effectiveness and is augmented by written policies and guidelines, the careful
selection and training of qualified personnel, and a strong program of internal
audit.
Deloitte & Touche LLP, an independent auditing firm, is engaged to audit the
consolidated financial statements of General Motors Corporation and subsidiaries
and issue reports thereon. The audit is conducted in accordance with generally
accepted auditing standards that comprehend the consideration of internal
control and tests of transactions to the extent necessary to form an independent
opinion on the financial statements prepared by management. The Independent
Auditors' Report appears on the next page.
The Board of Directors, through the Audit Committee (composed entirely of
non-employee Directors), is responsible for assuring that management fulfills
its responsibilities in the preparation of the consolidated financial
statements. The Audit Committee selects the independent auditors annually in
advance of the Annual Meeting of Stockholders and submits the selection for
ratification at the Meeting. In addition, the Audit Committee reviews the scope
of the audits and the accounting principles being applied in financial
reporting. The independent auditors, representatives of management, and the
internal auditors meet regularly (separately and jointly) with the Audit
Committee to review the activities of each, to ensure that each is properly
discharging its responsibilities, and to assess the effectiveness of internal
control. It is management's conclusion that internal control at December 31,
1999 provides reasonable assurance that the books and records reflect the
transactions of the companies and that established policies and procedures are
complied with. To ensure complete independence, Deloitte & Touche LLP has full
and free access to meet with the Audit Committee, without management
representatives present, to discuss the results of the audit, the adequacy of
internal control, and the quality of financial reporting.
/s/John F. Smith, Jr. /s/J. Michael Losh
John F. Smith, Jr. J. Michael Losh
Chairman and Chief Executive Officer Executive Vice President and
Chief Financial Officer
II-24
Independent Auditors' Report
General Motors Corporation, its Directors, and Stockholders:
We have audited the Consolidated Balance Sheets of General Motors Corporation
and subsidiaries as of December 31, 1999 and 1998, and the related Consolidated
Statements of Income, Cash Flows, and Stockholders' Equity for each of the three
years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed at Item 14. These financial statements and
the financial statement schedule are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of General Motors Corporation and subsidiaries
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 20, 2000
(March 7, 2000 as to Note 27)
II-25
ITEM 8
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(Dollars in Millions Except Per Share Amounts)
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Manufactured products sales and
revenues (Notes 1 and 3) $152,635 $134,276 $148,143
Financing revenues (Note 1) 14,734 13,585 12,762
Other income (Note 25) 9,189 7,584 11,675
------- ------- -------
Total net sales and revenues 176,558 155,445 172,580
------- ------- -------
Cost of sales and other operating
expenses, exclusive of items
listed below (Notes 3 and 4) 126,809 114,542 128,225
Selling, general and
administrative expenses 18,845 15,915 14,777
Depreciation and amortization
expense (Notes 1 and 3) 12,318 11,147 14,646
Interest expense (Note 14) 7,750 6,629 5,883
Other expenses (Notes 3 and 25) 1,789 2,268 1,480
------- ------- -------
Total costs and expenses 167,511 150,501 165,011
------- ------- -------
Income from continuing operations
before income taxes
and minority interests 9,047 4,944 7,569
Income tax expense (Note 9) 3,118 1,636 1,025
Minority interests (28) (20) 44
Losses of nonconsolidated associates (325) (239) (105)
------ ------ ------
Income from continuing operations $5,576 $3,049 $6,483
Income (loss) from discontinued
operations (Notes 1 and 2) 426 (93) 215
------ ------- ------
Net income $6,002 $2,956 $6,698
Premium on exchange of preference
stocks (Note 17) - - (26)
Dividends on preference stocks (Note 18) (80) (63) (72)
----- ----- -----
Earnings attributable to common stocks $5,922 $2,893 $6,600
===== ===== =====
Basic earnings (losses) per share
attributable to common stocks (Note 19)
$1-2/3 par value
Continuing operations $8.70 $4.40 $8.52
Discontinued operations (Notes 1 and 2) 0.66 (0.14) 0.18
---- ---- ----
Earnings per share attributable
to $1-2/3 par value $9.36 $4.26 $8.70
==== ==== ====
Class H (prior to its recapitalization
on December 17, 1997) (Note 1)
Continuing operations $ - $ - $2.30
Discontinued operations (Notes 1 and 2) - - 0.87
----- ------ ----
Earnings per share attributable
to Class H (prior to its
recapitalization on
December 17, 1997) (Note 1) $ - $ - $3.17
===== ===== ====
Earnings per share attributable
to Class H (subsequent
to its recapitalization on
December 17, 1997) (Note 1) $(0.77) $0.68 $0.02
==== ==== ====
Diluted earnings (losses) per
share attributable to
common stocks (Note 19)
$1-2/3 par value
Continuing operations $8.53 $4.32 $8.45
Discontinued operations (Notes 1 and 2) 0.65 (0.14) 0.17
---- ---- ----
Earnings per share attributable
to $1-2/3 par value $9.18 $4.18 $8.62
==== ==== ====
Class H (prior to its recapitalization
on December 17, 1997) (Note 1)
Continuing operations $ - $ - $2.30
Discontinued operations (Notes 1 and 2) - - 0.87
---- ----- ----
Earnings per share attributable
to Class H (prior to its
recapitalization on
December 17, 1997) (Note 1) $ - $ - $3.17
==== ===== ====
Earnings per share attributable
to Class H (subsequent
to its recapitalization on
December 17, 1997) (Note 1) $(0.77) $0.68 $0.02
==== ==== ====
Reference should be made to the notes to consolidated financial statements.
II-26
CONSOLIDATED STATEMENTS OF INCOME - concluded
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(Dollars in Millions)
AUTOMOTIVE, COMMUNICATIONS SERVICES, AND OTHER OPERATIONS
Manufactured products sales
and revenues (Notes 1 and 3) $152,635 $134,276 $148,143
Other income (Note 25) 3,472 2,885 7,952
------- ------- --------
Total net sales and revenues 156,107 137,161 156,095
------- ------- -------
Cost of sales and other operating
expenses, exclusive of items
listed below (Notes 3 and 4) 126,809 114,542 128,225
Selling, general and administrative
expenses 14,250 11,848 11,971
Depreciation and amortization
expense (Notes 1 and 3) 6,873 6,227 9,833
------- ------- -------
Total operating costs and expenses 147,932 132,617 150,029
------- ------- -------
Interest expense (Note 14) 828 786 633
Other expenses (Notes 3 and 25) 503 792 210
Net expense (income) from
transactions with Financing and
Insurance Operations (Note 1) 308 82 (101)
------ ------- ------
Income from continuing operations
before income taxes
and minority interests 6,536 2,884 5,324
Income tax expense (Note 9) 2,167 1,018 111
Minority interests (2) - 57
Losses of nonconsolidated associates (325) (239) (105)
----- ----- -----
Income from continuing operations 4,042 1,627 5,165
Income (loss) from discontinued
operations (Notes 1 and 2) 426 (93) 215
----- ------ -----
Net income - Automotive,
Communications Services,
and Other Operations $4,468 $1,534 $5,380
===== ===== =====
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(Dollars in Millions)
FINANCING AND INSURANCE OPERATIONS
Financing revenues (Note 1) $14,734 $13,585 $12,762
Insurance, mortgage, and
other income (Note 25) 5,717 4,699 3,723
------ ------ ------
Total revenues and other income 20,451 18,284 16,485
------ ------ ------
Interest expense (Note 14) 6,922 5,843 5,250
Depreciation and amortization
expense (Note 1) 5,445 4,920 4,813
Operating and other expenses 4,595 4,067 2,806
Provisions for financing losses
(Notes 1 and 25) 404 463 523
Insurance losses and loss
adjustment expenses (Note 25) 882 1,013 747
------ ------ ------
Total costs and expenses 18,248 16,306 14,139
------ ------ ------
Net (income) expense from
transactions with Automotive,
Communications Services,
and Other Operations (Note 1) (308) (82) 101
------ ------ ------
Income before income taxes 2,511 2,060 2,245
Income tax expense (Note 9) 951 618 914
Minority interests (26) (20) (13)
------ ------ ------
Net income - Financing and
Insurance Operations $1,534 $1,422 $1,318
===== ===== =====
The above supplemental consolidating information is explained in Note 1, "Nature
of Operations".
Reference should be made to the notes to consolidated financial statements.
II-27
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31,
------------
GENERAL MOTORS CORPORATION AND SUBSIDIARIES 1999 1998
---- ----
ASSETS (Dollars in Millions)
Automotive, Communications Services, and Other Operations
Cash and cash equivalents $9,730 $9,728
Marketable securities 1,698 402
------- -------
Total cash and marketable securities (Notes 1 and 5) 11,428 10,130
Accounts and notes receivable (less allowances) 5,093 4,750
Inventories (less allowances) (Note 7) 10,638 10,437
Net assets of discontinued operations (Notes 1 and 2) - 77
Equipment on operating leases (less accumulated
depreciation) (Note 8) 5,744 4,954
Deferred income taxes and other current assets (Note 9) 9,006 10,051
------- ------
Total current assets 41,909 40,399
Equity in net assets of nonconsolidated associates 1,711 950
Property - net (Note 10) 32,779 32,222
Intangible assets - net (Notes 1 and 11) 8,527 9,994
Deferred income taxes (Note 9) 15,277 14,967
Other assets (Note 12) 25,358 16,062
-------- --------
Total Automotive, Communications Services,
and Other Operations assets 125,561 114,594
Financing and Insurance Operations
Cash and cash equivalents (Note 1) 712 146
Investments in securities (Note 5) 9,110 8,748
Finance receivables - net (Note 6) 80,627 70,436
Investment in leases and other receivables (Note 8) 36,407 32,798
Other assets (Note 12) 21,312 19,150
Net receivable from Automotive,
Communications Services, and
Other Operations (Note 1) 1,001 816
------- -------
Total Financing and Insurance Operations assets 149,169 132,094
------- -------
Total assets $274,730 $246,688
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive, Communications Services, and Other Operations
Accounts payable (principally trade) $17,254 $13,542
Loans payable (Note 14) 1,991 1,204
Accrued expenses (Note 13) 32,854 30,548
Net payable to Financing and Insurance
Operations (Note 1) 1,001 816
------ ------
Total current liabilities 53,100 46,110
Long-term debt (Note 14) 7,415 7,118
Postretirement benefits other than pensions (Note 15) 34,166 33,503
Pensions (Note 15) 3,339 4,410
Other liabilities and deferred income taxes (Note 13) 17,426 17,807
-------- --------
Total Automotive, Communications Services,
and Other Operations liabilities 115,446 108,948
Financing and Insurance Operations
Accounts payable 4,262 4,148
Debt (Note 14) 122,282 107,753
Other liabilities and deferred income taxes (Note 13) 11,282 10,004
-------- --------
Total Financing and Insurance Operations liabilities 137,826 121,905
Minority interests 596 563
General Motors - obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely junior subordinated
debentures of General Motors (Note 17)
Series D 79 79
Series G 139 141
Stockholders' equity (Notes 18 and 20)
Preference stocks - 1
$1-2/3 par value common stock (issued,
619,412,233 and 655,008,344 shares) (Note 19) 1,033 1,092
Class H common stock (issued, 137,115,187
and 106,159,776 shares) 14 11
Capital surplus (principally additional paid-in capital) 13,794 12,661
Retained earnings 6,961 6,984
------- -------
Subtotal 21,802 20,749
Accumulated foreign currency translation adjustments (2,033) (1,089)
Net unrealized gains on securities 996 481
Minimum pension liability adjustment (121) (5,089)
-------- -------
Accumulated other comprehensive loss (1,158) (5,697)
-------- -------
Total stockholders' equity 20,644 15,052
-------- -------
Total liabilities and stockholders' equity $274,730 $246,688
======= =======
Reference should be made to the notes to consolidated financial statements.
II-28
CONSOLIDATED BALANCE SHEETS - concluded
December 31,
------------
AUTOMOTIVE, COMMUNICATIONS SERVICES, and OTHER OPERATIONS 1999 1998
---- ----
(Dollars in Millions)
ASSETS
Cash and cash equivalents $9,730 $9,728
Marketable securities 1,698 402
------- --------
Total cash and marketable securities (Notes 1 and 5) 11,428 10,130
Accounts and notes receivable (less allowances) 5,093 4,750
Inventories (less allowances) (Note 7) 10,638 10,437
Net assets of discontinued operations (Notes 1 and 2) - 77
Equipment on operating leases (less
accumulated depreciation) (Note 8) 5,744 4,954
Deferred income taxes and other current assets (Note 9) 9,006 10,051
------- ------
Total current assets 41,909 40,399
Equity in net assets of nonconsolidated associates 1,711 950
Property - net (Note 10) 32,779 32,222
Intangible assets - net (Notes 1 and 11) 8,527 9,994
Deferred income taxes (Note 9) 15,277 14,967
Other assets (Note 12) 25,358 16,062
-------- --------
Total Automotive, Communications Services,
and Other Operations assets $125,561 $114,594
======= =======
LIABILITIES AND GM INVESTMENT
Accounts payable (principally trade) $17,254 $13,542
Loans payable (Note 14) 1,991 1,204
Accrued expenses (Note 13) 32,854 30,548
Net payable to Financing and Insurance
Operations (Note 1) 1,001 816
------ ------
Total current liabilities 53,100 46,110
Long-term debt (Note 14) 7,415 7,118
Postretirement benefits other than pensions (Note 15) 34,166 33,503
Pensions (Note 15) 3,339 4,410
Other liabilities and deferred income taxes (Note 13) 17,426 17,807
-------- --------
Total Automotive, Communications Services,
and Other Operations liabilities 115,446 108,948
Minority interests 574 511
GM investment in Automotive,
Communications Services, and Other Operations 9,541 5,135
------- -------
Total Automotive, Communications Services,
and Other Operations
liabilities and GM investment $125,561 $114,594
======= =======
December 31,
------------
FINANCING AND INSURANCE OPERATIONS 1999 1998
---- ----
(Dollars in Millions)
ASSETS
Cash and cash equivalents (Note 1) $712 $146
Investments in securities (Note 5) 9,110 8,748
Finance receivables - net (Note 6) 80,627 70,436
Investment in leases and other receivables (Note 8) 36,407 32,798
Other assets (Note 12) 21,312 19,150
Net receivable from Automotive,
Communications Services, and
Other Operations (Note 1) 1,001 816
------- -------
Total Financing and Insurance Operations assets $149,169 $132,094
======= =======
LIABILITIES AND GM INVESTMENT
Accounts payable $4,262 $4,148
Debt (Note 14) 122,282 107,753
Other liabilities and deferred income taxes (Note 13) 11,282 10,004
-------- --------
Total Financing and Insurance Operations liabilities 137,826 121,905
Minority interests 22 52
GM investment in Financing and Insurance Operations 11,321 10,137
-------- --------
Total Financing and Insurance Operations
liabilities and GM investment $149,169 $132,094
======= =======
The above supplemental consolidating information is explained in Note 1, "Nature
of Operations".
Reference should be made to the notes to consolidated financial statements.
II-29
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Millions)
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Cash flows from operating activities
Income from continuing operations $5,576 $3,049 $6,483
Adjustments to reconcile income
from continuing operations to
net cash provided by operating
activities
Depreciation and amortization
expenses 12,318 11,147 14,646
Gain on Hughes Defense spin-off
(Note 1) - - (4,269)
Postretirement benefits other
than pensions, net of payments
and VEBA contributions (1,036) 188 (874)
Pension expense, net of
contributions (808) 223 269
Originations and purchases
of mortgage loans (53,006) (54,433) (30,878)
Proceeds on sales of
mortgage loans 55,777 51,582 28,543
Originations and purchases
of mortgage securities (1,309) (2,237) (2,516)
Proceeds on sales of mortgage
securities 1,545 849 1,449
Change in other investments
and miscellaneous assets 395 770 1,457
Change in other operating
assets and liabilities (Note 1) 7,500 1,558 (1,552)
Other 78 1,647 826
------ ------ ------
Net cash provided by
operating activities 27,030 14,343 13,584
------ ------ ------
Cash flows from investing activities
Expenditures for property (7,384) (8,231) (8,647)
Investments in marketable securities
- acquisitions (25,406) (34,162) (30,594)
Investments in marketable securities
- liquidations 23,479 37,960 28,958
Mortgage servicing rights
- acquisitions (1,424) (1,862) (479)
Mortgage servicing rights
- liquidations 35 80 23
Finance receivables - acquisitions (186,379) (155,613) (163,614)
Finance receivables - liquidations 130,293 114,662 129,615
Proceeds from sales of
finance receivables 48,178 27,681 31,191
Operating leases - acquisitions (23,165) (23,525) (21,073)
Operating leases - liquidations 12,079 15,386 12,187
Proceeds from borrowings of
Hughes Defense prior to
the Hughes Defense spin-off (Note 1) - - 4,006
Investments in companies, net of
cash acquired (5,108) (1,144) (2,272)
Other (192) (1,131) 765
------ ------ ------
Net cash used in investing
activities (34,994) (29,899) (19,934)
------ ------ ------
Cash flows from financing activities
Net (decrease) increase in
loans payable (2,360) 8,186 5,346
Long-term debt - borrowing 35,561 24,035 14,971
Long-term debt - repayments (21,359) (12,869) (12,500)
Repurchases of common and
preference stocks (3,870) (3,089) (4,365)
Proceeds from issuing common and
preference stocks 2,005 343 614
Cash dividends paid to stockholders (1,367) (1,388) (1,620)
----- ------- -----
Net cash provided by
financing activities 8,610 15,218 2,446
----- ------ -----
Effect of exchange rate change
on cash and cash equivalents (206) 317 (482)
--- --- ------
Net cash provided by (used in)
continuing operations 440 (21) (4,386)
Net cash provided by (used in)
discontinued operations
(Notes 1 and 2) 128 (378) 1,567
--- --- -----
Net increase (decrease) in
cash and cash equivalents 568 (399) (2,819)
Cash and cash equivalents at
beginning of the year 9,874 10,273 13,092
----- ------ ------
Cash and cash equivalents at
end of the year $10,442 $9,874 $10,273
====== ====== ======
Reference should be made to the notes to consolidated financial statements.
II-30
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - concluded
<CAPTION>
For The Years Ended December 31,
--------------------------------
1999 1998 1997
----------------------- ----------------------- ----------------------
Automotive, Financing Automotive, Financing Automotive, Financing
Comm.Serv., and Comm.Serv., and Comm.Serv., and
and Other Insurance and Other Insurance and Other Insurance
--------- --------- --------- --------- --------- ---------
Cash flows from operating activities (Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations $4,042 $1,534 $1,627 $1,422 $5,165 $1,318
Adjustments to reconcile income
from continuing operations to
net cash provided by operating
activities
Depreciation and amortization
expenses 6,873 5,445 6,227 4,920 9,833 4,813
Gain on Hughes Defense spin-off
(Note 1) - - - - (4,269) -
Postretirement benefits
other than pensions,
net of payments and
VEBA contributions (1,057) 21 157 31 (900) 26
Pension expense, net of
contributions (808) - 223 - 269 -
Originations and purchase
of mortgage loans - (53,006) - (54,433) - (30,878)
Proceeds on sales of
mortgage loans - 55,777 - 51,582 - 28,543
Originations and purchases
of mortgage securities - (1,309) - (2,237) - (2,516)
Proceeds on sales of
mortgage securities - 1,545 - 849 - 1,449
Change in other investments and
miscellaneous assets 522 (127) (162) 932 (51) 1,508
Change in other operating assets
and liabilities (Note 1) 7,523 (23) 90 1,468 (993) (559)
Other (866) 944 581 1,066 563 263
------ ------ ------ ----- ------ ------
Net cash provided by operating
activities 16,229 10,801 8,743 5,600 9,617 3,967
------ ------ ------ ----- ----- ------
Cash flows from investing activities
Expenditures for property (7,061) (323) (7,952) (279) (8,409) (238)
Investments in marketable
securities - acquisitions (4,149) (21,257) (13,010) (21,152) (12,864) (17,730)
Investments in marketable
securities - liquidations 2,886 20,593 16,272 21,688 12,663 16,295
Mortgage servicing rights
- acquisitions - (1,424) - (1,862) - (479)
Mortgage servicing rights
- liquidations - 35 - 80 - 23
Finance receivables - acquisitions - (186,379) - (155,613) - (163,614)
Finance receivables - liquidations - 130,293 - 114,662 - 129,615
Proceeds from sales of finance
receivables - 48,178 - 27,681 - 31,191
Operating leases - acquisitions (6,415) (16,750) (6,397) (17,128) (5,680) (15,393)
Operating leases - liquidations 4,243 7,836 5,609 9,777 3,711 8,476
Proceeds from borrowings
of Hughes Defense
prior to the Hughes
Defense spin-off (Note 1) - - - - 4,006 -
Investments in companies, net of
cash acquired (2,706) (2,402) (971) (173) (1,850) (422)
Net investing activity with
Financing and
Insurance Operations 75 - 338 - 750 -
Other (924) 732 (889) (242) 554 211
------- -------- ------ ------- ------ -----
Net cash used in investing
activities (14,051) (20,868) (7,000) (22,561) (7,119) (12,065)
------ ------ ----- ------ ----- ------
Cash flows from financing activities
Net increase (decrease) in
loans payable 140 (2,500) (94) 8,280 (398) 5,744
Long-term debt - borrowings 9,090 26,471 2,937 21,098 384 14,587
Long-term debt - repayments (8,281) (13,078) (1,492) (11,377) (1,189) (11,311)
Net financing activity with
Automotive, Communications
Services, and Other Operations - (75) - (338) - (750)
Repurchases of common and
preference stocks (3,870) - (3,089) - (4,365) -
Proceeds from issuing common
and preference stocks 2,005 - 343 - 614 -
Cash dividends paid to
stockholders (1,367) - (1,388) - (1,620) -
----- ------ ----- ------ ----- -----
Net cash (used in) provided
by financing activities (2,283) 10,818 (2,783) 17,663 (6,574) 8,270
----- ------ ----- ------ ----- -----
Effect of exchange rate
changes on cash and
cash equivalents (206) - 315 2 (482) -
Net transactions with
Automotive/Financing Operations 185 (185) 1,135 (1,135) 338 (338)
----- ----- ----- ----- ----- -----
Net cash (used in) provided by
continuing operations (126) 566 410 (431) (4,220) (166)
Net cash provided by (used in)
discontinued operations
(Notes 1 and 2) 128 - (378) - 1,567 -
--- ---- --- --- ----- ---
Net increase (decrease) in
cash and cash equivalents 2 566 32 (431) (2,653) (166)
Cash and cash equivalents at
beginning of the year 9,728 146 9,696 577 12,349 743
----- ---- ----- --- ------ ---
Cash and cash equivalents
at end of the year $9,730 $712 $9,728 $146 $9,696 $577
===== === ===== === ===== ===
</TABLE>
The above supplemental consolidating information is explained in Note 1, "Nature
of Operations". Reference should be made to the notes to consolidated financial
statements.
II-31
<PAGE>
<TABLE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<CAPTION>
Accumulated
Total Compre- Other Total
Capital Capital hensive Retained Comprehensive Stockholders'
Stock Surplus Income Earnings Loss Equity
----- ------- ------ -------- ---- ------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $1,272 $19,189 $6,137 $(3,185) $23,413
Shares reacquired (Note 18) (122) (4,243) - - (4,365)
Shares issued 17 619 - - 636
Preference stock exchange - (196) (26) - (222)
Hughes Defense spin-off - - (5,773) - (5,773)
Comprehensive income:
Net income - - $6,698 6,698 - 6,698
-----
Other comprehensive income
(loss) (Note 18):
Foreign currency
translation adjustments - - (692) - - -
Unrealized gains on securities - - 81 - - -
Minimum pension liability adjustment - - (572) - - -
-----
Other comprehensive loss - - (1,183) - (1,183) (1,183)
-----
Comprehensive income - - $5,515 - - -
=====
Cash dividends (Note 20) - - (1,620) - (1,620)
----- ------ ----- ----- -----
Balance at December 31, 1997 1,167 15,369 5,416 (4,368) 17,584
Shares reacquired (Note 18) (75) (3,105) - - (3,180)
Shares issued 12 397 - - 409
Comprehensive income:
Net income - - $2,956 2,956 - 2,956
-----
Other comprehensive income
(loss) (Note 18):
Foreign currency
translation adjustments - - (279) - - -
Unrealized losses on securities - - (23) - - -
Minimum pension liability adjustment - - (1,027) - - -
-----
Other comprehensive loss - - (1,329) - (1,329) (1,329)
-----
Comprehensive income - - $1,627 - - -
=====
Cash dividends (Note 20) - - (1,388) - (1,388)
----- ------ ----- ----- ------
Balance at December 31, 1998 1,104 12,661 6,984 (5,697) 15,052
Shares reacquired (Note 18) (76) (3,794) - - (3,870)
Shares issued 19 3,588 - - 3,607
Comprehensive income:
Net income - - $6,002 6,002 - 6,002
-----
Other comprehensive income
(loss) (Note 18):
Foreign currency
translation adjustments - - (944) - - -
Unrealized gains on securities - - 515 - - -
Minimum pension liability adjustment - - 4,968 - - -
-----
Other comprehensive income - - 4,539 - 4,539 4,539
------
Comprehensive income - - $10,541 - - -
======
Cash dividends (Note 20) - - (1,367) - (1,367)
Delphi initial public offering (Note 2) - 1,244 - 1,244
Delphi spin-off (Note 2) - 95 (4,658) - (4,563)
----- ------ ----- ----- ------
Balance at December 31, 1999 $1,047 $13,794 $6,961 $(1,158) $20,644
===== ====== ===== ===== ======
</TABLE>
Reference should be made to the notes to consolidated financial statements.
II-32
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of General Motors
Corporation (hereinafter referred to as the Corporation) and domestic and
foreign subsidiaries that are more than 50% owned, principally General Motors
Acceptance Corporation and Subsidiaries (GMAC) and Hughes Electronics
Corporation and Subsidiaries, prior to the December 17, 1997 restructuring of
the company (hereinafter referred to as "former Hughes") and subsequent to the
December 17, 1997 restructuring of the company (hereinafter referred to as
"Hughes") (see "Hughes Transactions" below) (collectively referred to as
"General Motors" or "GM".) General Motors' share of earnings or losses of
associates, in which at least 20% of the voting securities is owned, is included
in the consolidated operating results using the equity method of accounting. The
financial data related to Delphi Automotive Systems Corporation (Delphi) is
presented as discontinued operations for all periods presented. GM encourages
reference to the GMAC Annual Report on Form 10-K for the period ended December
31, 1999, filed separately with the Securities and Exchange Commission, and the
Hughes consolidated financial statements included as Exhibit 99 to this GM
Annual Report on Form 10-K for the period ended December 31, 1999 and related
Hughes Annual Report on Form 10-K filed separately with the Securities and
Exchange Commission.
Certain amounts for 1998 and 1997 have been reclassified to conform with the
1999 classifications.
Nature of Operations
GM presents separate supplemental consolidating financial information for the
following businesses: (1) Automotive, Communications Services, and Other
Operations which consists of the design, manufacturing,and marketing of cars,
trucks, locomotives, and heavy duty transmissions and related parts and
accessories, as well as the operations of Hughes; and (2) Financing and
Insurance Operations which consists primarily of GMAC, which provides a broad
range of financial services, including consumer vehicle financing, full-service
leasing and fleet leasing, dealer financing, car and truck extended service
contracts, residential and commercial mortgage services, vehicle and homeowners'
insurance, and asset-based lending.
Transactions between businesses have been eliminated in the Corporation's
consolidated statements of income. Automotive, Communications Services, and
Other Operations' net expense (income) from transactions with Financing and
Insurance Operations was as follows (in millions):
Years Ended December 31,
1999 1998 1997
---- ---- ----
Interest $306 $140 $89
Service fees 56 58 34
Insurance - net (53) (24) (127)
Other (1) (92) (97)
---- -- --
Net expense (income) $308 $82 $(101)
=== == ===
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported therein. Due to the inherent uncertainty involved in
making estimates, actual results reported in future periods may be based upon
amounts that differ from those estimates.
Revenue Recognition
Sales are generally recorded when products are shipped or when services are
rendered to independent dealers or other third parties. Provisions for normal
dealer sales incentives, returns and allowances, and GM Card rebates are made at
the time of vehicle sales. Costs related to special sales incentive programs are
recognized as reductions to sales when determinable.
Financing revenue is recorded over the terms of the receivables using the
interest method. Certain loan origination costs are deferred and amortized to
financing revenue over the lives of the related loans using the interest method.
Income from operating lease assets is recognized on a straight-line basis
over the scheduled lease term. Certain operating lease origination costs are
deferred and amortized to financing revenue over the lives of the related
operating leases using the straight-line method.
Insurance premiums are earned on a basis related to coverage provided over
the terms of the policies. Commission, premium taxes, and other costs incurred
in acquiring new business are deferred and amortized over the terms of the
related policies on the same basis as premiums are earned. The liability for
losses and loss expenses includes a provision for unreported losses, based on
past experience, net of the estimated salvage and subrogation recoverable.
II-33
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 1. Significant Accounting Policies (continued)
Product-Related Expenses
Advertising and sales promotion, research and development, and other
product-related costs are charged to expense as incurred. Provisions for
estimated expenses related to product warranty are made at the time the products
are sold. Advertising expense was $4.5 billion in 1999, $3.7 billion in 1998,
and $4.0 billion in 1997. Research and development expense was $6.8 billion in
1999, $6.3 billion in 1998, and $6.5 billion in 1997.
Depreciation and Amortization
Depreciation is provided based on the estimated useful lives of property
groups generally using accelerated methods, which accumulate depreciation of
approximately two-thirds of the depreciable cost during the first half of the
estimated useful lives.
Leasehold improvements are amortized over the period of the lease or the life
of the property, whichever is shorter, with the amortization applied directly to
the asset account. Depreciation on capitalized leases with terms of five years
or less is provided using the straight-line method; leases with terms in excess
of five years are depreciated using the foregoing accelerated methods.
Equipment on operating leases is depreciated on a straight-line basis over a
period of time consistent with the term of the underlying operating lease
agreement. The difference between the net book value and the proceeds of sale or
salvage on items disposed of is accounted for as a charge against or credit to
the provision for depreciation.
Expenditures for special tools are amortized over their estimated useful
lives, primarily using the units of production method. Amortization is applied
directly to the asset account. Replacement of special tools for reasons other
than changes in products is charged directly to cost of sales.
Goodwill is amortized on a straight-line basis over periods ranging from 20
to 40 years.
Depreciation and amortization expense was as follows (in millions):
Years Ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Depreciation (Note 3) $4,155 $3,772 $4,178
Amortization of special tools (Note 3) 2,492 2,350 5,427
Amortization of intangible assets (Note 11) 226 105 228
------ ------ ------
Total $6,873 $6,227 $9,833
===== ===== =====
Financing and Insurance Operations
- ----------------------------------
Depreciation and amortization expense $5,445 $4,920 $4,813
===== ===== =====
Internal-Use Software
As of January 1, 1999, GM adopted Statement of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use, which, on
a prospective basis, revised the accounting for software development costs.
Based on this accounting standard, certain internal-use software costs
historically expensed are now capitalized once specific criteria are met and
these costs are amortized on a straight-line basis over a three-year period. The
adoption of this statement did not have a material impact on the Corporation's
financial statements.
Foreign Currency Translation
Foreign currency exchange transaction and translation losses on an after-tax
basis included in consolidated net income in 1999, 1998, and 1997, pursuant to
Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency
Translation, amounted to $162 million, $298 million, and $497 million,
respectively.
Cash and Cash Equivalents
Cash equivalents are defined as short-term, highly liquid investments with
original maturities of 90 days or less.
II-34
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 1. Significant Accounting Policies (continued)
Statement of Cash Flows Supplementary Information
Years Ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Millions)
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Changes in other operating assets and liabilities were as follows:
Accounts receivable $(659) $(80) $(1,006)
Prepaid expenses and other deferred charges (623) 217 1,006
Inventories (66) (494) (808)
Accounts payable 5,606 1,249 1,212
Deferred taxes and income taxes payable (160) (2,315) (3,565)
Accrued expenses and other liabilities 3,425 1,513 2,168
----- ----- -----
Total $7,523 $90 $(993)
===== == ===
Cash paid for interest and income taxes was as follows:
Interest $526 $435 $449
Income taxes $2,166 $1,132 $1,120
Years Ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Millions)
Financing and Insurance Operations
- ----------------------------------
Changes in other operating assets and liabilities were as follows:
Other receivables $(269) $206 $(714)
Other assets (83) (36) (55)
Accounts payable 114 858 624
Deferred taxes and other liabilities 215 440 (414)
--- ------ ---
Total $(23) $1,468 $(559)
== ===== ===
Cash paid for interest and income taxes was as follows:
Interest $6,618 $5,695 $5,202
Income taxes $214 $138 $338
Allowance for Credit Losses
An allowance for credit losses is generally established during the period in
which receivables are acquired and is maintained at a level deemed appropriate
by management based on historical and other factors that affect collectibility.
Losses arising from the sale of repossessed collateral are charged to the
allowance for credit losses. Where repossession has not taken place, receivables
are charged off as soon as it is determined that the collateral cannot be
repossessed, generally not more than 150 days after default.
Repossessed Property and Impaired Loans
Losses arising from the repossession of collateral supporting doubtful
accounts and property supporting defaulted operating leases are recognized upon
repossession. Repossessed assets are recorded at the lower of historical cost or
estimated realizable value and are reclassified from finance receivables or
operating leases to nonearning assets with the related adjustments to the
valuation allowance included in other operating expenses.
Non-retail finance receivables are reduced to the lower of book value or the
estimated fair value of collateral when determined to be impaired or
uncollectible.
Valuation of Long-Lived Assets
GM periodically evaluates the carrying value of long-lived assets to be held
and used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair market values are reduced for
the cost to dispose.
II-35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 1. Significant Accounting Policies (continued)
Derivative Instruments
GM is party to a variety of foreign exchange, interest rate, commodity
forward contracts and options entered into in connection with the management of
its exposure to fluctuations in foreign exchange rates, interest rates, and
certain commodity prices. These financial exposures are managed in accordance
with corporate policies and procedures.
GM's Risk Management Committee reviews, approves, and monitors the
Corporation's financial risk strategies, policies, and procedures. The Committee
reviews and approves all new risk management strategies, establishes approval
authority guidelines for approved programs, and monitors compliance and
performance of existing risk management programs. GM does not enter into
derivative transactions for trading purposes.
As part of the hedging program approval process, GM's management is required
to identify the specific financial risk which the derivative transaction will
minimize, the appropriate hedging instrument to be used to reduce the risk, and
the correlation between the financial risk and the hedging instrument. Purchase
orders, letters of intent, vehicle production forecasts, capital planning
forecasts, and historical data are used as the basis for determining the
anticipated values of the transactions to be hedged. Generally, GM does not
enter into derivative transactions that do not have a high correlation with the
underlying financial risk. In the infrequent instances in which a derivative
transaction is entered into that does not have a high correlation with the
underlying exposure, the derivative is marked to market and the related gains
and losses are included in net income on a current basis. The hedge positions,
as well as the correlation between the transaction risks and the hedging
instruments, are reviewed by management on an ongoing basis.
Foreign exchange forward and option contracts are accounted for as hedges to
the extent they are designated, and are effective, as hedges of firm foreign
currency commitments. Additionally, certain foreign exchange option contracts
receive hedge accounting treatment to the extent such contracts hedge certain
anticipated foreign currency transactions. Other such foreign exchange contracts
and options are marked to market and the related gains and losses are included
in net income on a current basis.
Interest rate swaps and options that are designated, and are effective, as
hedges of underlying debt obligations are not marked to market and the related
gains and losses are not included in net income, but are used to adjust interest
expense recognized over the lives of the underlying debt agreements. Gains and
losses from terminated hedge contracts are deferred and amortized over the
remaining period of the original swap or the remaining term of the underlying
exposure, whichever is shorter. Open interest rate contracts are reviewed
regularly to ensure that they remain effective as hedges of interest rate
exposure. Written options (including swaptions, interest rate caps and collars,
and swaps with embedded swaptions) and other swaps that do not qualify for hedge
accounting are marked to market and the related gains and losses are included in
net income on a current basis.
GM also enters into commodity forward and option contracts. Since GM has the
discretion to settle these transactions either in cash or by taking physical
delivery, these contracts are not considered financial instruments for
accounting purposes. Commodity forward contracts and options are accounted for
as hedges to the extent they are designated, and are effective, as hedges of
firm or anticipated commodity purchase contracts. Other commodity forward
contracts and options are marked to market and the related gains and losses are
included in net income on a current basis.
Postemployment Benefits and Employee Termination Benefits
GM's postemployment benefits primarily relate to GM's extended disability
benefit program in the United States and employee job security and supplemental
unemployment compensation benefits (mainly pursuant to union or other
contractual agreements). Extended disability benefits are accrued on a
service-driven basis, and employee job security and supplemental unemployment
compensation benefits are accrued on an event-driven basis. Accruals for
postemployment benefits represent the discounted future cash expenditures
expected during the period between the idling of affected employees and the time
when such employees are redeployed, retire or otherwise terminate their
employment.
Voluntary termination benefits are accrued when the employees accept the
offer. Involuntary termination benefits are accrued when management has
committed to a termination plan and the benefit arrangement is communicated to
affected employees.
Environmental Liabilities
GM recognizes environmental liabilities when a loss is probable and can be
reasonably estimated. Such liabilities are generally not subject to insurance
coverage. The cost of each environmental liability is estimated by engineering,
financial, and legal specialists within GM based on current law. Such estimates
are based primarily upon the estimated cost of investigation and remediation
required and the likelihood that other potentially responsible parties (PRPs)
will be able to fulfill their commitments at the sites where GM may be jointly
and severally liable. At sites being addressed under the U.S. Comprehensive
Environmental Response, Compensation and Liability Act or similar state laws
(the "Superfund Sites"), GM typically recognizes a loss once it has been named
as a PRP and has determined that some loss is
II-36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 1. Significant Accounting Policies (continued)
Environmental Liabilities (concluded)
probable and estimable. The Superfund Sites are primarily multi-PRP sites not
owned or operated by GM. For GM's operating plants, an estimated liability is
typically recognized either upon completion of an environmental assessment or
when GM proposes an agreement with the appropriate regulatory agency to take
action at a site. For closed or closing plants owned by GM and properties being
sold, an estimated liability is typically recognized at the time the closure
decision is made or sale is recorded and is based on an environmental assessment
of the plant property.
GM's estimates for environmental obligations are dependent primarily on the
nature and extent of historical information and physical data relating to a
contaminated site, the complexity of the site, uncertainty as to what remedy and
technology will be required, the outcome of discussions with regulatory agencies
and other PRPs at multi-party sites, the number and financial viability of other
PRPs, and the timing of expenditures; accordingly, such estimates could change
materially as GM periodically evaluates and revises such estimates based on
expenditures against established reserves and the availability of additional
information.
New Accounting Standards
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement
No. 133. This statement defers, for one year, the effective date of SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, to those
fiscal years beginning after June 15, 2000. SFAS No. 133 requires all
derivatives to be recorded as either assets or liabilities and the instruments
to be measured at fair value. Gains or losses resulting from changes in the
values of those derivatives are to be recognized immediately or deferred
depending on the use of the derivative and whether or not it qualifies as a
hedge. GM will adopt SFAS No. 133 by January 1, 2001, as required. Management is
currently assessing the impact of this statement on GM's results of operations
and financial position.
Labor Force
GM, on a worldwide basis, has a concentration of its labor supply in
employees working under union collective bargaining agreements, of which certain
contracts expired in 1999.
The 1999 United Auto Workers (UAW) labor contract was ratified on October 13,
1999 covering a four-year term from 1999-2003. The contract included an annual
salary increase of 3% per year, an up-front signing bonus of $1,350 per UAW
employee which will be amortized evenly over the life of the contract, and
pension benefit increases. In addition, retiree benefit increases include lump
sum payments and a $1.25 monthly benefit increase per year of service. The
retiree lump sum payments resulted in a charge against GM's 1999 fourth quarter
earnings of approximately $408 million after-tax. The other pension benefit
increases will be paid out of plan assets.
The 1999 contract includes job security and sourcing provisions containing an
employment floor set at 95% of 1996 employment levels in the event of net
outsourcing. It also requires a level of attrition replacement based on a 1999
benchmark minimum employment level, which is reduced by 5% over the life of the
contract.
The 1999 Canadian Auto Workers (CAW) labor agreement was ratified on October
24,1999 covering a three-year term from 1999-2002. The contract included an
annual salary increase of 3% per year and an up-front signing bonus of $1,000
Canadian (equivalent to approximately $679 at the December 31, 1999 exchange
rate) per active CAW employee, which will be amortized evenly over the life of
the contract. In addition, hourly actives and retirees were granted pension
benefit increases to be paid out of plan assets. The 1999 labor agreement
continues to provide flexibility to cut costs and streamline operations.
Hughes Transactions
On December 17, 1997, GM and former Hughes completed a series of related
transactions (Hughes Transactions) that were designed to address strategic
challenges facing the three principal businesses of former Hughes and unlock
stockholder value in GM. The Hughes Transactions included the tax-free spin-off
of the defense electronics business of former Hughes (Hughes Defense) to holders
of $1-2/3 par value and Class H common stocks, which was then followed
immediately by the merger of Hughes Defense with Raytheon Company (Raytheon).
Concurrently, Delco Electronics Corporation (Delco), the automotive electronics
subsidiary of former Hughes, was transferred from former Hughes to Delphi.
Finally, Class H common stock was recapitalized into a GM tracking stock, GM
Class H common stock, that is linked to the telecommunications and space
businesses of Hughes.
II-37
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 1. Significant Accounting Policies (concluded)
Hughes Transactions (concluded)
The spin-off of Hughes Defense and merger with Raytheon had a total value to
GM and its stockholders of approximately $9.8 billion that consisted of
approximately $4.0 billion cash retained by Hughes from debt proceeds incurred
by Hughes Defense prior to its spin-off and $5.8 billion of Hughes Defense Class
A common stock distributed to holders of $1-2/3 par value and GM Class H common
stock. Substantially all of the proceeds from the debt obligation of Hughes
Defense were made available to Hughes. The distribution of Hughes Defense to the
$1-2/3 par value and GM Class H common stockholders was recorded by GM at fair
value and resulted in the recognition of a $4.3 billion gain that was included
in other income. In addition, GM's total stockholders' equity was reduced by
approximately $1.5 billion as a result of the Hughes Transactions.
GM distributed a total of 102,630,503 shares of Class A common stock of
Hughes Defense, 44,308,316 shares or 43.2% to $1-2/3 par value stockholders and
58,322,187 shares or 56.8% to GM Class H stockholders, which represented
approximately 30% of the total equity of the newly combined Hughes
Defense/Raytheon Company. The distribution to GM Class H common stockholders,
which had a total value of approximately $3.3 billion, accounted for their
tracking stock interest in Hughes Defense valued at approximately $1.5 billion,
plus an additional amount to compensate them for the elimination of their
tracking stock interest in Delco and other factors valued at approximately $1.8
billion.
NOTE 2. Discontinued Operations
Delphi is a diverse supplier of automotive systems and components. Delphi
offers products and services in the areas of electronics and mobile
communication; safety, thermal and electrical architecture; and dynamics and
propulsion. On February 5, 1999, Delphi completed an initial public offering
(IPO) of 100 million shares of its common stock, which represented 17.7% of its
outstanding common shares. On April 12, 1999, the GM Board of Directors (GM
Board) approved the complete separation of Delphi from GM by means of a spin-off
(which was tax-free to GM and its stockholders for U.S. federal income tax
purposes). On May 28, 1999 GM distributed to holders of its $1-2/3 par value
common stock 80.1% of the outstanding shares of Delphi, which resulted in
0.69893 shares of Delphi common stock being distributed for each share of GM
$1-2/3 par value common stock outstanding on the record date of May 25, 1999. In
addition, GM contributed the remaining 2.2% of Delphi shares (around 12.4
million shares), to a Voluntary Employee Beneficiary Association (VEBA) trust
established by GM to fund benefits to its hourly retirees.
The financial data related to GM's investment in Delphi through May 28, 1999
is classified as discontinued operations for all periods presented. The
financial data of Delphi reflect the historical results of operations and cash
flows of the businesses that were considered part of the Delphi business segment
of GM during each respective period; they do not reflect many significant
changes that will occur in the operations and funding of Delphi as a result of
the separation from GM and the IPO. The Delphi financial data classified as
discontinued operations reflect the assets and liabilities transferred to Delphi
in accordance with the terms of a master separation agreement to which Delphi
and GM are parties (the "Separation Agreement"). Delphi and Delco were under the
common control of GM during such periods; therefore, the Delphi financial data
includes amounts relating to Delco for all periods presented, although Delco was
not integrated with Delphi until December 1997.
Delphi net sales (including sales to GM) included in discontinued operations
totaled $12.5 billion, $28.5 billion, and $31.4 billion for the years ended
December 31, 1999, 1998, and 1997, respectively. Income (loss) from Delphi
discontinued operations of $426 million, $(93) million, and $215 million for the
years ended December 31, 1999, 1998, and 1997 is reported net of income tax
expense (benefit) of $314 million, $(173) million, and $44 million,
respectively.
II-38
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 2. Discontinued Operations (concluded)
The net assets of Delphi were as follows (in millions):
December 31,
1998
----
Current assets $6,405
Property and equipment - net 4,965
Deferred income taxes and other assets 4,136
Current liabilities (4,057)
Long-term debt (3,141)
Other liabilities (8,299)
Accumulated translation adjustments 68
-----
Net assets of discontinued operations $77
==
In the first quarter of 1999, GM recorded an increase to stockholders' equity
of $1.2 billion reflecting a gain, as a result of Delphi's IPO, of $1.7 billion,
less the cost of GM's investment in Delphi and the costs of the IPO and
establishing Delphi as an independent entity.
As a result of the complete separation of Delphi by means of the spin-off
(which was tax-free to GM and its stockholders for U.S. federal income tax
purposes) and VEBA trust contribution on May 28, 1999, GM recorded a decrease to
stockholders' equity of $5.2 billion in the second quarter of 1999. This amount
reflects the elimination of Delphi net assets of $3.4 billion and the allocation
to Delphi of pension plan assets and obligations and other related adjustments
totaling $1.8 billion (see Note 15 to the GM consolidated financial statements).
During the fourth quarter of 1999, GM recorded an increase to stockholders'
equity of $585 million as a result of a deferred tax asset established for the
increased pension and other postretirement benefit liabilities discussed below.
In total, the complete separation of Delphi for the year ended December 31,
1999 resulted in a reduction to stockholders' equity of approximately $3.3
billion.
The Separation Agreement provided that Delphi's U.S. hourly employees would
continue to participate in the defined benefit pension plan for hourly workers
and other postretirement benefit plans administered by GM until full separation
from GM. Generally, Delphi would assume the pension and other postretirement
benefit obligations for U.S. hourly employees who retire after October 1, 1999
and GM would retain pension and other postretirement benefit obligations for
U.S. hourly employees who retire on or before October 1, 1999. In connection
with the 1999 UAW labor contract (see Note 1 to the GM consolidated financial
statements), the October 1, 1999 date for Delphi's assumption of these
retirement obligations was extended to January 1, 2000.
The allocation of pension and other postretirement benefit obligations
between Delphi and GM assumed certain levels of employee retirements prior to
October 1, 1999, based on historical experience and conditions surrounding the
separation. Prior to the spin-off, Delphi and GM agreed to recalculate the
allocation of those liabilities based on the actual level of retirements on or
before October 1, 1999, which was subsequently extended to January 1, 2000 in
connection with the 1999 UAW labor contract. Accordingly, if and to the extent
that greater than the assumed number of employees retire on or before January 1,
2000, Delphi would be required to make a payment to GM. If and to the extent
that less than the assumed number of employees retire on or before January 1,
2000, GM would be required to make a payment to Delphi.
As of December 31, 1999, the estimate of employee retirements exceeded the
amount used in the allocation of GM's and Delphi's pension and other
postretirement benefit liabilities at the time of the separation. As a result,
GM increased its pension and other postretirement benefit liabilities by $498
million and $1.0 billion, respectively, to reflect the increased estimate of
Delphi retirees as of year-end, and recorded a receivable from Delphi for the
total $1.5 billion (see Note 12 to the GM consolidated financial statements) in
accordance with the terms of the Separation Agreement and the UAW labor contract
provision explained above. In addition, interest shall accrue on the outstanding
amount until such amount is paid in full, at a rate of 6.75% per annum, as
agreed to by both parties. GM received $714 million from Delphi in January 2000
related to this outstanding receivable balance. The finalization of the amount
receivable from Delphi will occur in 2000, at which time an adjustment will be
recorded. GM does not anticipate that the finalization of these retirement
obligations will have a significant effect on its financial position.
NOTE 3. Competitiveness Studies
GM periodically evaluates the carrying value of long-lived assets to be held
and used, when events and circumstances warrant such review. These evaluations
and reviews are generally done in conjunction with the annual business planning
cycle.
II-39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 3. Competitiveness Studies (concluded)
Based on the results of these reviews, GM did not record any pre-tax charges
against income in 1999. In 1998 and 1997, GM recorded pre-tax charges against
income totaling $224 million ($228 million after-tax, or $0.34 per share of
$1-2/3 par value common stock) and $5.1 billion ($3.2 billion after-tax, or
$4.36 per share of $1-2/3 par value common stock), respectively. Following are
the pre-tax components of the charges:
Years Ended December 31,
------------------------
1998 1997
---- ----
(Dollars in Millions)
Underperforming assets,
including both vehicle and
component-manufacturing assets $122 $2,941
Capacity reductions and employee
separation programs 102 1,318
Other - 803
----- ------
Total $224 $5,062
=== =====
In 1998, the pre-tax charges were comprised of $105 million ($80 million
after-tax) for GMNA, $82 million ($51 million after-tax) for GMLAAM, and $37
million ($97 million after-tax) for GMAP. Overall, these charges had the effect
of increasing 1998 cost of sales, depreciation and amortization, and other
expenses by $92 million, $67 million, and $65 million, respectively. In 1997,
the pre-tax charges were comprised of $3.8 billion ($2.4 billion after-tax) for
GMNA, $848 million ($488 million after-tax) for GME, $174 million ($170 million
after-tax) for GMAP, and $205 million ($128 million after-tax) for GM
Automotive, Communications Services, and Other Operations' Other segment. These
charges reduced 1997 net sales and revenues by $548 million and increased cost
of sales, depreciation and amortization, and other expenses by $1.4 billion,
$3.0 billion, and $72 million, respectively. Amounts related to capacity
reduction and other expenses that were recorded in 1998 and 1997 that still
remain as of December 31, 1999 total $795 million. Going forward, GM's future
cash requirements relating to the 1998 and 1997 charges are expected to occur
primarily over the next five years, with anticipated spending of approximately
61% in 2000 and 15% in 2001.
In 1998, the amount included for underperforming assets represents charges
recorded pursuant to GM's policy for the valuation of long-lived assets. GM
re-evaluated the carrying values of its long-lived assets during its annual
business planning cycle. This re-evaluation was performed using product specific
cash flow information. As a result, the carrying values of certain tooling and
other property, plant, and equipment was determined to be impaired as the
separately identifiable, anticipated, undiscounted future cash flows from such
assets were less than their respective carrying values. The resulting pre-tax
impairment charges represented the amount by which the carrying values of such
assets exceeded their respective fair market values. The amount included for
employee separation programs represents voluntary early retirement and other
separation programs affecting approximately 3,300 and 1,150, for GMLAAM and
employees involved in the restructuring of the U.S. sales and service field
organizations, respectively.
In 1997, the amount included for underperforming assets, principally tooling,
property, plant, and equipment, and investments in joint ventures, represents
charges recorded pursuant to GM's policy for the valuation of long-lived assets.
The amount included for capacity reductions represents postemployment benefits
payable to employees, pursuant to contractual agreements and costs associated
with the disposal of assets at facilities subject to capacity reductions. This
affects approximately 10,000 employees at GMNA's Buick City Assembly and V-6
Powertrain plants in Flint, Michigan; Detroit Truck Assembly in Detroit,
Michigan; and certain GME facilities. Pursuant to some of these actions,
additional charges of $74 million ($44 million after-tax) related to work
schedule modifications at Opel Belgium were recorded during the second quarter
of 1998. The amount included as other primarily represents losses on contracts
associated with pricing pressures on used vehicles and the related effect on
GM's retail-lease commitments. These pricing pressures are primarily a result of
increased industry sales incentives on new vehicles.
In connection with the 1997 evaluation of long-lived assets, GM reviewed its
remaining previously recorded reserve for plant closings and reclassified the
reserve to the consolidated balance sheet accounts that reflected the nature of
the specified reserve components, primarily the accrual for postemployment
benefit costs. Such accrual for postemployment benefit costs, together with
certain postemployment benefit costs provided in connection with the 1997
Competitiveness Studies, were adjusted in 1999. Refer to Note 4 to the GM
consolidated financial statements for further details.
II-40
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 4. 1999 Adjustment of Postemployment Benefit Costs
In the past, GM recorded liabilities for termination and other postemployment
benefits to be paid pursuant to union or other contractual agreements in
connection with closed plants in North America. As of December 31, 1998, the
total of these liabilities represented approximately 5,500 employees and totaled
approximately $1.3 billion. GM reviews the adequacy and continuing need for
these liabilities on an annual basis in conjunction with its year-end production
and labor forecasts. Furthermore, GM reviews the reasonableness of these
liabilities on a quarterly basis.
There were four factors that occurred in 1999 which significantly changed the
assumptions previously used in measuring these liabilities: a stronger than
expected U.S. vehicle market; a renewed and strengthened relationship between GM
and the UAW; higher than expected levels of attrition at Delphi following the
1999 separation of Delphi from GM; and changes to the National Labor Agreement
between GM and the UAW, which was ratified in October 1999.
GM's redeployment assumptions (forecast of excess U.S. hourly employees)
are used to evaluate the postemployment benefits liabilities. These assumptions
are largely dependent on its forecast for U.S. vehicle production. Due to the
unanticipated sustained strength in the U.S. economy, which resulted in 17.4
million units produced in the U.S. in 1999, GM increased its 1999 production,
which created unanticipated demand for U.S. hourly employees.
GM's relationship with the UAW is also a key factor in determining
redeployment assumptions. On May 28, 1999, GM successfully completed the
separation of Delphi and, subsequently, in October 1999 negotiated a new
national labor agreement with the UAW, without any work stoppage.
The Delphi separation from GM also had a significant impact on GM's
redeployment assumptions. The separation of Delphi resulted in approximately
14,000 Delphi U.S. hourly employees electing retirement in order to take
advantage of provisions allowing them to retire under GM's retirement program
until January 1, 2000. The high level of retirements created a shortage of
hourly employees at Delphi which allowed GM to place excess employees from its
closed plants into positions at Delphi plants, and limited the number of Delphi
employees who could elect to return to open positions at GM.
The 1999 UAW-GM National Agreement, ratified in October 1999, changed GM's
ability to place excess employees from closed plants into open positions at
other plants. This change has enabled GM to place workers from closed plants
much more quickly than GM management had expected and more quickly than past
experience.
As a result of these factors, in the fourth quarter of 1999, GM reversed
postemployment benefits liabilities for employees at closed plants through an
adjustment to cost of sales totaling approximately $892 million ($553 million
after-tax, or $0.84 earnings per share of $1-2/3 par value common stock). The
1999 adjustment of postemployment benefit costs reflects the decrease in the
number of excess employees at December 31, 1999, as compared with December 31,
1998, as well as a shortened duration of benefit payments based on current
redeployment assumptions. The remaining liability for postemployment benefits as
of December 31, 1999 totals approximately $295 million, representing
approximately 2,700 employees, of which approximately $222 million is expected
to be paid out in cash over the next three years. The following table summarizes
the activity from December 31, 1998 through December 31, 1999 for this liability
(dollar amounts in 000's):
<TABLE>
<CAPTION>
December 31, 1998 1999 Activity December 31, 1999
----------------- ------------- -----------------
Closed Excess Interest Excess
Plant Employees Balance Spending Accretion Adjustment Balance Employees
----- --------- ------- ----------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Buick City/
Flint V-6 (1) 2,123 $537,005 $(55,945) $29,378 $(460,219) $50,219 403
Kalamazoo 1,254 228,602 (44,923) 12,133 (152,348) 43,464 459
Flint V-8 876 223,516 (30,106) 11,450 (154,201) 50,659 659
Van Nuys 396 156,298 (17,425) 7,934 (50,548) 96,259 366
Tarrytown 79 29,803 (3,351) 1,526 (22,192) 5,786 61
Framingham 99 20,826 (1,689) 1,150 (3,795) 16,492 91
Danville 47 18,091 (1,627) 900 (13,710) 3,654 16
Other 658 72,925 (12,768) 3,235 (35,092) 28,300 615
------ ---------- --------- ------- -------- -------- -----
Total 5,532 $1,287,066 $(167,834) $67,706 $(892,105) $294,833 2,670
===== ========= ======= ====== ======= ======= =====
</TABLE>
(1)The reduction in excess employees at the Buick City assembly and Flint
V-6 engine plants was a result of redeployment to other GM and Delphi
plants (1,239) and retirement (481).
II-41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 5. Marketable and Other Securities
Marketable securities held by GM are classified as available-for-sale, except
for certain mortgage-related securities of GMAC, which are classified as trading
securities. Unrealized gains and losses, net of related income taxes, for
available-for-sale securities are included as a separate component of
stockholders' equity. Unrealized gains and losses for trading securities are
included in income on a current basis. GM determines cost on the specific
identification basis.
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Investments in marketable securities were as follows (in millions):
December 31, 1999
--------------------------------------
Fair Unrealized Unrealized
Cost Value Gains Losses
---- ----- ----- ------
Type of Security
Bonds, notes, and other securities
United States government
and governmental
agencies, and authorities $533 $528 $- $5
States, municipalities,
and political subdivisions 21 21 - -
Corporate debt securities and other 1,154 1,149 1 6
----- ----- - ---
Total marketable securities $1,708 $1,698 $1 $11
===== ===== = ==
December 31, 1998
--------------------------------------
Fair Unrealized Unrealized
Cost Value Gains Losses
---- ----- ----- ------
Type of Security
Bonds, notes, and other securities
United States government
and governmental
agencies, and authorities $286 $286 $ - $ -
States, municipalities,
and political subdivisions 11 11 - -
Corporate debt securities and other 98 105 7 -
---- --- - --
Total marketable securities $395 $402 $7 $ -
=== === = ==
Debt securities totaling $1.1 billion mature within one year and $590 million
mature after one through five years. Proceeds from sales of marketable
securities totaled $2.0 billion in 1999, $4.4 billion in 1998, and $10.9 billion
in 1997. The gross gains related to sales of marketable securities were $21
million, $17 million, and $121 million in 1999, 1998, and 1997, respectively.
The gross losses related to sales of marketable securities were $6 million, $11
million, and $51 million in 1999, 1998, and 1997, respectively.
Other securities classified as cash equivalents, which consisted primarily
of commercial paper, repurchase agreements and certificates of deposit, were
$3.4 billion and $9.2 billion at December 31, 1999 and 1998, respectively.
Financing and Insurance Operations
- ----------------------------------
Investments in securities were as follows (in millions):
December 31, 1999
--------------------------------------
Fair Unrealized Unrealized
Cost Value Gains Losses
---- ----- ----- ------
Type of Security
Bonds, notes, and other securities
United States government
and governmental
agencies, and authorities $488 $476 $- $12
States, municipalities,
and political subdivisions 1,534 1,540 47 41
Mortgage-backed securities 480 453 10 37
Corporate debt securities and other 2,515 2,491 39 63
----- ----- -- ---
Total debt securities
available-for-sale 5,017 4,960 96 153
Mortgage-backed securities held for
trading purposes 2,889 2,889 - -
----- ----- ---- -----
Total debt securities 7,906 7,849 96 153
Equity securities 685 1,261 634 58
------ ----- --- ----
Total investment in securities $8,591 $9,110 $730 $211
===== ===== === ===
II-42
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 5. Marketable and Other Securities (concluded)
December 31, 1998
--------------------------------------
Fair Unrealized Unrealized
Cost Value Gains Losses
---- ----- ----- ------
Type of Security
Bonds, notes, and other securities
United States government
and governmental
agencies, and authorities $445 $456 $12 $1
States, municipalities,
and political subdivisions 1,495 1,600 117 12
Mortgage-backed securities 415 383 6 38
Corporate debt securities and other 1,895 1,926 66 35
----- ----- ---- --
Total debt securities
available-for-sale 4,250 4,365 201 86
Mortgage-backed securities held for
trading purposes 3,173 3,173 - -
----- ----- ----- ----
Total debt securities 7,423 7,538 201 86
Equity securities 779 1,210 534 103
------ ----- --- ---
Total investment in securities $8,202 $8,748 $735 $189
===== ===== === ===
Debt securities totaling $940 million mature within one year, $1.5 billion
mature after one through five years, $1.1 billion mature after five years
through 10 years, and $4.3 billion mature after 10 years. Proceeds from sales of
marketable securities totaled $2.9 billion in 1999, $3.6 billion in 1998, and
$2.7 billion in 1997. The gross gains related to sales of marketable securities
were $292 million, $218 million, and $176 million in 1999, 1998, and 1997,
respectively. The gross losses related to sales of marketable securities were
$126 million, $49 million, and $45 million in 1999, 1998, and 1997,
respectively.
Other securities classified as cash equivalents, which consisted primarily
of commercial paper, repurchase agreements, and certificates of
deposit, were $119 million and $155 million at December 31, 1999 and 1998,
respectively.
NOTE 6. Finance Receivables - Net
Finance receivables - net included the following (in millions):
December 31,
--------------------
1999 1998
---- ----
U.S.
Retail $35,608 $33,321
Wholesale 17,717 17,722
Commercial 2,383 71
Leasing and lease financing 627 632
Term loans to dealers and others 8,774 4,853
------ ------
Total U.S. 65,109 56,599
------ ------
Canada, Mexico, and Other International
Retail 10,428 9,337
Wholesale 6,270 6,668
Commercial 1,167 -
Leasing and lease financing 2,054 2,023
Term loans to dealers and others 866 857
------ ------
Total Canada, Mexico, and Other International 20,785 18,885
------ ------
Total finance receivables 85,894 75,484
Less- Unearned income (4,153) (4,027)
Allowance for financing losses (1,114) (1,021)
------ ------
Total finance receivables - net $80,627 $70,436
====== ======
The aggregate amount of total finance receivables maturing in each of the
five years following December 31, 1999 is as follows: 2000-$46.1 billion;
2001-$15.5 billion; 2002-$13.3 billion; 2003-$6.4 billion; 2004-$2.9 billion;
and 2005 and thereafter-$1.7 billion.
II-43
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 6. Finance Receivables - Net (concluded)
GMAC participates in various sales of receivables programs and has sold
retail finance receivables through special purpose subsidiaries with principal
aggregating $5.1 billion in 1999 and $1.6 billion in 1998. These subsidiaries
generally retain a subordinated investment of no greater than 7.0% of the total
receivables pool and market the remaining portion. Pre-tax gains relating to
such sales amounted to $64 million in 1999 and $31 million in 1998. GMAC's sold
retail finance receivables servicing portfolio amounted to $5.6 billion and $4.0
billion at December 31, 1999 and 1998, respectively.
GMAC has sold wholesale receivables on a revolving basis resulting in
decreases in wholesale outstandings of $8.4 billion and $3.3 billion at December
31, 1999 and 1998, respectively. GMAC is committed to sell eligible wholesale
receivables arising in certain dealer accounts.
GMAC's interest-only strip receivables cash flows, cash deposits, and other
related amounts are generally restricted assets and subject to limited recourse
provisions.
NOTE 7. Inventories
Inventories included the following for Automotive, Communications Services,
and Other Operations (in millions):
December 31,
----------------------
1999 1998
--------- ---------
Productive material, work in process, and supplies $5,505 $5,377
Finished product, service parts, etc. 7,023 6,962
------- -------
Total inventories at FIFO 12,528 12,339
Less LIFO allowance 1,890 1,902
------- -------
Total inventories (less allowances) $10,638 $10,437
====== ======
Inventories are stated generally at cost, which is not in excess of market.
The cost of substantially all U.S. inventories other than the inventories of
Saturn Corporation (Saturn) and Hughes is determined by the last-in, first-out
(LIFO) method. The cost of non-U.S., Saturn and Hughes inventories is determined
generally by either the first-in, first-out (FIFO) or average cost methods.
NOTE 8. Equipment on Operating Leases
The Corporation has significant investments in the residual values of its
leasing portfolios. The residual values represent the estimate of the values of
the assets at the end of the lease contracts and are initially recorded based on
appraisals and estimates. Realization of the residual values is dependent on the
Corporation's future ability to market the vehicles under then prevailing market
conditions. Management reviews residual values periodically to determine that
recorded amounts are appropriate.
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Equipment on operating leases and other assets was as follows (in millions):
December 31,
------------
1999 1998
---- ----
Equipment on operating leases $10,754 $9,064
Less accumulated depreciation (1,099) (935)
------ ------
Net book value $9,655 $8,129
===== =====
Current $5,744 $4,954
Noncurrent (Note 12) 3,911 3,175
----- -----
Net book value $9,655 $8,129
===== =====
Financing and Insurance Operations
- ----------------------------------
Equipment on operating leases included in investment in leases and other
receivables was as follows (in millions):
December 31,
---------------------
1999 1998
---- ----
Equipment on operating leases $41,522 $35,952
Less accumulated depreciation (8,336) (6,965)
------ ------
Net book value $33,186 $28,987
====== ======
The lease payments to be received related to equipment on operating leases
maturing in each of the five years following December 31, 1999 are as follows:
Automotive, Communications Services, and Other Operations - 2000-$2.2 billion;
2001-$626 million; 2002-$575 million; 2003-$539 million; and 2004-$503 million;
Financing and Insurance Operations - 2000-$6.8 billion; 2001-$4.6 billion;
2002-$2.0 billion; 2003-$200 million; and 2004-$27 million.
II-44
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 9. Income Taxes
Income from continuing operations before income taxes and minority interests
included the following (in millions):
Years Ended December 31,
----------------------------
1999 1998 1997
---- ---- ----
U.S. income $4,156 $1,783 $3,536
Foreign income 4,891 3,161 4,033
----- ----- -----
Total $9,047 $4,944 $7,569
===== ===== =====
The provision for income taxes was estimated as follows (in millions):
Years Ended December 31,
----------------------------
1999 1998 1997
---- ---- ----
Income taxes estimated to be payable currently
U.S. federal $156 $83 $458
Foreign 1,368 1,952 1,590
U.S. state and local 308 295 166
------ ------ ------
Total payable currently 1,832 2,330 2,214
----- ----- -----
Deferred income tax expense (credit) - net
U.S. federal 1,026 373 (552)
Foreign 244 (852) (349)
U.S. state and local 34 (196) (261)
------ --- ------
Total deferred 1,304 (675) (1,162)
----- --- -----
Investment tax credits (18) (19) (27)
------- ------- -------
Total income taxes $3,118 $1,636 $1,025
===== ===== =====
Annual tax provisions include amounts considered sufficient to pay
assessments that may result from examination of prior year tax returns; however,
the amount ultimately paid upon resolution of issues raised may differ
materially from the amount accrued.
Provisions are made for estimated U.S. and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance of
the Corporation's share of subsidiaries' undistributed earnings not deemed to be
permanently invested. Taxes have not been provided on foreign subsidiaries'
earnings, which are deemed essentially permanently reinvested, of $13.2 billion
at December 31, 1999 and $9.8 billion at December 31, 1998. Quantification of
the deferred tax liability, if any, associated with permanently reinvested
earnings is not practicable.
A reconciliation of the provision for income taxes compared with the amounts
at the U.S. federal statutory rate was as follows (in millions):
Years Ended December 31,
----------------------------
1999 1998 1997
---- ---- ----
Tax at U.S. federal statutory income tax rate $3,166 $1,730 $2,649
Hughes Defense spin-off - - (1,494)
Foreign rates other than 35% (109) 1 (154)
Taxes on unremitted earnings of subsidiaries 138 92 73
Tax credits (207) (203) (161)
Subsidiary settlement of affirmative
claim with IRS - (92) -
Other adjustments 130 108 112
----- ----- -----
Total income tax $3,118 $1,636 $1,025
===== ===== =====
Deferred income tax assets and liabilities for 1999 and 1998 reflect the
impact of temporary differences between amounts of assets and liabilities for
financial reporting purposes and the bases of such assets and liabilities as
measured by tax laws. The net deferred tax asset in the U.S. was $16.1 billion
and $17.9 billion at December 31, 1999 and 1998, respectively.
II-45
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 9. Income Taxes (concluded)
Temporary differences and carryforwards that gave rise to deferred tax assets
and liabilities included the following (in millions):
December 31,
-------------
1999 1998
---- ----
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
------ ----------- ------- -----------
Postretirement benefits other
than pensions $14,351 $ - $14,560 $ -
Minimum pension liability adjustment 897 - 3,054 -
Employee benefit plans 2,292 7,596 1,063 5,816
Policy and warranty reserves 2,471 - 2,534 -
Sales and product reserves 2,587 - 2,176 -
Profits on long-term contracts 105 213 146 156
Alternative minimum tax
credit carryforwards 845 - 690 -
Depreciation and amortization expense 577 3,696 594 3,263
Capitalized research and experimentation 358 - 82 -
U.S. state net operating loss
carryforwards 529 - 559 -
Financing losses 424 - 407 -
Tax credit carryforwards 1,452 - 879 -
Lease transactions - 3,844 - 3,624
Tax on unremitted profits - 225 - 330
Other U.S. 6,189 3,811 5,461 2,850
Miscellaneous foreign 3,233 887 2,763 922
------- ------- ------- -------
Subtotal 36,310 20,272 34,968 16,961
Valuation allowances (789) - (607) -
------- ------- ------- -------
Total deferred taxes $35,521 $20,272 $34,361 $16,961
====== ====== ====== ======
Realization of the net deferred tax assets is dependent on future reversals
of existing taxable temporary differences and adequate future taxable income,
exclusive of reversing temporary differences and carryforwards. Although
realization is not assured, management believes that it is more likely than not
that the net deferred tax assets will be realized. The amount of the net
deferred tax assets considered realizable, however, could be reduced in the near
term if actual future income taxes are lower than estimated, or if there are
differences in the timing or amount of future reversals of existing taxable
temporary differences.
The alternative minimum tax credit can be carried forward indefinitely. The
U.S. state net operating loss carryforwards will expire in the years 2000 - 2014
and 2018 - 2019 if not used; however, a substantial portion will not expire
until after the year 2004. The other tax credit carryforwards will expire in the
years 2004, 2010 - 2012, and 2018 - 2019 if not used.
NOTE 10. Property - Net
Property - net included the following for Automotive, Communications
Services, and Other Operations (in millions):
Estimated December 31,
Useful ----------------
Lives (Years) 1999 1998
------------- ---- ----
Land - $751 $714
Land improvements 7-30 1,682 1,709
Leasehold improvements - less amortization 2-10 225 207
Buildings 29-40 11,779 11,425
Machinery and equipment 3-30 39,650 39,914
Furniture and office equipment 3-20 1,092 925
Capitalized leases 5-40 811 1,026
Construction in progress - 3,787 3,645
------- -------
Real estate, plants, and equipment 59,777 59,565
Less accumulated depreciation (34,363) (34,641)
------ ------
Real estate, plants, and equipment - net 25,414 24,924
Special tools - net 7,365 7,298
------- -------
Total property - net $32,779 $32,222
====== ======
II-46
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 10. Property - Net (concluded)
Financing and Insurance Operations had net property of $496 million and $386
million recorded in other assets at December 31, 1999 and 1998, respectively.
NOTE 11. Intangible Assets - Net
Intangible assets - net included the following for Automotive, Communications
Services, and Other Operations (in millions):
December 31,
------------------
1999 1998
---- ----
Pensions $713 $6,434
Intangible assets relating to acquisition of HAC 409 427
Goodwill relating to all other acquisitions 7,405 3,133
----- ------
Total intangible assets - net $8,527 $9,994
===== =====
Intangible assets related to pensions decreased due to the hourly pension
plan becoming fully funded in 1999 (see Note 15 to the GM consolidated financial
statements).
Intangible assets relating to the acquisition of Hughes Aircraft Company
(HAC) are applicable to Hughes. Such intangible assets relate to patents and
related technology and other intangible assets that were originally recorded in
1985.
Goodwill relating to all other acquisitions includes approximately $3.1
billion associated with Hughes' 1997 merger with, and additional 1998 investment
in, PanAmSat Corporation as well as approximately $3.5 billion associated with
Hughes' acquisitions of PRIMESTAR, Tempo Satellite assets, United States
Satellite Broadcasting Company, Inc. (USSB), and Galaxy Brazil in 1999.
Financing and Insurance Operations had net intangible assets of $2.9 billion
and $855 million recorded in other assets at December 31, 1999 and 1998,
respectively. This increase primarily relates to the acquisition of the
asset-based lending and factoring business unit of The Bank of New York in 1999.
NOTE 12. Other Assets
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Other assets included the following (in millions):
December 31,
--------------------
1999 1998
---- ----
Equipment on operating leases - noncurrent (Note 8) $3,911 $3,175
Notes receivable from Delphi (Note 2) 1,538 3,141
Investments in equity securities (1) 1,970 1,088
U.S. prepaid pension assets (Note 15) 15,267 5,903
Deferred charges 833 1,579
Other 1,839 1,176
------ ------
Total other assets $25,358 $16,062
====== ======
- ----------------
(1)Amounts represent the fair value of investments in equity securities
classified as available-for-sale for all periods presented. It is GM's intent
to hold these securities for greater than one year. Balances include
historical costs of $1.3 billion and $989 million with unrealized gains of
$687 million and $109 million and unrealized losses of $36 million and $10
million at December 31, 1999 and 1998, respectively.
II-47
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 12. Other Assets (concluded)
Financing and Insurance Operations
- ----------------------------------
Other assets included the following (in millions):
December 31,
--------------------
1999 1998
---- ----
Mortgage servicing rights $3,422 $2,435
Real estate mortgage - held for sale 5,678 7,970
- held for investment 1,497 1,297
- lending receivables 1,801 2,064
Other mortgage - related assets 1,094 723
Receivables purchased from factored clients 765 -
Due and deferred from receivables sales 742 454
Rental car buybacks 712 658
Intangible assets 2,898 855
Other 2,703 2,694
------ ------
Total other assets $21,312 $19,150
====== ======
NOTE 13. Accrued Expenses, Other Liabilities, and Deferred Income Taxes
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Accrued expenses, other liabilities, and deferred income taxes included the
following (in millions):
December 31,
--------------------
1999 1998
---- ----
Warranties, dealer and customer allowances,
claims, and discounts $15,284 $14,634
Deferred revenue 9,504 8,548
Payrolls and employee benefits (excludes postemployment) 5,211 6,436
Unpaid losses under self-insurance programs 1,923 1,774
Taxes, other than income taxes 1,084 942
Interest 1,542 1,227
Income taxes 1,006 368
Deferred income taxes 2,926 2,635
Postemployment benefits 1,802 3,110
Other 9,998 8,681
------ ------
Total accrued expenses, other liabilities,
and deferred income taxes $50,280 $48,355
====== ======
Financing and Insurance Operations
- ----------------------------------
Other liabilities and deferred income taxes included the following
(in millions):
December 31,
---------------------
1999 1998
---- ----
Unpaid insurance losses, loss adjustment
expenses, and unearned
insurance premiums $3,811 $3,918
Postemployment benefits 722 704
Income taxes 439 552
Deferred income taxes 3,730 2,910
Interest 1,602 1,276
Other 978 644
------ ------
Total other liabilities and deferred income taxes $11,282 $10,004
====== ======
II-48
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 14. Long-Term Debt and Loans Payable
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Long-term debt and loans payable were as follows (in millions):
December 31,
Weighted-Average ----------------
Interest Rate(1) 1999 1998
---------------- ---- ----
Long-term debt and loans payable
Payable within one year
Current portion of long-term debt 6.3% $681 $256
Commercial paper (2) 5.8% 405 381
All other (2) 4.8% 905 567
Payable beyond one year
2000 - - 759
2001 9.0% 438 419
2002 4.7% 848 36
2003 4.9% 603 595
2004 1.3% 510 12
2005 and after 10.8% 5,045 5,314
Unamortized discount (29) (17)
----- -----
Total long-term debt and loans payable $9,406 $8,322
===== =====
- ----------------
(1) The 1999 weighted-average interest rate for commercial paper includes the
impact of interest rate swap agreements.
(2) The 1998 weighted-average interest rate for commercial paper and other
short-term borrowings was 5.7% and 8.2%, respectively.
Amounts payable beyond one year after consideration of foreign currency swaps
at December 31, 1999 included $742 million in currencies other than the U.S.
Dollar, primarily the Brazilian Real ($152 million), the Canadian Dollar ($60
million), the Swiss Franc ($12 million), and the Japanese Yen ($488 million).
At December 31, 1999 and 1998, long-term debt and loans payable for
Automotive, Communications Services, and Other Operations included $7.4 billion
and $7.2 billion, respectively, of obligations with fixed interest rates and
$2.0 billion and $1.1 billion, respectively, of obligations with variable
interest rates (predominantly based on the London Interbank Offering Rate -
i.e., LIBOR), after considering the impact of interest rate swap agreements.
To achieve its desired balance, between fixed and variable rate debt, within
prescribed limits, GM has entered into interest rate swap and cap agreements.
The notional amounts of such agreements as of December 31, 1999 for Automotive,
Communications Services, and Other Operations were approximately $600 million
($400 million pay variable and $200 million pay fixed) and $100 million,
respectively. The notional amounts of such agreements as of December 31, 1998
were approximately $1.8 billion ($600 million pay variable and $1.2 billion pay
fixed), and $100 million, respectively.
GM and its subsidiaries maintain substantial bank lines of credit with
various banks that totaled $9.6 billion at December 31, 1999, of which $3.9
billion represented short-term credit facilities and $5.7 billion represented
long-term credit facilities. At December 31, 1998, bank lines of credit totaled
$14.5 billion, of which $6.7 billion represented short-term credit facilities
and $7.8 billion represented long-term credit facilities. The unused short-term
and long-term portions of the credit lines totaled $3.5 billion and $4.8 billion
at December 31, 1999, compared with $6.2 billion and $7.2 billion at December
31, 1998. Certain bank lines of credit contain covenants with which the
Corporation and applicable subsidiaries were in compliance during the year ended
December 31, 1999.
II-49
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 14. Long-Term Debt and Loans Payable (concluded)
Financing and Insurance Operations
- -----------------------------------
Debt was as follows (in millions):
December 31,
Weighted-Average ----------------
Interest Rate(1) 1999 1998
---------------- ---- ----
Debt
Payable within one year
Current portion of debt 6.6% $14,996 $12,701
Commercial paper (2) 5.8% 33,229 34,487
All other (2) 4.6% 18,727 15,208
Payable beyond one year
2000 - - 13,154
2001 6.0% 16,854 10,322
2002 5.7% 15,100 8,561
2003 6.1% 8,786 7,919
2004 6.6% 5,550 1,208
2005 and after 7.4% 9,662 4,864
Unamortized discount (622) (671)
--------- ---------
Total debt $122,282 $107,753
======= =======
- ----------------
(1) The 1999 weighted-average interest rate for commercial paper includes the
impact of interest rate swap agreements.
(2) The 1998 weighted-average interest rate for commercial paper and other
short-term borrowings was 5.3% and 7.5%, respectively.
Amounts payable beyond one year after consideration of foreign currency swaps
at December 31, 1999 included $10.3 billion in currencies other than the U.S.
Dollar, primarily the Canadian Dollar ($5.5 billion), the Euro ($1.9 billion),
the U.K. Pound Sterling ($1.5 billion), and the Australian Dollar ($1.0
billion).
At December 31, 1999 and 1998, debt for Financing and Insurance Operations
included $78.3 billion and $72.8 billion, respectively, of obligations with
fixed interest rates and $44.0 billion and $35.0 billion, respectively, of
obligations with variable interest rates (predominantly based on the London
Interbank Offering Rate - i.e., LIBOR), after considering the impact of interest
rate swap agreements.
To achieve its desired balance, between fixed and variable rate debt, within
prescribed limits, GM has entered into interest rate swap, cap, floor, and
option agreements. The notional amounts of such agreements as of December 31,
1999 for financing and insurance operations were approximately $26.1 billion
($18.1 billion pay variable and $8.0 billion pay fixed), $483 million, $93
million, and $0, respectively. The notional amounts for interest rate swap, cap,
floor, and option agreements as of December 31, 1998, were approximately $13.2
billion ($9.5 billion pay variable and $3.7 billion pay fixed), $400 million,
$1.0 billion, and $1.0 billion, respectively.
GM's financing and insurance subsidiaries maintain substantial bank lines of
credit with various banks that totaled $46.9 billion at December 31, 1999, of
which $16.8 billion represented short-term credit facilities and $30.1 billion
represented long-term credit facilities. At December 31, 1998, bank lines of
credit totaled $44.3 billion, of which $17.3 billion represented short-term
credit facilities and $27.0 billion represented long-term credit facilities. The
unused short-term and long-term portions of the credit lines totaled $6.3
billion and $29.3 billion at December 31, 1999 compared with $7.5 billion and
$25.7 billion at December 31, 1998. Certain bank lines of credit contain
covenants with which the Corporation and applicable subsidiaries were in
compliance during the year ended December 31, 1999.
II-50
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 15. Pensions and Other Postretirement Benefits
GM has a number of defined benefit pension plans covering substantially all
employees. Plans covering U.S. and Canadian represented employees generally
provide benefits of negotiated, stated amounts for each year of service as well
as significant supplemental benefits for employees who retire with 30 years of
service before normal retirement age. The benefits provided by the plans
covering U.S. and Canadian salaried employees and employees in certain foreign
locations are generally based on years of service and salary history. GM also
has certain nonqualified pension plans covering executives that are based on
targeted wage replacement percentages and are unfunded.
The measurement dates used for the principal U.S. pension plans of the
Corporation and Hughes were December 31 and December 1, respectively. For
non-U.S. pension plans, the measurement dates were December 1 for Canadian plans
and October 1 for other foreign plans.
Pension plan assets are primarily invested in U.S. Government obligations,
equity and fixed income securities, commingled pension trust funds, insurance
contracts, the Corporation's $1-2/3 par value common stock (valued as of the
1999 measurement date at $4.2 million), and EDS common stock (valued as of the
1999 measurement date at $4.7 billion). In March 1995, under the terms of an
agreement between the Corporation and the Pension Benefit Guarantee Corporation
(PBGC), the Corporation contributed to the GM Hourly-Rate Employees Pension Plan
(Hourly Plan) 173.2 million shares of Class E common stock valued at $6.3
billion on such date. Subsequent to the split-off of EDS, the Class E stock held
by the Hourly Plan was exchanged for EDS common stock. The trustees for the
Hourly Plan have, from time-to-time, sold shares of former Class E common stock
and EDS common stock, with the effect of reducing the number of shares of EDS
common stock held by the Hourly Plan.
GM's funding policy with respect to its qualified pension plans is to
contribute annually not less than the minimum required by applicable law and
regulations. GM made pension contributions to the U.S. hourly and salary plans
of $794 million in 1999, $1.1 billion in 1998, and $1.5 billion in 1997. In
addition, GM made pension contributions to all other U.S. plans of $67 million,
$51 million, and $35 million in 1999, 1998, and 1997, respectively.
Additionally, GM maintains hourly and salary benefit plans that provide
postretirement medical, dental, vision, and life insurance to most U.S. retirees
and eligible dependents. The cost of such benefits is recognized in the
consolidated financial statements during the period employees provide service to
GM. Postretirement plan assets in GM's VEBA trust are invested primarily in
fixed income securities.
Certain of the Corporation's non-U.S. subsidiaries have postretirement plans,
although most participants are covered by government-sponsored or administered
programs. The cost of such programs generally is not significant to GM.
II-51
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 15. Pensions and Other Postretirement Benefits (continued)
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
---------------- ---------------- ---------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Change in benefit obligations (in millions)
Benefit obligation at
beginning of year $76,963 $73,570 $10,283 $9,824 $47,346 $44,294
Service cost 1,007 1,270 202 214 502 663
Interest cost 4,722 4,974 604 643 2,802 3,113
Plan participants'
contributions 37 43 29 28 41 31
Amendments 5,326 208 381 81 4 -
Actuarial (gains)/losses (4,565) 1,973 (700) 92 32 1,622
Benefits paid (5,636) (5,196) (391) (349) (2,368) (2,287)
Divestitures-Delphi
Spin-Off (4,652) - - - (3,590) -
Curtailment charges
and other 67 121 (680) (250) (86) (90)
------ ------ ---- ------ ------- ------
Benefit obligation
at end of year 73,269 76,963 9,728 10,283 44,683 47,346
------ ------ ----- ------ ------ ------
Change in plan assets
Fair value of plan assets
at beginning of year 75,007 72,280 5,976 6,075 4,574 3,000
Actual return on plan
assets 13,582 6,438 965 328 207 249
Employer contributions 861 1,151 566 206 1,970 1,700
Plan participants'
contributions 37 43 29 28 - -
Benefits paid (5,636) (5,196) (391) (349) (460) (375)
Divestitures-Delphi
Spin-Off (3,369) - - - - -
Settlement charges and
other (20) 291 (83) (312) - -
------ ------ ----- ----- ----- -----
Fair value of plan assets at end
of year 80,462 75,007 7,062 5,976 6,291 4,574
------ ------ ----- ----- ----- -----
Funded status 7,193 (1,956) (2,666) (4,307) (38,392) (42,772)
Unrecognized actuarial
(gain)/loss (2,463) 10,368 586 1,880 1,842 2,209
Unrecognized prior service
cost 9,850 7,064 1,048 764 212 (448)
Unrecognized transition
(asset) obligation (47) (64) 52 48 - -
------ ------ ----- ----- ------- -------
Net amount recognized
including discontinued
operations 14,533 15,412 $(980) (1,615) (36,338) (41,011)
Discontinued operations - 1,635 - - - 4,573
------ ------ --- ----- ------ ------
Net amount recognized $14,533 $17,047 $(980) $(1,615)$(36,338)$(36,438)
====== ====== === ===== ====== ======
Amounts recognized in the
consolidated balance
sheets consist of:
Prepaid benefit cost $15,267 $5,903 $809 $898 $ - $ -
Accrued benefit
liability (815) (2,181) (2,612) (3,814) (36,338) (36,438)
Intangible asset 13 5,961 700 504 - -
Accumulated other
comprehensive
income 68 7,364 123 797 - -
------ ------ --- ----- ------ ------
Net amount recognized $14,533 $17,047 $(980) $(1,615)$(36,338)$(36,438)
====== ====== === ===== ====== ======
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $7.3 billion, $6.8 billion, and $3.5 billion,
respectively, as of December 31, 1999, and $56.7 billion, $56.0 billion, and
$47.8 billion, respectively, as of December 31, 1998.
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
---------------- ---------------- --------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ----- ----
(in millions)
Components of expense
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost $1,007 $1,270 $1,332 $202 $214 $191 $502 $663 $639
Interest cost 4,722 4,974 5,261 604 643 633 2,802 3,113 3,128
Expected return on plan
assets (6,726) (6,815) (6,630) (526) (516) (524) (377) (286) -
Amortization of prior
service cost 926 1,173 1,170 99 99 99 (104) (116) (116)
Amortization of transition
asset (37) (44) (85) (17) (17) (20) - - -
Recognized net actuarial loss 348 331 308 79 75 60 124 97 72
Discontinued operations (98) (279) (422) - - - - (966)(1,047)
Curtailments, settlements,
and other 2,351 207 53 22 48 2 - - (2)
Discontinued operations (2,251) (130) (18) - - - - - -
----- --- ---- --- --- ----- ----- ---- ----
Net expense $242 $687 $969 $463 $546 $441 $2,947 $2,505 $2,674
==== === === === === === ===== ===== =====
</TABLE>
II-52
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
<TABLE>
NOTE 15. Pensions and Other Postretirement Benefits (concluded)
<CAPTION>
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
---------------- ---------------- --------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ----- ----
Weighted-average assumptions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Discount rate 7.8% 6.8% 7.0% 7.1% 6.4% 6.8% 7.7% 6.7% 7.2%
Expected return on plan
assets 10.0% 10.0% 10.0% 9.0% 9.2% 9.2% 8.3% 7.7% -
Rate of compensation increase 5.0% 5.0% 5.0% 4.0% 3.5% 4.1% 4.4% 4.4% 4.4%
</TABLE>
For measurement purposes, an approximate 8.8% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2000. The rate
was assumed to decrease on a linear basis to 5.0% through 2006 and remain at
that level thereafter.
A one percentage point increase in the assumed health care trend rate would
have increased the Accumulated Projected Benefit Obligation (APBO) by $4.6
billion at December 31, 1999, and increased the aggregate service and interest
cost components of non-pension postretirement benefit expense for 1999 by $443
million. A one percentage point decrease would have decreased the APBO by $3.9
billion and decreased the aggregate service and interest cost components of
non-pension postretirement benefit expense for 1999 by $368 million.
The allocation of pension and other postretirement benefit obligations
between Delphi and GM assumed certain levels of employee retirements prior to
October 1, 1999, based on historical experience and conditions surrounding the
separation (see Note 2 to the GM consolidated financial statements). Prior to
the spin-off, Delphi and GM agreed to recalculate the allocation of those
liabilities based on the actual level of retirements on or before October 1,
1999, which was subsequently extended to January 1, 2000 in connection with the
1999 UAW labor contract. Accordingly, if and to the extent that greater than the
assumed number of employees retire on or before January 1, 2000, Delphi would be
required to make a payment to GM. If and to the extent that less than the
assumed number of employees retire on or before January 1, 2000, GM would be
required to make a payment to Delphi.
GM has disclosed in the consolidated financial statements certain amounts
associated with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit obligations,"
"liabilities," or "obligations." Notwithstanding the recording of such amounts
and the use of these terms, GM does not admit or otherwise acknowledge that such
amounts or existing postretirement benefit plans of GM (other than pensions)
represent legally enforceable liabilities of GM.
NOTE 16. Commitments and Contingent Matters
Commitments
GM had the following minimum commitments under noncancelable operating leases
having terms in excess of one year primarily for real property: 2000-$565
million; 2001-$488 million; 2002-$423 million; 2003-$396 million; 2004-$306
million; and $1.1 billion in 2005 and thereafter. Certain of the leases contain
escalation clauses and renewal or purchase options. Rental expenses under
operating leases were $825 million in 1999 and $826 million in 1998 and 1997.
GM sponsors a credit card program, entitled the GM Card program, that offers
rebates that can be applied against the purchase or lease of GM vehicles. The
amount of rebates available to qualified cardholders at December 31, 1999, 1998,
and 1997 was $3.7 billion, $3.7 billion, and $3.5 billion, respectively.
Provisions for GM Card rebates are recorded as reductions in revenues at the
time of vehicle sale.
As part of a marketing agreement entered into with America Online, Inc. (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.
On December 10, 1999, GM and Fuji Heavy Industries Ltd. (Fuji) entered into
an Agreement of Strategic Alliance (the "Alliance Agreement") in which GM will
subscribe for and purchase a number of newly-issued shares of Fuji's voting
common stock, par value 50 yen ((Y)50) per share, which shall equal an equity
interest in Fuji of 20% on a fully diluted basis, at the time of payment. This
investment will be accounted for using the equity method of accounting and Fuji
will remain an independent company with GM as its largest shareholder. The
transaction is expected to be completed during the second quarter of 2000 at an
estimated price of $1.2 billion. This Alliance Agreement will allow GM and Fuji
to collaborate in the design, development and manufacturing of cars, trucks, and
related technology.
II-53
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 16. Commitments and Contingent Matters (continued)
Contingent Matters
There is a pending grand jury investigation into whether Hughes should be
accused of criminal violations of the export control laws arising out of the
participation of two of its employees on a committee formed to review the
findings of Chinese engineers regarding the failure of a Long March rocket in
China in 1996. Hughes is also subject to the authority of the State Department
to impose sanctions for non-criminal violations of the Arms Export Control Act.
The possible criminal and/or civil sanctions could include fines as well as
debarment from various export privileges and participating in government
contracts. If Hughes were to enter into a settlement of this matter prior to the
closing of The Boeing Company (Boeing) transaction (see Note 27 to the GM
consolidated financial statements) that involves a debarment from sales to the
U.S. government or a material suspension of Hughes' export licenses or
other material limitation on projected business activities of the satellite
systems manufacturing businesses, Boeing would not be obligated to complete the
purchase of Hughes' satellite systems manufacturing businesses. Hughes does not
expect the grand jury investigation or State Department review to result in a
material adverse effect upon its business. However, there can be no assurance
as to such a favorable outcome.
In connection with the 1997 spin-off of Hughes Defense and the subsequent
merger with Raytheon, the terms of the merger agreement provided processes for
resolving disputes that might arise in connection with post-closing financial
adjustments that were also called for by the terms of the merger agreement.
These financial adjustments might require a cash payment from Raytheon to Hughes
or vice versa. Disputes currently exist 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. Raytheon and Hughes are now proceeding with
the dispute resolution processes as to these matters. It is possible that
ultimate resolution of the post-closing financial adjustment and of related
disclosure issues may result in Hughes making a payment to Raytheon that would
be material to Hughes. However, the amount of any payment that either party
might be required to make to the other cannot be determined at this time. Hughes
intends to vigorously pursue resolution of the disputes through the arbitration
processes, opposing the adjustments proposed by Raytheon, and seeking the
payment from Raytheon that Hughes has proposed.
General Electric Capital Corporation (GECC) and DIRECTV, Inc. (DIRECTV)
entered into a contract on July 31, 1995, in which GECC agreed to establish and
manage a private label consumer credit program for consumer purchases of
hardware and related DIRECTV programming. Under the contract, GECC also agreed
to provide certain related services to DIRECTV, including credit risk scoring,
billing, and collections services. DIRECTV agreed to act as a surety for loans
complying with the terms of the contract. Hughes guaranteed DIRECTV's
performance under the contract. A complaint and counterclaim have been filed by
the parties in the U.S. District Court for the District of Connecticut
concerning GECC's performance and DIRECTV's obligation to act as a surety. GECC
claims damages from DIRECTV in excess of $140 million. DIRECTV is seeking
damages from GECC in excess of $45 million. Hughes intends to vigorously contest
GECC's allegations and pursue Hughes' own contractual rights and remedies.
Hughes does not believe that the litigation will have a material adverse impact
on its results of operations or financial position. Pretrial discovery is
completed. No specific trial date has been set, but a trial may be held in 2000.
Hughes Space and Communications International (HSCI), a wholly owned
subsidiary of Hughes Space and Communications Company, has certain contracts
with ICO Global Communications Operations (ICO Global) to build the satellites
and related components for a global wireless communications system. Hughes owns
approximately 2.6% of the equity in ICO's parent company, ICO Global
Communications (Holdings) (ICO) (which Hughes has agreed to sell to Boeing as
part of the sale of Hughes' satellite systems manufacturing businesses) (see
Note 27 to the GM consolidated financial statements). On August 27, 1999, ICO
filed for bankruptcy protection under Chapter 11 in U.S. Bankruptcy Court in
Wilmington, Delaware. On December 3, 1999, the U.S. Bankruptcy Court in this
case granted final approval of debtor-in-possession financing in the amount of
$500 million to a group led by Craig McCaw, the Chairman of Teledesic LLC, a
company establishing a global broadband Internet-in-the-Sky satellite
communications network. In October 1999, McCaw and his group also agreed to
provide an additional $700 million in financing upon ICO's emergence from
bankruptcy court protection, to the extent that this financing is not provided
by other investors. This exit financing is expected to be completed in mid-2000,
upon court approval and consummation of the ICO reorganization plan. There can
be no assurance when the consummation of the reorganization plan will occur or
if ICO will be successful in confirming any plan of reorganization. If it is
unable to do so the most likely outcome would be a liquidation proceeding. In
the event that liquidation becomes probable, Hughes would expect to record a
pre-tax charge to income of up to approximately $350 million. A portion of the
purchase price to be paid by Boeing will be placed in escrow under certain
circumstances if prior to completing this sale to Boeing, Hughes' contracts with
ICO are not assumed by ICO with bankruptcy court approval or new similar
contracts are not entered into with bankruptcy court approval.
On June 3, 1999, the National Rural Telecommunications Cooperative (NRTC)
filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc.
(together "DIRECTV") in the United States District Court for the Central
District of California, alleging that DIRECTV has breached the DBS Distribution
Agreement (the "DBS Agreement") with the NRTC. The DBS Agreement provides the
NRTC with certain rights, in certain specified portions of the United States,
with respect to DIRECTV programming delivered over 27 of the 32 frequencies at
the 101 degrees west longitude orbital location. The NRTC claims that DIRECTV
has wrongfully deprived it of the exclusive right to distribute programming
formerly provided by USSB over the other five frequencies at 101 degrees.
DIRECTV denies that the NRTC is entitled to exclusive distribution rights to the
former USSB programming because, among other things, the NRTC's exclusive
distribution rights are limited to programming distributed over 27 of the 32
frequencies at 101 degrees. The NRTC's complaint seeks, in the alternative, the
right to distribute former USSB programming on a non-exclusive basis and the
recovery of related revenues from the date USSB was acquired by Hughes.
II-54
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 16. Commitments and Contingent Matters (concluded)
Contingent Matters (concluded)
DIRECTV maintains that the NRTC's right under the DBS Agreement is to market and
sell the former USSB programming as its agent and is not entitled to the claimed
revenues. DIRECTV intends to vigorously defend against the NRTC claims. DIRECTV
has also filed a counterclaim against the NRTC seeking a declaration of the
parties' rights under the DBS Agreement.
On August 26, 1999, the NRTC filed a second lawsuit against DIRECTV in which
it alleges that DIRECTV has breached the agreement it has with NRTC. In this
lawsuit, the NRTC is asking the court to require DIRECTV to pay the NRTC a
proportionate share of unspecified financial benefits that DIRECTV derives from
programming providers and other third parties. DIRECTV denies that it owes any
sums to the NRTC on account of the allegations in these matters and plans to
vigorously defend itself against these claims.
Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two
largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV in
United States District Court in Los Angeles. The plaintiffs allege, among other
things, that DIRECTV has interfered with their contractual relationship with the
NRTC. The plaintiffs plead that their rights and damages are derivative of the
rights and claims asserted by the NRTC in its two cases against DIRECTV. The
plaintiffs also allege that DIRECTV has interfered with their contractual
relationships with manufacturers and distributors by preventing those parties
from selling receiving equipment to the plaintiffs' dealers. DIRECTV denies that
it has wrongly interfered with any of the plaintiffs' business relationships and
will vigorously defend the lawsuit. Although an amount of loss, if any, cannot
be estimated at this time, an unfavorable outcome could be reached in the NRTC
and Pegasus litigation that could be material to Hughes' results of operations
or financial position.
In Anderson, et al v. General Motors Corporation, a jury in a Los Angeles
Superior Court returned a verdict of $4.9 billion against GM in a product
liability lawsuit involving a post-collision fuel fed fire in a 1979 Chevrolet
Malibu. In post-trial developments, the trial court has reduced the punitive
damages from $4.8 billion to $1.1 billion and has entered an order which stays
execution of the judgment pending resolution of all appeals by GM and has
released the bond GM had posted for the punitive and compensatory damages (the
cost of which was not material to the Corporation). GM continues to pursue its
appellate rights, including efforts to secure a new trial and the complete
elimination of responsibility to pay any damages in this matter consistent with
GM's view that the design of the Chevrolet Malibu was not responsible for
plaintiffs' injuries.
In connection with GM's disposition of certain businesses (including Delphi),
GM has granted the UAW guarantees covering benefits to be provided to certain
former U.S. hourly employees of GM who became employees of the disposed
businesses. These guarantees have limited terms that do not extend beyond
October 2007. In connection with such guarantees relating to certain of Delphi's
U.S. hourly employees, GM and Delphi entered into an agreement, the provisions
of which are designed to prevent or mitigate the risk that GM's guarantee
relating to Delphi's employees would ever be called upon, or, if it is, any
payments thereunder by GM would result in the obligation of Delphi to indemnify
and hold GM harmless as to such amounts. GM believes that the likelihood it will
make payments under any of these various guarantees is remote and that if such
payments are made they will not be material to GM's financial position or
results of operations.
GM is subject to potential liability under government regulations and various
claims and legal actions which are pending or may be asserted against them. Some
of the pending actions purport to be class actions. The aggregate ultimate
liability of GM under these government regulations and under these claims and
actions, was not determinable at December 31, 1999. After discussion with
counsel, it is the opinion of management that such liability is not expected to
have a material adverse effect on the Corporation's consolidated financial
condition or results of operations.
NOTE 17. Preferred Securities of Subsidiary Trusts
General Motors - Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts
In July 1997, the General Motors Capital Trust D (Series D Trust) issued
approximately $79 million of its 8.67% Trust Originated Preferred Securitiessm
(TOPrSsm) Series D, (Series D Preferred Securities), in a one-for-one exchange
for 3,055,255 of the outstanding GM Series D 7.92% Depositary Shares, each
representing one-fourth of a share of GM Series D Preference Stock, $0.10 par
value per share. In addition, the General Motors Capital Trust G (Series G
Trust) issued approximately $143 million of its 9.87% TOPrS, Series G (Series G
Preferred Securities), in a one-for-one exchange for 5,064,489 of the
outstanding GM Series G 9.12% Depositary Shares, each representing one-fourth of
a share of GM Series G Preference Stock, $0.10 par value per share.
II-55
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 17. Preferred Securities of Subsidiary Trusts (concluded)
Concurrently with the exchanges and the related purchases by GM from the
Series D and Series G Trusts (Trusts) of the common securities of such Trusts,
which represent approximately 3% of the total assets of such Trusts, GM issued
to the wholly-owned Trusts, as the Series D Trust's sole assets its 8.67% Junior
Subordinated Deferrable Interest Debentures, Series D, due July 1, 2012 and as
the Series G Trust's sole assets, its 9.87% Junior Subordinated Deferrable
Interest Debentures, Series G, due July 1, 2012 (the "Series D Debentures" and
"Series G Debentures" or collectively the "Debentures"), having aggregate
principal amounts equal to the aggregate stated liquidation amounts of the
Series D and Series G Preferred Securities and the related common securities,
respectively ($79 million with respect to the Series D Debentures and $131
million with respect to the Series G Debentures).
The Series D Debentures are redeemable, in whole or in part, at GM's option
on or after August 1, 1999, at a redemption price equal to 100% of the
outstanding principal amount of the Series D Debentures plus accrued and unpaid
interest. The Series D Preferred Securities will be redeemed upon the maturity
or earlier redemption of the Series D Debentures (see Note 27 to the GM
consolidated financial statements).
The Series G Debentures are redeemable, in whole or in part, at GM's option
on or after January 1, 2001, at a redemption price equal to 100% of the
outstanding principal amount of the Series G Debentures plus accrued and unpaid
interest, or, under certain circumstances, prior to January 1, 2001, at a
redemption price equal to 114% of the outstanding principal of the Series G
Debentures from the Series G expiration date through December 31, 1997,
declining ratably on each January 1 thereafter to 100% on January 1, 2001, plus
accrued and unpaid interest. The Series G Preferred Securities will be redeemed
upon the maturity or earlier redemption of the Series G Debentures.
GM has guaranteed the payment in full to the holders of the Series D and
Series G Preferred Securities (collectively the "Preferred Securities") of all
distributions and other payments on the Preferred Securities to the extent not
paid by the Trusts only if and to the extent that the Trusts have assets. GM has
made payments of interest or principal on the related Debentures. These
guarantees, when taken together with GM's obligations under the Preferred
Securities Guarantees, the Debentures, and the Indentures relating thereto and
the obligations under the Declaration of Trust of the Trusts, including the
obligations to pay certain costs and expenses of the Trusts, constitute full and
unconditional guarantees by GM of each Trust's obligations under its Preferred
Securities.
- -------------------
sm "Trust Originated Preferred Securities" and "TOPrS" are service trademarks of
Merrill Lynch & Co.
NOTE 18. Stockholders' Equity
<TABLE>
The following table presents changes in capital stock for the period from
January 1, 1997 to December 31, 1999 (in millions):
<CAPTION>
Common Stocks
----------------------------------- Total
Preference $1-2/3 Capital
Stocks(1) par value Class H(2) Class H(3) Stock
--------- --------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $1 $1,261 $- $10 $1,272
Shares reacquired - (122) - - (122)
Shares issued - 17 - - 17
Recapitalization of
Class H Common Stock - - 10 (10) -
--- ------ --- -- ------
Balance at December 31, 1997 1 1,156 10 - 1,167
Shares reacquired - (75) - - (75)
Shares issued - 11 1 - 12
--- ------ --- -- -----
Balance at December 31, 1998 1 1,092 11 - 1,104
Shares reacquired (1) (75)(4) - - (76)
Shares issued - 16 3 - 19
-- ----- --- -- -----
Balance at December 31, 1999 $ - $1,033 $14 $ - $1,047
=== ===== == == =====
</TABLE>
See notes on next page.
II-56
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 18. Stockholders' Equity (continued)
(1)The following describes the Corporation's preference stocks (in millions
except par value, stated value, and per share amounts): Preference Stock,
$0.10 par value (authorized 100 shares):
- Series B 9-1/8% Preference Stock, represented by Series B 9-1/8% Depositary
Shares, liquidation preference $100 per share.
- Series D 7.92% Preference Stock, represented by Series D 7.92% Depositary
Shares in which the stated value is $25 per share, redeemable at
Corporation option on or after August 1, 1999; outstanding at December 31,
1999, one Series D 7.92% Depositaty Share is equivalent to one-fourth of a
share of Series D 7.92% Preference Stock (see Note 17 to the GM
consolidated financial statements).
- Series G 9.12% Preference Stock, represented by Series G 9.12% Depositary
Shares in which the stated value is $25 per share, redeemable at
Corporation option on or after January 1, 2001; outstanding at December
31, 1999, one Series G 9.12% Depositary Share is equivalent to one-fourth
of a share of Series G 9.12% Preference Stock (see Note 17 to the GM
consolidated financial statements).
- Series H 6.25% Automatically Convertible Preference Stock, stated value
$561.875 per share, automatically convertible into GM Class H stock on June
24, 2002.
(2) Subsequent to its recapitalization on December 17, 1997.
(3) Prior to its recapitalization on December 17, 1997.
(4) Includes approximately 8.5 million shares repurchased using a forward
contract GM entered into as of December 31, 1999 (see Note 19 to the GM
consolidated financial statements).
Common Stocks
The voting and liquidation rights of $1-2/3 par value common stock are one
vote per share and one liquidation unit per share. The voting and liquidation
rights of the recapitalized GM Class H common stock are 0.6 votes per share and
0.6 liquidation units per share.
The liquidation rights of the $1-2/3 par value and GM Class H common stocks
are subject to certain adjustments if outstanding common stock is subdivided, by
stock split or otherwise, or if shares of one class of common stock are issued
as a dividend to holders of another class of 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).
The outstanding shares of GM Class H common stock may be recapitalized as
shares of $1-2/3 par value common stock at any time after December 31, 2002, at
the sole discretion of the GM Board, or automatically, if at any time the
Corporation should sell, liquidate, or otherwise dispose of 80% or more of the
business of Hughes, based on fair market value of the assets, both tangible and
intangible, of Hughes as of the date that such proposed transaction is approved
by the GM Board. In the event of any recapitalization, all outstanding shares of
GM Class H common stock will automatically be converted into the Corporation's
$1-2/3 par value common stock at an exchange rate that would provide GM Class H
common stockholders with that number of shares of $1-2/3 par value common stock
that would have a value equal to 120% of the value of their GM Class H common
stock, on such date. A recapitalization of the type described in the prior
sentence would occur if any of the triggering events took place unless the
holders of GM common stock (including the holders of $1-2/3 par value common
stock and holders of the GM Class H common stock voting separately as individual
classes) vote to approve an alternative proposal from the GM Board.
Common Stock Repurchases
During 1999, GM used $2.6 billion to acquire approximately 36 million shares
of $1-2/3 par value common stock to complete the Corporation's $4.0 billion
stock repurchase program announced in February 1998. GM also used approximately
$727 million and $13 million to repurchase shares of $1-2/3 par value common
stock and GM Class H common stock for certain employee benefit plans,
respectively.
Preference Stocks
On April 5, 1999, approximately 20 million outstanding depositary shares of
GM's Series B 9-1/8% Preference Stock were repurchased and retired for
approximately $501 million.
On June 24, 1999, as part of a strategic alliance with Hughes, AOL invested
$1.5 billion in return for approximately 2.7 million shares of GM Series H 6.25%
Automatically Convertible Preference Stock, par
II-57
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 18. Stockholders' Equity (concluded)
value $0.10 per share. This preference stock will automatically convert into GM
Class H common stock in three years, based upon a variable conversion factor
linked to the GM Class H common stock price at the time of conversion, and
accrues quarterly dividends at a rate of 6.25% per year. It may be converted
earlier in certain limited circumstances. GM immediately invested the $1.5
billion received from AOL into shares of Hughes Series A Preferred Stock
designed to correspond to the financial terms of the GM Series H 6.25%
Automatically Convertible Preference Stock. Dividends on the Hughes Series A
Preferred Stock are payable to GM quarterly at an annual rate of 6.25%. These
preferred stock dividends payable to GM will reduce Hughes' earnings used for
computation of the Available Separate Consolidated Net Income (Loss) (ASCNI) of
Hughes, which will have an effect equivalent to the payment of dividends on the
GM Series H 6.25% Automatically Convertible Preference Stock as if those
dividends were paid by Hughes. Upon conversion of the GM Series H 6.25%
Automatically Convertible Preference Stock into GM Class H common stock, Hughes
will redeem the Series A Preferred Stock through a cash payment to GM equal to
the fair market value of GM Class H common stock issuable upon the conversion.
Simultaneous with GM's receipt of the cash redemption proceeds, GM will make a
capital contribution to Hughes of the same amount. In connection with this
capital contribution, the denominator of the fraction used in the computation of
the ASCNI of Hughes will be increased by the corresponding number of shares of
GM Class H common stock issued. Accordingly, upon conversion of the GM Series H
6.25% Automatically Convertible Preference Stock into GM Class H common stock,
both the numerator and denominator used in the computation of ASCNI will
increase by the amount of the GM Class H common stock issued.
Other Comprehensive Income
The changes in the components of other comprehensive income (loss) are
reported net of income taxes, as follows (in millions):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997
--------------------------- -------------------------- -------------------------
Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net
Amount (Credit) Amount Amount (Credit) Amount Amount (Credit) Amount
------ -------- ------ ------ -------- ------ ------ -------- ------
Foreign currency
translation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
adjustments $(1,519) $(575) $(944) $(280) $(1) $(279) $(1,140) $(448) $(692)
Unrealized gain (loss)
on securities:
Unrealized holding gain 998 372 626 38 (14) 52 272 114 158
Reclassification
adjustment (171) (60) (111) (115) (40) (75) (118) (41) (77)
--- ---- --- --- --- -- --- --- ---
Net unrealized gain
(loss) 827 312 515 (77) (54) (23) 154 73 81
--- ---- --- --- --- --- --- --- ---
Minimum pension
liability adjustment 7,980 3,012 4,968 (1,657) (630) (1,027) (906) (334) (572)
----- ----- ----- ----- --- ----- --- --- ---
Other comprehensive
income (loss)
from continuing
operations $7,288 $2,749 $4,539 $(2,014) $(685) $(1,329) $(1,892) $(709) $(1,183)
===== ===== ===== ===== === ===== ===== === =====
</TABLE>
NOTE 19. Earnings Per Share Attributable to Common Stocks
Earnings per share attributable to each class of GM common stock was
determined based on the attribution of earnings to each such class of common
stock for the period divided by the weighted-average number of common shares for
each such class outstanding during the period. Diluted earnings per share
attributable to each class of GM common stock considers the impact of potential
common shares, unless the inclusion of the potential common shares would have an
antidilutive effect.
The attribution of earnings to each class of GM common stock was as follows
(in millions):
Years Ended December 31,
----------------------------
1999 1998 1997
---- ---- ----
Earnings (losses) attributable to common stocks
$1-2/3 par value
Continuing operations $5,592 $2,914 $6,149
Discontinued operations 426 (93) 127
------ ------ -----
Earnings attributable to $1-2/3 par value $6,018 $2,821 $6,276
===== ===== =====
Class H (prior to its recapitalization on
December 17, 1997)
Continuing operations $ - $ - $234
Discontinued operations - - 88
--- --- ----
Earnings attributable to
Class H (prior to its
recapitalization on
December 17, 1997) $ - $ - $322
=== === ===
(Losses) earnings attributable
to Class H (subsequent
to its recapitalization on
December 17, 1997) $(96) $72 $2
== == =
II-58
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 19. Earnings Per Share Attributable to Common Stocks (continued)
Earnings attributable to $1-2/3 par value common stock for the period
represent the earnings attributable to all GM common stocks for the period,
reduced by the ASCNI of former Hughes and Hughes for the respective period.
Losses attributable to GM Class H common stock for 1999 represent the ASCNI
of Hughes. Losses used for computation of the ASCNI of Hughes are based on the
separate consolidated net income (loss) of Hughes, excluding the effects of GM
purchase accounting adjustments arising from GM's acquisition of HAC which
remains after the spin-off of Hughes Defense, reduced by the amount of dividends
accrued on the Series A Preferred Stock of Hughes (as an equivalent measure of
the effect that GM's payment of dividends on the GM Series H 6.25% Automatically
Convertible Preference Stock would have if paid by Hughes). The calculated loss
used for computation of the ASCNI of Hughes is then multiplied by a fraction,
the numerator of which is equal to the weighted-average number of shares of GM
Class H common stock outstanding during 1999 (125 million), and the denominator
of which is a number equal to the weighted-average number of shares of GM Class
H common stock which if issued and outstanding would represent a 100% interest
in the earnings of Hughes (the "Average Class H dividend base"). The Average
Class H dividend base was 419 million during 1999. Upon conversion of the GM
Series H 6.25% Automatically Convertible Preference Stock into GM Class H common
stock, both the numerator and the denominator used in the computation of ASCNI
will increase by the number of shares of the GM Class H common stock issued.
Earnings attributable to GM Class H common stock for 1998 represent the ASCNI
of Hughes, excluding the effects of GM purchase accounting adjustments arising
from GM's acquisition of HAC which remains after the spin-off of Hughes Defense,
calculated for such period and multiplied by a fraction, the numerator of which
is equal to the weighted-average number of shares of GM Class H common stock
outstanding for 1998 (105 million), and the denominator of which is a number
equal to the weighted-average number of shares of GM Class H common stock which
if issued and outstanding would represent a 100% interest in the earnings of
Hughes. The Average Class H dividend base was 400 million during 1998.
Earnings attributable to GM Class H common stock prior to its
recapitalization on December 17, 1997 represented the ASCNI of former Hughes.
The ASCNI of former Hughes was determined quarterly in amounts equal to the
separate consolidated net income of former Hughes for each respective quarter,
excluding the effects of purchase accounting adjustments arising at the time of
the Corporation's acquisition of HAC, calculated for such period and multiplied
by a fraction, the numerator of which was a number equal to the weighted-average
number of shares of GM Class H common stock outstanding during the quarter (103
million in the fourth quarter of 1997), and the denominator of which was 400
million during the fourth quarter of 1997.
Earnings attributable to GM Class H common stock for the period subsequent to
the recapitalization of GM Class H common stock for 1997 represent the ASCNI of
Hughes for the period December 18, 1997 through December 31, 1997, excluding the
effects of purchase accounting adjustments arising from GM's acquisition of HAC
which remains after the spin-off of Hughes Defense, calculated for such period
and multiplied by a fraction, the numerator of which was a number equal to the
weighted-average number of shares of GM Class H common stock outstanding during
the period (104 million), and the denominator of which was 400 million.
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 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 23 to the GM consolidated financial statements), 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 Restated
Certificate of Incorporation, the GM 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 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.
II-59
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 19. Earnings Per Share Attributable to Common Stocks (continued)
Effective January 1, 1999, shares of GM 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 increase 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 common stock dividend base
(denominator). From time to time, in anticipation of exercises of stock options,
Hughes purchases GM 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.
As of December 31, 1999, as part of GM's $1-2/3 par value common stock
repurchase program, the Corporation entered into a forward contract to purchase
approximately 8.5 million shares of its $1-2/3 par value common stock at a
specified price. This forward contract is structured to give GM the option of
settling the contract in either cash or net shares. Since the forward contract
gives GM this settlement option, it is considered an equity instrument rather
than a derivative instrument for accounting purposes. Changes in fair value of
the forward contract are not recorded and final settlement is recorded in
equity. Upon entering into the contract, GM immediately reduced its common
shares outstanding used to calculate both basic and diluted EPS. The net gain or
loss on the forward contract is included in the calculation of diluted EPS.
II-60
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 19. Earnings Per Share Attributable to Common Stocks (concluded)
The reconciliation of the amounts used in the basic and diluted earnings per
share computations for income from continuing operations was as follows (in
millions except per share amounts):
<TABLE>
<CAPTION>
Class H Common Stock - Class H Common Stock -
Prior to its recapitalization Subsequent to its recapitalization
$1-2/3 Par Value Common Stock on December 17,1997 on December 17, 1997
----------------------------- ------------------------------ -----------------------------------
Per Share Per Share Per Share
Income Shares Amount ASCNI Shares Amount ASCNI Shares Amount
------ ------ ------ ----- ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Income (loss) from
continuing operations $5,657 $(81)
Less:Dividends on
preference stocks 65 15
----- --
Basic EPS
Income (loss) from
continuing operations
attributable to
common stocks 5,592 643 $8.70 (96) 125 $(0.77)
==== ====
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options - 12 - -
----- ---- -- ---
Diluted EPS
Adjusted income (loss)
from continuing
operations attributable
to common stocks $5,592 655 $8.53 $(96) 125 $(0.77)
===== === ==== == === ====
Year ended December 31, 1998
Income from continuing
operations $2,977 $72
Less:Dividends on
preference stocks 63 -
----- --
Basic EPS
Income from continuing
operations attributable
to common stocks 2,914 663 $4.40 72 105 $0.68
==== ====
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options (3) 11 3 4
----- --- -- ---
Diluted EPS
Adjusted income from
continuing operations
attributable to
common stocks $2,911 674 $4.32 $75 109 $0.68
===== === ==== == === ====
Year ended December 31, 1997
Income from continuing
operations $6,247 $234 $2
Less:Premium on exchange
of preference stocks 26 - -
Dividends on
preference stocks 72 - -
----- --- ---
Basic EPS
Income from continuing
operations attributable
to common stocks 6,149 721 $8.52 234 101 $2.30 2 104 $0.02
==== ==== ====
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options (8) 6 8 4 - 3
----- --- --- --- --- ---
Diluted EPS
Adjusted income from
continuing operations
attributable to
common stocks $6,141 727 $8.45 $242 105 $2.30 $2 107 $0.02
===== === ==== === === ==== = === ====
</TABLE>
II-61
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 20. Dividends on Common Stock
In connection with the consummation of the Hughes Transactions, the GM Board
determined that the amount available for the payment of dividends on outstanding
shares of $1-2/3 par value common stock would be the cumulative amount available
for the payment of dividends on $1-2/3 par value common stock immediately prior
to the closing of the Hughes Transactions, reduced by a pro rata portion of the
net reduction in GM's total stockholders' equity resulting from the Hughes
Transactions. In addition, the GM Board determined that the amount initially
available for the payment of dividends on shares of GM Class H common stock
would be the cumulative amount available for the payment of dividends on GM
Class H common stock immediately prior to the closing of the Hughes
Transactions, reduced by a pro rata portion of the net reduction in GM's total
stockholders' equity resulting from the Hughes Transactions. The pro rata
allocation of the net reduction in GM's total stockholders' equity resulting
from the Hughes Transactions was based on the fraction used in determining the
ASCNI of former Hughes immediately prior to the consummation of the Hughes
Transactions.
Dividends may be paid on $1-2/3 par value common stock to the extent of the
amount determined to be available for the payment of dividends on $1-2/3 par
value common stock in connection with the consummation of the Hughes
Transactions, plus all of the earnings of GM after the consummation of the
Hughes Transactions, other than the earnings attributed to the GM Class H common
stock. Dividends may be paid on GM Class H common stock to the extent of the
amount initially determined to be available for the payment of dividends on GM
Class H common stock, plus the portion of earnings of GM after the closing of
the Hughes Transactions attributed to GM Class H common stock. The amount
available for the payment of dividends on each class of common stock will be
reduced from time-to-time by dividends paid on that class and will be adjusted
from time-to-time for changes to the amount of surplus attributed to the class
resulting from the repurchase or issuance of shares of that class.
As of December 31, 1999, the amount available for the payment of dividends on
$1-2/3 par value and GM Class H common stock was $13.7 billion and $5.4 billion,
respectively. Dividends may be paid on common stocks only when, as, and if
declared by the GM Board in its sole discretion. GM's policy is to distribute
dividends on its $1-2/3 par value common stock based on the outlook and
indicated capital needs of the business. The GM Board does not currently intend
to pay cash dividends on the GM Class H common stock, which was recapitalized on
December 17, 1997, as part of the Hughes Transactions.
Cash dividends per share of $1-2/3 par value common stock were $2.00 in 1999,
1998, and 1997. Cash dividends per share for GM Class H common stock, prior to
its recapitalization on December 17, 1997, were $1.00 in 1997.
NOTE 21. Derivative Financial Instruments and Risk Management
GM is a party to financial instruments with off-balance-sheet risk. These
financial instruments are used in the normal course of business to manage
exposure to fluctuations in interest rates and foreign exchange rates, and to
meet the financing needs of its customers.
The primary classes of derivatives used by GM are foreign exchange forward
contracts and options, interest rate swaps and options, and forward contracts to
purchase or sell mortgages or mortgage-backed securities. Those instruments
involve, to varying degrees, market risk, as the instruments are subject to rate
and price fluctuations, and elements of credit risk in the event a counterparty
should default. Credit risk is managed through the approval and periodic
monitoring of financially sound counterparties.
Derivative transactions are used to hedge underlying business exposures.
Market risk in these instruments is offset by opposite movements in the
underlying exposure. Cash receipts or payments on these contracts normally occur
at maturity, or for interest rate swap agreements, at periodic contractually
defined intervals.
Foreign Exchange Forward Contracts and Options
GM is an international corporation with operations in over 50 countries and
has foreign currency exposures at these operations related to buying, selling,
and financing in currencies other than the local currency. GM's most significant
foreign currency exposures relate to Canada, Mexico, Western European countries
(primarily Germany, United Kingdom, Spain, Italy, Belgium, and France),
Australia, Japan, and Brazil. The magnitude of these exposures significantly
varies over time depending upon the strength of local automotive markets and
sourcing decisions.
GM enters into agreements by which it seeks to manage certain of its foreign
exchange exposures in accordance with established policy guidelines, primarily
through foreign exchange forward contracts and purchased and written foreign
exchange options. These agreements primarily hedge cash flows such as debt, firm
commitments, and anticipated transactions involving vehicles, components, fixed
assets, and subsidiary dividends. As a general practice, GM has not hedged the
foreign exchange exposure related to
II-62
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 21. Derivative Financial Instruments and Risk Management (continued)
Foreign Exchange Forward Contracts and Options (concluded)
either the translation of overseas earnings into U.S. dollars, or the
translation of overseas equity positions back to U.S. dollars. At December 31,
1999 and 1998, the Automotive, Communications Services, and Other Operations
held foreign exchange forward contracts of $3.5 billion and $6.3 billion
(including cross-currency swaps of $0 and $70 million), respectively. At
December 31, 1999 and 1998, the Automotive, Communications Services, and Other
Operations had entered into foreign exchange options of $1.0 billion and $2.8
billion, respectively. At December 31, 1999 and 1998, the Financing and
Insurance Operations held foreign exchange forward contracts of $13.3 billion
and $8.0 billion (including cross-currency swaps of $5.2 billion and $3.4
billion), respectively.
The Automotive, Communications Services, and Other Operations had deferred
hedging losses on outstanding foreign exchange forward contracts hedging firm
commitments to purchase inventory or fixed assets totaling $21 million and $3
million at December 31, 1999 and 1998, respectively. Deferred hedging losses on
outstanding purchased foreign exchange option contracts hedging firm and
anticipated transactions to purchase inventory or fixed assets totaled $1
million and $2 million at December 31, 1999 and 1998, respectively. The
Financing and Insurance Operations had deferred hedging gains on outstanding
foreign exchange forward contracts hedging firm commitments to purchase assets
totaling $1 million and $13 million at December 31, 1999 and 1998, respectively.
Such deferred amounts on outstanding foreign exchange forward and option
contracts will be included in the cost of such assets when purchased, and
subsequently recognized in operations as part of the basis of these assets. In
the event the contract is terminated early or the anticipated transaction is no
longer likely to occur, the derivative is then marked to market. Foreign
exchange forward contracts, which hedge foreign exchange exposures of
anticipated inventory, fixed assets, and sales transactions, are marked to
market and recognized with other gains or losses on foreign exchange
transactions in the consolidated statement of income. GM's firm commitments are
typically up to one year and may extend for periods of up to three years.
Interest Rate Swaps and Options
GM's financing and cash management activities subject it to market risk from
exposure to changes in interest rates. GM has entered into various financial
instrument transactions to maintain the desired level of exposure to the risk of
interest rate fluctuations and to minimize interest expense. To achieve this
objective, GM will at times use written options in the management of these
exposures.
In a limited number of cases, interest rate swaps are matched to the
anticipated roll-over of investments, wholesale assets, or debt, and are
executed on a portfolio basis to achieve specific interest rate management
objectives. Swaps are also matched to operating lease payments where interest
rate exposure exists. The differential paid or received on such swaps is
recorded as an adjustment to expense or income over the term of the underlying
agreement or matched portfolio.
Interest rate swaps are contractual agreements between GM and another party
to exchange fixed and floating interest rate payments periodically over the life
of the agreements without the exchange of underlying principal amounts. Interest
rate options, including swaptions and interest rate caps and floors, may result
in the future exchange of interest payments if market interest rates reach
certain levels. At December 31, 1999 and 1998, the total notional amount of such
agreements with off-balance-sheet risk was $1.0 billion and $2.1 billion,
respectively, for the Automotive, Communications Services, and Other Operations.
At December 31, 1999 and 1998, the Financing and Insurance Operations held such
agreements with off-balance-sheet risk with notional amounts totaling $33.4
billion and $20.0 billion, respectively.
Interest rate swaps used to hedge an underlying debt obligation are not
marked to market, but are used to adjust interest expense recognized over the
life of the underlying debt agreement. Gains and losses on terminated interest
rate swaps are deferred and recognized as yield adjustments on the underlying
debt. The Automotive, Communications Services, and Other Operations' unamortized
net gains on interest rate swaps totaled approximately $3 million and $6 million
at December 31, 1999 and 1998, respectively. Unamortized net gains on interest
rate swaps for the Financing and Insurance Operations totaled approximately $45
million and $37 million at December 31, 1999 and 1998, respectively. Written
options, including those embedded in interest rate swaps, written interest rate
caps, interest rate collars, written swaptions, and interest rate swaps that do
not meet settlement accounting criteria are marked to market with related gains
and losses recognized in income on a current basis.
II-63
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 21. Derivative Financial Instruments and Risk Management (concluded)
Mortgage Contracts
GMAC has also entered into contracts to purchase and sell mortgages at
specific future dates and has entered into certain exchange-traded futures and
option contracts to reduce exposure to interest rate risk. At December 31, 1999
and 1998, commitments to sell mortgage loans and securities totaled $1.6 billion
and $6.2 billion, respectively, and commitments to purchase or originate
mortgage loans totaled $4.8 billion and $5.2 billion, respectively. GMAC's
exchange-traded futures and option contracts, which are used to hedge mortgage
loans held for sale, had notional values of $6.3 billion and $5.0 billion at
December 31, 1999 and 1998, respectively. Gains and losses on derivatives,
including exchange-traded futures and option contracts, used to hedge interest
rate risk associated with rate-locked funding commitments and mortgage loans
held for sale, are deferred and considered in the reporting of the underlying
mortgages on a lower of cost or market basis.
The notional values of derivatives used to hedge price and interest rate risk
associated with mortgage-related securities totaled $7.5 billion and $9.7
billion at December 31, 1999 and 1998, respectively. Gains and losses associated
with these instruments are recognized in income in the current period on a
marked to market basis. Derivatives used to hedge mortgage servicing rights had
notional values of $17.2 billion and $65.1 billion at December 31, 1999 and
1998, respectively. Gains and losses on such contracts are recorded as an
adjustment to amortization expense.
GMAC has also entered into interest rate swaps in an effort to stabilize
short-term borrowing costs and to maintain a minimum return on certain mortgage
loans held for investment. Amounts received or paid under such interest rate
swaps are recorded as an adjustment to interest expense. At December 31, 1999
and 1998, the notional values of such instruments totaled $100 million.
Credit Risk
The forward contracts, swaps, options, and lines of credit previously
discussed contain an element of risk that the counterparties may be unable to
meet the terms of the agreements. However, GM minimizes such risk exposure for
forward contracts, swaps, and options by limiting the counterparties to major
international banks and financial institutions that meet established credit
guidelines and by limiting the amount of its risk exposure with any one bank or
financial institution. Management also reduces its credit risk for unused lines
of credit by applying the same credit policies in making commitments as it does
for extending loans. Management does not expect to incur any losses as a result
of counterparty default. GM generally does not require or place collateral for
these financial instruments, except for the lines of credit it extends.
GM has business activities with customers, dealers, and associates around the
world. The Corporation's receivables from, and guarantees to, such parties are
well diversified, and when warranted, are secured by collateral. Consequently,
in management's opinion, no significant concentration of credit risk exists for
GM.
NOTE 22. Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined using
available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value; therefore, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid in a current
market exchange. The effect of using different market assumptions and/or
estimation methodologies may be material to the estimated fair value amounts.
Fair value information presented herein is based on information available at
December 31, 1999 and 1998. Although management is not aware of any factors that
would significantly affect the estimated fair value amounts, such amounts have
not been updated since those dates and, therefore, the current estimates of fair
value at dates subsequent to December 31, 1999 and 1998 may differ significantly
from these amounts.
II-64
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 22. Fair Value of Financial Instruments (continued)
Book and estimated fair values of financial instruments, for which it is
practicable to estimate fair value, were as follows (in millions):
December 31,
------------
1999 1998
---- ----
Book Fair Book Fair
Value Value Value Value
----- ----- ----- -----
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Assets
Cash and marketable securities $11,428 $11,428 $10,130 $10,130
Accounts and notes receivable
(less allowances) $4,901 $4,901 $4,501 $4,501
Other assets $4,450 $4,431 $1,644 $1,659
Liabilities
Accounts payable $17,254 $17,254 $13,542 $13,542
Long-term debt and loans payable
Payable within one year $1,991 $1,991 $1,204 $1,204
Payable beyond one year $7,415 $7,139 $7,118 $7,531
Other liabilities $535 $559 $524 $585
Preferred securities of
subsidiary trusts (Note 17) $218 $206 $220 $226
Financing and Insurance Operations
- ----------------------------------
Assets
Cash and investments in
securities $9,822 $9,822 $8,894 $8,894
Finance receivables - net $80,287 $79,934 $70,258 $70,457
Accounts and notes receivable
(less allowances) $3,218 $3,218 $3,797 $3,797
Other assets $10,484 $10,509 $11,784 $11,808
Liabilities
Accounts payable $4,262 $4,262 $4,148 $4,148
Debt
Payable within one year $66,952 $66,943 $62,396 $62,442
Payable beyond one year $55,330 $53,936 $45,357 $46,600
The prior tables exclude the book values and estimated fair values of
financial instrument derivatives which were as follows (in millions):
Fair Value of Open Contracts at
December 31,
------------
1999 1998
---- ----
Asset Liability Asset Liability
Position Position Position Position
-------- -------- -------- --------
Automotive, Communications Services, and Other Operations (1)
- ---------------------------------------------------------
Foreign exchange forward contracts (2) $13 $83 $126 $107
Foreign exchange options $17 $2 $71 $10
Interest rate swaps $2 $16 $34 $38
Interest rate options $- $2 $- $1
Financing and Insurance Operations (3)
- ----------------------------------
Foreign exchange forward contracts (4) $386 $862 $499 $161
Interest rate swaps $81 $586 $180 $93
Interest rate options $1 $- $- $-
Mortgage contracts $105 $102 $344 $55
See Notes on next page.
II-65
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 22. Fair Value of Financial Instruments (continued)
(1)The related (liability) asset recorded on the balance sheet for foreign
exchange forward contracts, foreign exchange options, interest rate swaps,
and interest rate options totaled $(32) million, $17 million, $(10) million,
and $(2) million, respectively, at December 31, 1999 and $22 million, $62
million, $(7) million, and $(1) million, respectively, at December 31, 1998.
(2)Foreign exchange forward contracts included certain derivatives with both
foreign exchange and interest rate exposures which had a fair value of $0 and
$54 million at December 31, 1999 and 1998, respectively.
(3)The related (liability) asset recorded on the balance sheet for foreign
exchange forward contracts and interest rate swaps totaled $(374) million and
$33 million, respectively, at December 31, 1999. The related asset recorded
on the balance sheet for foreign exchange forward contracts and interest rate
swaps totaled $233 million and $14 million, respectively, at December 31,
1998. The related asset recorded on the balance sheet for mortgage contracts
was $23 million and $284 million at December 31, 1999 and 1998, respectively.
(4)Foreign exchange forward contracts included certain derivatives with both
foreign exchange and interest rate exposures which had a fair value of $(368)
million and $154 million at December 31, 1999 and 1998, respectively.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Marketable Securities
The fair value of cash equivalents and marketable securities was determined
principally based on quoted market prices.
Finance Receivables
The fair value was estimated by discounting the future cash flows using
applicable spreads to approximate current rates applicable to each category of
finance receivables. The carrying value of wholesale receivables and other
receivables whose interest rates adjust on a short-term basis with applicable
market indices (generally the prime rate) were assumed to approximate fair value
either due to their short maturities or due to the interest rate adjustment
feature.
Accounts and Notes Receivable and Accounts Payable
For receivables and payables with short maturities the book values
approximate fair values.
Other Assets and Other Liabilities
Other assets reported at December 31, 1999 and 1998 include various financial
instruments (e.g., long-term receivables and certain investments) that have fair
values based on discounted cash flows, market quotations, and other appropriate
valuation techniques. The fair values of retained subordinated interests in
trusts and excess servicing assets (net of deferred costs) were derived by
discounting expected cash flows using current market rates. Estimated values of
Industrial Development Bonds, included in other liabilities, were based on
quoted market prices for the same or similar issues.
Debt and Loans Payable
The fair value of the debt payable within one year was determined by using
quoted market prices, if available, or by calculating the estimated value of
each bank loan, note, or debenture in the portfolio at the applicable rate in
effect. Commercial paper, master notes, and demand notes have an original term
of less than 90 days and; therefore, the carrying amounts of these liabilities
were considered their fair values. Debt payable beyond one year has an estimated
fair value based on quoted market prices for the same or similar issues or based
on the current rates offered to GM for debt of similar remaining maturities.
Foreign Exchange Forward Contracts and Options
The fair value of foreign exchange forward contracts was determined by using
current exchange rates. The fair value of foreign exchange options was estimated
using pricing models with indicative quotes obtained for the market variables.
Preferred Securities of Subsidiary Trusts
The fair value of the GM-obligated mandatorily redeemable preferred
securities of subsidiary trusts (see Note 17 to the GM consolidated financial
statements) was determined based on quoted market prices.
II-66
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 22. Fair Value of Financial Instruments (concluded)
Interest Rate Swaps and Options
The fair value of interest rate swaps, including contracts with optionality,
was estimated using pricing models based upon current market interest rates.
Exchange traded options are valued at quoted market prices.
Mortgage Contracts
The fair value of mortgage contracts was estimated based upon the amount that
would be received or paid to terminate the contracts based on market prices of
similar financial instruments and current rates for mortgage loans.
Unused Lines of Credit
Because loans extended under these commitments are at market interest rates,
there is no significant fair value position related to the outstanding
commitments.
NOTE 23. Acquisitions and Investments
On April 28, 1999, Hughes completed the acquisition of PRIMESTAR's 2.3
million subscriber medium-power direct-to-home satellite business. The purchase
price consisted of $1.1 billion in cash and 4.9 million shares of GM Class H
common stock, for a total purchase price of $1.3 billion. As part of the
agreement to acquire PRIMESTAR, Hughes agreed to purchase the high-power
satellite assets and related orbital frequencies of Tempo Satellite Inc., a
wholly-owned subsidiary of TCI Satellite Entertainment Inc.
In December 1998, Hughes agreed to acquire by merger 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 USSB acquisition was closed on May 20,
1999. On July 6, 1999, based upon elections made by the former USSB
shareholders, Hughes paid approximately $360 million in cash and issued
approximately 22.6 million shares of GM Class H common stock, for a total
purchase price of approximately $1.6 billion.
On July 22, 1999, GMAC completed the acquisition of the asset-based lending
and factoring business unit of The Bank of New York (BNYFC) for consideration of
approximately $1.8 billion. This purchase expands GMAC's existing asset-based
lending internationally and enables them to enter the factoring business in a
substantial way. GMAC also completed the acquisition of the full-service leasing
business of Arriva Automotive Solutions Limited (Arriva) on July 30, 1999, which
was valued at (pound)484 million (approximately $775 million at the July 30,
1999 exchange rate), which included debt refinancing.
The financial information presented as of and for the periods ended December
31, 1999 reflects the effects of the PRIMESTAR, Tempo Satellite, USSB, BNYFC,
and Arriva 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 December 31, 1999
financial statements reflect a preliminary allocation of the PRIMESTAR purchase
price for the transactions based upon information currently available.
Adjustments relating to the tangible assets, including equipment located on
customer premises; intangible assets, including customer lists and dealer
network; 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
foregoing appraisals, review, and analysis are expected to be completed by March
31, 2000. Accordingly, the final purchase price allocations may be different
from the amounts reflected herein.
As the GM 1999 financial statements include only USSB's, PRIMESTAR's,
BNYFC's, and Arriva's results of operations since their dates of acquisition,
the following selected unaudited pro forma information is provided to present a
summary of the combined results of GM, USSB, PRIMESTAR, BNYFC, and Arriva 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 GM had USSB, PRIMESTAR, BNYFC,
II-67
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 23. Acquisitions and Investments (concluded)
and Arriva operated as part of GM for the entire years ended December 31, 1999
and December 31, 1998, nor are they necessarily indicative of the results of
future operations. The pro forma information excludes the effect of
non-recurring charges.
The pro forma information is as follows (in millions except per share
amounts):
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- ------------------
Total net sales and revenues $178,070 $158,037
Net income from continuing operations $5,589 $2,951
Net income (loss) from discontinued operations 426 (93)
------ ------
Net income $6,015 $2,858
===== =====
Basic earnings (losses) per share
attributable to common stocks
$1-2/3 par value
Continuing operations $8.73 $4.28
Discontinued operations 0.66 (0.14)
---- ----
Earnings per share attributable
to $1-2/3 par value $9.39 $4.14
==== ====
(Losses) earnings per share
attributable to Class H $(0.76) $0.40
==== ====
Diluted earnings (losses) per share
attributable to common stocks
$1-2/3 par value
Continuing operations $8.56 $4.20
Discontinued operations 0.65 (0.14)
---- ----
Earnings per share attributable
to $1-2/3 par value $9.21 $4.06
==== ====
(Losses) earnings per share
attributable to Class H $(0.76) $0.40
==== ====
Separately, on March 2, 1999, GM invested an additional $440 million in Isuzu
Motors Ltd. (Isuzu), taking its common ownership interest in Isuzu to 49%. GM
has arranged for appraisals, valuations, and other studies to be performed to
aid in the allocation of the $440 million investment to its interest in Isuzu.
This allocation is expected to be completed in the first quarter of 2000.
On March 9, 1999, GMAC completed the acquisition of the majority interest in
On:Line Finance Holdings and its subsidiaries. On:Line Finance is one of the
largest independent retail used car finance providers in the United Kingdom. The
acquisition expanded GMAC's range of finance products available through dealers
to automotive customers.
On July 28, 1999, Galaxy Latin America, LLC (GLA), a subsidiary of Hughes,
acquired Galaxy Brasil, Ltda., the exclusive distributor of DIRECTV services in
Brazil, from Tevecap S.A. for approximately $114 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 of Companies, the remaining GLA partners
which increased Hughes' ownership interest in GLA to 77.8%. As part of the
transaction, Hughes also increased its ownership interest in SurFin from 59.1%
to 75.0%. The total consideration paid in the transactions amounted to
approximately $101 million.
In September and November of 1999, DIRECTV Japan raised approximately $281
million in total through the issuance of bonds, convertible into common stock,
to five of its major shareholders, including approximately $245 million issued
to Hughes (see Note 27 to the GM consolidated financial statements).
II-68
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 24. Stock Incentive Plans
Stock-Based Compensation
GM accounts for stock-based compensation consistent with SFAS No. 123,
Accounting for Stock-Based Compensation, and, as permitted by this standard,
will continue to apply the recognition and measurement principles of Accounting
Principles Board Opinion No. 25 to its stock options and other stock-based
employee compensation awards.
If compensation cost for stock options and other stock-based employee
compensation awards had been determined based on the fair value at the grant
date, consistent with the method prescribed by SFAS No. 123, GM's pro forma net
income, earnings attributable to common stocks, and basic and diluted earnings
per share attributable to common stocks would have been as follows (in millions
except per share amounts):
1999 1998 1997
---- ---- ----
Net income - as reported $6,002 $2,956 $6,698
- pro forma $5,791 $2,763 $6,558
Earnings (losses) attributable to common stocks
$1-2/3 - as reported $6,018 $2,821 $6,276
- pro forma $5,826 $2,648 $6,147
Class H (prior to recapitalization)
- as reported $ - $ - $322
- pro forma $ - $ - $315
Class H (subsequent to recapitalization)
- as reported $(96) $72 $2
- pro forma $(115) $52 $(2)
Basic earnings (losses) per share attributable to common stocks
$1-2/3 - as reported $9.36 $4.26 $8.70
- pro forma $9.06 $4.00 $8.52
Class H (prior to recapitalization)
- as reported $ - $ - $3.17
- pro forma $ - $ - $3.10
Class H (subsequent to recapitalization)
- as reported $(0.77) $0.68 $0.02
- pro forma $(0.92) $0.49 $(0.02)
Diluted earnings (losses) per share attributable to
common stocks
$1-2/3 - as reported $9.18 $4.18 $8.62
- pro forma $8.89 $3.92 $8.44
Class H (prior to recapitalization)
- as reported $ - $ - $3.17
- pro forma $ - $ - $3.10
Class H (subsequent to recapitalization)
- as reported $(0.77) $0.68 $0.02
- pro forma $(0.92) $0.49 $(0.02)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option- pricing model with the following weighted-average
assumptions:
1999 1998 1997
---- ---- ----
Hughes Hughes Hughes
GMSIP Plan GMSSOP GMSIP Plan GMSSOP GMSIP Plan
----- ---- ------ ----- ---- ------ ----- ----
Interest rate 4.8% 5.2% 4.8% 5.2% 5.6% 5.2% 6.2% 6.8%
Expected life
(years) 5.0 7.0 5.0 5.0 6.2 5.0 5.0 7.0
Expected
volatility 27.9% 38.0% 27.9% 6.2% 32.8% 26.2% 26.3% 20.7%
Dividend yield 2.3% - 2.3% 3.6% - 3.6% 3.4% 2.1%
II-69
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 24. Stock Incentive Plans (continued)
The effects of the Hughes Transactions and Delphi spin-off adjustments on the
number of options and related exercise prices, as described below, are
considered, under SFAS No. 123, to be modifications of the terms of the
outstanding options. Accordingly, the pro forma disclosure includes compensation
cost for the incremental fair value, under SFAS No. 123, resulting from such
modifications. The pro forma amounts for compensation cost are not indicative of
the effects on operating results for future periods.
GM's stock incentive plans consist of the General Motors 1997 Stock Incentive
Plan, formerly the General Motors Amended Stock Incentive Plan (the "GMSIP"),
the Hughes Electronics Corporation Incentive Plan (the "Hughes Plan"), and the
General Motors 1998 Salaried Stock Option Plan (the "GMSSOP"). The GMSIP and
GMSSOP are administered by the Executive Compensation Committee of the GM Board.
The Hughes Plan is administered by the Executive Compensation Committee of the
Board of Directors of Hughes.
Under the GMSIP, 60 million shares of $1-2/3 par value and 2.5 million
shares of GM Class H common stocks may be granted from June 1, 1997 through May
31, 2002, of which approximately 38.2 million and 2.4 million were available for
grants at December 31, 1999. Options granted prior to 1997 under the GMSIP
generally are exercisable one-half after one year and one-half after two years
from the dates of grant. Stock option grants awarded since 1997 vest ratably
over three years following the grant date. Option prices are 100% of fair market
value on the dates of grant and the options generally expire 10 years from the
dates of grant, subject to earlier termination under certain conditions.
Under the Hughes Plan, Hughes may grant shares, rights, or options to acquire
up to 77.6 million shares of GM Class H common stock through December 31, 1999,
of which 43.1 million were available for grants at December 31, 1999. Option
prices are 100% of fair market value on the dates of grant and the options
generally vest over two to four years and expire 10 years from the dates of
grant, subject to earlier termination under certain conditions.
Under the GMSSOP, 50 million shares of $1-2/3 par value may be granted from
January 1, 1998 through December 31, 2007, of which approximately 42.5 million
were available for grants at December 31, 1999. Stock options are exercisable
two years from the date of grant and vest one year following the date of grant,
subject to earlier termination under certain conditions. Option prices are 100%
of fair market value on the dates of grant and the options generally expire 10
years and two days from the dates of grant.
In connection with the Delphi spin-off and the Hughes Transactions, the
number of options and related exercise prices for outstanding options under the
affected plans were adjusted to reflect the change in the fair market value of
$1-2/3 par value and GM Class H common stocks that resulted from these
transactions. The number of shares under option and the exercise price were
adjusted such that the aggregate intrinsic value of the options immediately
before and immediately after the transactions remained unchanged.
II-70
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 24. Stock Incentive Plans (concluded)
Changes in the status of outstanding options were as follows:
GMSIP and
GMSIP Hughes Plan
$1-2/3 Class H GMSSOP
Par Value Common Common $1-2/3 Par Value Common
----------------- ---------------- --------------------
Weighted- Weighted- Weighted
Shares Average Shares Average Shares Average
under Exercise under Exercise under Exercise
Option Price Option Price Option Price
- -------------------------------------------------------------------------------
Options outstanding at
January 1,
1997 29,957,947 $46.94 8,699,803 $35.51 - $ -
Granted 8,989,460 $58.81 5,750,600 $54.90 - $ -
Exercised 9,273,674 $42.95 2,158,728 $30.21 - $ -
Terminated 330,727 $57.05 2,694,982 $42.56 - $ -
Hughes Transactions
adjustment 3,023,651 $ - 5,897,936 $ - - $ -
- -------------------------------------------------------------------------------
Options outstanding at
December 31,
1997 32,366,657 $51.40 15,494,629 $28.70 - $ -
- -------------------------------------------------------------------------------
Granted 9,854,805 $56.14 4,234,620 $50.78 4,332,305 $56.00
Exercised 8,242,624 $44.08 2,055,168 $22.71 - $ -
Terminated 454,558 $54.45 980,464 $31.95 328,630 $56.00
- -------------------------------------------------------------------------------
Options outstanding at
December 31,
1998 33,524,280 $50.72 16,693,617 $34.85 4,003,675 $56.00
- -------------------------------------------------------------------------------
Granted 9,811,209 $85.79 5,092,420 $48.14 4,473,610 $85.97
Exercised 7,902,380 $46.04 3,599,373 $29.50 - $ -
Terminated 3,198,739 $55.25 1,431,582 $40.46 2,271,557 $73.53
Delphi Spin-Off
adjustment 6,774,777 $ - - $ - 1,288,914 $ -
- -------------------------------------------------------------------------------
Options outstanding at
December 31,
1999 39,009,147 $51.30 16,755,082 $39.29 7,494,642 $58.72
- -------------------------------------------------------------------------------
Options exercisable at
December 31,
1999 18,933,705 $41.47 6,669,761 $32.94 - $ -
- -------------------------------------------------------------------------------
The following table summarizes information about GM's stock option plans at
December 31, 1999:
Weighted-
Average Weighted- Weighted-
Range of Options Remaining Avgerage Options Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices Life (yrs.) Price Price
----------------------------------------------------------------------------
GMSIP $1-2/3
Par Value
Common
$13.00 to 3,802,169 3.9 $31.24 3,802,169 $31.24
$39.99
40.00 to 23,686,915 6.9 $44.74 15,094,567 $44.01
49.99
50.00 to 11,520,063 9.0 $71.42 36,969 $55.51
77.50
----------------------------------------------------------------------------
$13.00 to 39,009,147 7.2 $51.30 18,933,705 $41.47
$77.50
----------------------------------------------------------------------------
GMSIP and
Hughes Plan
Class H Common
$9.86 to 420,990 2.9 $15.18 420,990 $15.18
$20.00
20.01 to 952,192 5.0 $22.30 952,192 $22.30
30.00
30.01 to 7,083,140 7.1 $31.94 4,247,148 $32.30
40.00
40.01 to 5,661,920 9.0 $46.32 17,712 $47.63
50.00
50.01 to 2,636,840 8.5 $55.78 1,031,719 $54.79
85.72
----------------------------------------------------------------------------
$9.86 to 16,755,082 7.7 $39.29 6,669,761 $32.94
$85.72
----------------------------------------------------------------------------
GMSSOP $1-2/3
Par Value
Common
$46.59 3,848,682 8.0 $46.59 - $ -
$71.53 3,645,960 9.0 $71.53 - $ -
----------------------------------------------------------------------------
$46.59 to 7,494,642 8.5 $58.72 - $ -
$71.53
----------------------------------------------------------------------------
II-71
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 25. Other Income and Other Expenses
Other income and other expenses consisted of the following (in millions):
Years Ended December 31,
----------------------------
1999 1998 1997
---- ---- ----
Other income
Interest income $2,248 $2,105 $2,127
Insurance premiums 1,339 1,426 1,161
Rental car lease revenue 1,765 1,229 1,137
Mortgage operations investment income and
servicing fees 2,742 1,836 1,525
Gain on Hughes Defense spin-off - - 4,269
Other 1,095 988 1,456
----- ------ ------
Total other income $9,189 $7,584 $11,675
===== ===== ======
Other expenses
Provision for financing losses $404 $463 $523
Insurance losses and loss adjustment expenses 882 1,013 747
Other 503 792 210
----- ----- -----
Total other expenses $1,789 $2,268 $1,480
===== ===== =====
NOTE 26: Segment Reporting
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, established standards for reporting information about operating
segments in financial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. GM's
chief operating decision maker is the Chairman and Chief Executive Officer. The
operating segments are managed separately because each operating segment
represents a strategic business unit that offers different products and serves
different markets.
GM's reportable operating segments within its Automotive, Communications
Services, and Other Operations business consist of General Motors Automotive
(GMA), which is comprised of four regions: GM North America (GMNA), GM Europe
(GME), GM Asia/Pacific (GMAP), and GM Latin America/Africa/Mid-East (GMLAAM),
Hughes, and Other. GMNA designs, manufactures, and markets vehicles primarily in
North America under the following nameplates: Chevrolet, Pontiac, GMC,
Oldsmobile, Buick, Cadillac, and Saturn. GME, GMAP, and GMLAAM meet the demands
of customers outside North America with vehicles designed, manufactured, and
marketed under the following nameplates: Opel, Vauxhall, Holden, Isuzu, Saab,
Buick, Chevrolet, GMC, and Cadillac. Hughes includes activities relating to
digital entertainment, information and communications services, and
satellite-based private business networks. The Other segment includes the
design, manufacturing and marketing of locomotives and heavy-duty transmissions,
the elimination of intersegment transactions, and certain non-segment specific
revenues and expenditures, as well as former Hughes' defense business prior to
the Hughes Transactions. GM's reportable operating segments within its Financing
and Insurance Operations business consist of GMAC and Other. GMAC provides a
broad range of financial services, including consumer vehicle financing,
full-service leasing and fleet leasing, dealer financing, car and truck extended
service contracts, residential and commercial mortgage services, commercial,
vehicle and homeowners' insurance, and asset-based lending. The Financing and
Insurance Operations' Other segment includes financing entities operating in
Canada, Germany, and Brazil which are not associated with GMAC.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
disaggregated financial results have been prepared using a management approach,
which is consistent with the basis and manner in which GM management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. GM evaluates performance based on stand-alone
operating segment net income and generally accounts for intersegment sales and
transfers as if the sales or transfers were to third parties, that is, at
current market prices. Revenues are attributed to geographic areas based on the
location of the assets producing the revenues.
II-72
<PAGE>
<TABLE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 26. Segment Reporting (continued)
<CAPTION>
Elimin- Total Other Total
GMNA GME GMLAAM GMAP ations GMA Hughes Other Automotive GMAC Financing Financing
---- --- ------ ---- ------ --- ------ ----- ---------- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions)
1999
Manufactured products
sales and revenues:
External customers $110,388 $24,646 $4,445 $2,706 $ - $142,185 $7,325 $3,125 $152,635 $ - $ - $ -
Intersegment 1,602 1,025 234 336 (3,197) - 16 (16) - - - -
------- ------ ----- ----- ----- ------- ----- ----- ------- -- -- --
Total manufactured
products 111,990 25,671 4,679 3,042 (3,197 142,185 7,341 3,109 152,635 - - -
Financing revenue - - - - - - - - - 13,778 956 14,734
Other income 3,142 554 30 145 - 3,871 253 (652) 3,472 6,440 (723) 5,717
------- ------ ----- ----- ----- ------- ----- ----- ------- ------ --- ------
Total net sales
and revenues $115,132 $26,225 $4,709 $3,187 $(3,197) $146,056 $7,594 $2,457 $156,107 $20,218 $233 $20,451
======= ====== ===== ===== ===== ======= ===== ===== ======= ====== === ======
Depreciation and
amortization $4,457 $1,086 $228 $154 $ - $5,925 $706(c) $242 $6,873 $5,136 $309 $5,445
Interest income $929 $433 $45 $8 $ - $1,415 $27 $(673) $769 $1,744 $(265) $1,479
Interest expense $1,224 $337 $95 $11 $(1) $1,666 $123 $(961) $828 $6,526 $396 $6,922
Income tax expense
(benefit) $2,339 $220 $(156) $(7) $22 $2,418 $(194) $(57) $2,167 $960 $(9) $951
(Losses) earnings of
nonconsolidated
associates $(31) $1 $45 $(149) $1 $(133) $(189) $(3) $(325) $(1) $1 $ -
Net income (loss) $4,822 $423 $(81) $(218) $35 $4,981 $(270)(c) $(243)(b) $4,468 $1,527 $7 $1,534
Investments in
nonconsolidated
affiliates $746 $52 $332 $926 $(207) $1,849 $(11) $(127) $1,711 $2,257 $(2,257) $-
Segment assets $84,046 $18,156 $4,102 $1,343 $(1,195) $106,452$18,841 $268 $125,561$148,789 $380 $149,169
Expenditures for
property $4,604 $1,228 $358 $150 $ - $6,340 $472(d) $249 $7,061 $321 $2 $323
1998
Manufactured products
sales and revenues:
External customers $91,771 $23,948 $7,150 $2,814 $ - $125,683 $5,924 $2,669 $134,276 $ - $ - $ -
Intersegment 2,430 1,088 253 109 (3,880) - 40 (40) - - - -
------ ------- ----- ----- ----- ------- ----- ----- ------- --- --- ---
Total manufactured
products 94,201 25,036 7,403 2,923 (3,880) 125,683 5,964 2,629 134,276 - - -
Financing revenue - - - - - - - - - 12,731 854 13,585
Other income 2,296 804 150 121 - 3,371 131 (617) 2,885 5,183 (484) 4,699
------ ------ ----- ----- ----- ------- ----- ----- ------- ------ --- -------
Total net sales
and revenues $96,497 $25,840 $7,553 $3,044 $(3,880) $129,054 $6,095 $2,012 $137,161 $17,914 $370 $18,284
====== ====== ===== ===== ===== ======= ===== ===== ======= ====== === ======
Depreciation and
amortization $4,138 $1,102 $366 $95 $ - $5,701 $434(c) $92 $6,227 $4,812 $108 $4,920
Interest income $537 $544 $116 $9 $ - $1,206 $112 $(592) $726 $1,524 $(145) $1,379
Interest expense $939 $433 $92 $7 $ - $1,471 $18 $(703) $786 $5,787 $56 $5,843
Income tax expense
(benefit) $787 $319 $(213) $9 $ - $902 $(45) $161 $1,018 $612 $6 $618
Earnings (losses) of
nonconsolidated
associates $14 $(14) $102 $(152) $ - $(50) $(128) $(61) $(239) $ - $ - $ -
Net income (loss) $1,635 $419 $(175) $(243) $(2) $1,634 $272(c) $(372)(b) $1,534 $1,325 $97 $1,422
Investments in
nonconsolidated
affiliates $675 $262 $445 $395 $(261) $1,516 $41 $(607) $950 $557 $(557) $ -
Segment assets $68,026 $18,440 $5,548 $1,557 $(2,261) $91,310$13,008 $10,276 $114,594$131,760 $334 $132,094
Expenditures for
property $5,464 $1,205 $534 $197 $ - $7,400 $344(d) $208 $7,952 $279 $ - $279
</TABLE>
See notes on next page
II-73
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
<TABLE>
NOTE 26. Segment Reporting (continued)
<CAPTION>
Elimin- Total Other Total
GMNA GME GMLAAM GMAP ations GMA Hughes Other Automotive GMAC Financing Financing
---- --- ------ ---- ------ --- ------ ----- ---------- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions)
1997(a)
Manufactured products
sales and revenues:
External customers $99,435 $23,269 $8,437 $2,980 $ - $134,121 $5,083 $8,939 $148,143 $ - $ - $ -
Intersegment 821 837 135 - (1,793) - 45 (45) - - - -
------ ------ ----- ----- ----- ------- ----- ----- ------- ------ --- -------
Total manufactured
products 100,256 24,106 8,572 2,980 (1,793) 134,121 5,128 8,894 148,143 - - -
Financing revenue - - - - - - - - - 12,577 185 12,762
Other income 2,372 812 212 158 - 3,554 496 3,902 7,952 4,018 (295) 3,723
------ ------ ----- ----- ----- ------- ----- ----- ------- ------ --- -------
Total net sales
and revenues $102,628 $24,918 $8,784 $3,138 $(1,793 $137,675 $5,624 $12,796 $156,095 $16,595 $(110) $16,485
======= ====== ===== ===== ===== ======= ===== ====== ======= ====== === ======
Depreciation and
amortization $7,116 $1,563 $248 $294 $ - $9,221 $296(c) $316 $9,833 $4,746 $67 $4,813
Interest income $839 $549 $167 $10 $ - $1,565 $33 $(489) $1,109 $1,127 $(109) $1,018
Interest expense $643 $395 $118 $23 $(1) $1,178 $91 $(636) $633 $5,256 $(6) $5,250
Income tax (benefit)
expense $(272) $121 $43 $(29) $(12) $(149) $237 $23 $111 $913 $1 $914
(Losses) earnings of
nonconsolidated
associates $(35) $(171) $173 $11 $ - $(22) $(72) $(11) $(105) $ - $ - $ -
Net (loss) income $(12) $(17) $667 $(172) $(17) $449 $471(c) $4,460(b) $5,380 $1,301 $17 $1,318
Investments in
nonconsolidated
affiliates $552 $229 $414 $427 $1 $1,623 $75 $(638) $1,060 $213 $(213) $ -
Segment assets $68,361 $17,582 $5,651 $1,567 $(874) $92,287$12,283 $8,746 $113,316$109,686 $(1,235) $108,451
Expenditures for
property $5,387 $1,687 $435 $327 $ - $7,836 $251(d) $322 $8,409 $238 $ - $238
</TABLE>
(a)The operating results for 1997 are presented to reflect the changes to GM's
organizational structure resulting from the Hughes Transactions which
occurred in December 1997. As such, Hughes excludes Hughes Defense and Other
includes Hughes Defense.
(b)Other includes the $4.3 billion gain resulting from the Hughes Transactions
for the year ended December 31, 1997, and income (loss) from discontinued
operations related to Delphi of $426 million, $(93) million, and $215 million
for the years ended December 31, 1999, 1998, and 1997, respectively.
(c)The amount reported for Hughes excludes amortization of GM purchase
accounting adjustments of approximately $21 million for 1999, 1998, and 1997
related to GM's acquisition of Hughes Aircraft Company. Such amortization was
allocated to GM's Other segment which is consistent with the basis upon which
the segments are evaluated.
(d)Excludes expenditures related to Satellite Services and Direct-To-Home
Broadcast totaling $669 million, $797 million, and $606 million in 1999,
1998, and 1997, respectively. Also excludes expenditures related to the early
buy-out of satellite sale-leasebacks totaling $370 million and $156 million
in 1999 and 1998, respectively.
II-74
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 26. Segment Reporting (concluded)
Information concerning principal geographic areas was as follows (in
millions):
1999 1998 1997
--------------- --------------- -----------------
Net Sales Net Sales Net Sales
& Net & Net & Net
Revenues Property Revenues Property Revenues Property
-------- -------- -------- -------- -------- --------
North America
United States $130,073 $20,634 $105,672 $19,454 $131,076 $17,592
Canada and Mexico 12,661 3,760 11,009 2,358 7,953 2,506
-------- ------- ------- ------ -------- ------
Total North America 142,734 24,394 116,681 21,812 139,029 20,098
Europe
France 2,130 151 2,042 186 1,327 157
Germany 8,968 2,912 10,567 3,349 9,358 2,902
Spain 2,001 542 1,966 422 1,185 480
United Kingdom 5,390 1,070 5,379 1,192 5,085 1,176
Other 9,407 1,635 9,679 1,748 7,854 1,566
------- ----- ------- ----- ------- -----
Total Europe 27,896 6,310 29,633 6,897 24,809 6,281
Latin America
Brazil 2,830 1,409 4,773 1,879 4,719 1,873
Other Latin America 1,686 403 2,909 409 2,914 440
----- ----- ----- ----- ----- ------
Total Latin America 4,516 1,812 7,682 2,288 7,633 2,313
All Other 1,412 759 1,449 1,611 1,109 888
------- ------ ------- ------ ------- ------
Total $176,558 $33,275 $155,445 $32,608 $172,580 $29,580
======= ====== ======= ====== ======= ======
NOTE 27. Subsequent Events
On January 10, 2000, GM announced that it intends to exercise the option to
buy the remaining 50% of Saab Automobile AB (Saab) from Investor A.B. by the end
of January 2000. On January 28, 2000, the acquisition of the remaining 50% of
Saab was completed for $125 million and has been accounted for using the
purchase method of accounting.
On January 13, 2000, Hughes announced that it had reached an agreement to
sell its satellite systems manufacturing businesses to The Boeing Company
(Boeing) for $3.8 billion in cash. The transaction, which is subject to
regulatory approval, is expected to close in the second or third quarter of
2000. In addition, if Hughes were to enter into a settlement of the China
investigation (see Note 16 to the GM consolidated financial statements) prior to
the closing of the Boeing transaction that involves a debarment from sales to
the U.S. government or a material suspension of Hughes' export licenses or other
material limitation on projected business activities of the satellite systems
manufacturing businesses, Boeing would not be obligated to complete the purchase
of Hughes' satellite systems manufacturing businesses.
Also, on January 13, 2000, Hughes announced the discontinuation of its mobile
cellular and narrowband local loop product lines at Hughes Network Systems. As a
result of this decision, Hughes recorded a fourth quarter 1999 pre-tax charge to
continuing operations of $272 million. The charge represents the write-off of
receivables and inventories, licenses, software, and equipment with no
alternative use.
Echostar Communications Corporation and others commenced an action in the
United States District Court in Colorado on February 1, 2000 against DIRECTV,
Hughes Network Systems, and Thomson Consumer Electronic, Inc. seeking, among
other things, injunctive relief and unspecified damages, including treble
damages, in connection with allegations that the defendants have entered into
agreements with retailers and program providers and engage in other conduct that
violates the antitrust laws and constitutes unfair competition. DIRECTV believes
that the complaint is without merit and intends to vigorously defend against the
allegations raised. Although an amount of loss, if any, cannot be estimated at
this time, an unfavorable outcome could be reached that could be material to
Hughes' results of operations or financial position.
On February 1, 2000, GM announced it will offer to repurchase $1-2/3 par
value common stock in exchange for $8.0 billion of GM Class H common stock, and
contribute up to $7.0 billion in GM Class H common stock to its U.S. Hourly-Rate
Employee Pension Plan and VEBA trust. In connection with these transactions, GM
will issue approximately $15.0 billion of GM Class H common stock. GM expects to
complete this proposed transaction during the second quarter of 2000.
On March 1, 2000, Hughes announced that DIRECTV Japan's operations will be
discontinued and that its subscribers would migrate to SkyPerfecTV, a Japanese
company providing direct-to-home satellite broadcasting. As a result of this
transaction, Hughes will acquire a 6.8% interest in SkyPerfecTV, which is
expected to complete an IPO during its fiscal year ending March 31, 2001. Hughes
will be required to fund a substantial portion of the costs to be incurred over
the next six to nine months to exit the DIRECTV Japan business. Hughes will
accrue such exit costs during the first quarter of fiscal 2000. The first
quarter charge will be offset by the fair value of the SkyPerfecTV interest
received; however, the amounts are not yet estimable. In addition, Hughes will
continue to record its share of DIRECTV Japan's operating losses during
fiscal 2000.
II-75
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded
NOTE 27. Subsequent Events (concluded)
On March 6, 2000, GM announced that it will seek stockholder approval to
increase the number of authorized shares of GM Class H common stock from 600
million to 3.6 billion shares. If approved, GM expects to declare a stock split
of the GM Class H common stock in the form of a stock dividend shortly after the
annual stockholders' meeting held in June 2000.
On March 7, 2000, GM announced that it intends to redeem approximately 3
million outstanding Series-D 7.92% Depositary Shares and approximately 3.1
million outstanding Series-D 8.67% TOPrSsm on May 2, 2000. The securities
together have a total face value of approximately $150 million. The Series-D
7.92% Depositary Shares will be redeemed at a price of $25 per share, plus
accrued and unpaid dividends of $0.18 per share. The Series-D 8.67% TOPrSsm will
be redeemed at a price of $25 per security, plus an accrued and unpaid
distribution of $0.01 per share (see Note 17 to the GM consolidated financial
statements).
* * * * * * * *
II-76
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited)
1999 Quarters
------------------------------------------
1st 2nd 3rd 4th (1)
--- --- --- ---
(Dollars in Millions Except Per Share Amounts)
Total net sales and revenues $42,435 $45,067 $42,794 $46,262
------ ------ ------ ------
Income from continuing operations
before income taxes
and minority interests $2,940 $2,784 $1,518 $1,805
Income tax expense 1,029 956 553 580
Minority interests (14) (7) (7) -
Losses of nonconsolidated associates (77) (87) (81) (80)
------ ------ ---- ------
Income from continuing operations 1,820 1,734 877 1,145
Income from discontinued operations 242 184 - -
----- ----- ----- --------
Net income 2,062 1,918 877 1,145
Dividends on preference stocks (16) (7) (28) (29)
----- ------- ---- ------
Earnings attributable to
common stocks $2,046 $1,911 $849 $1,116
===== ===== === =====
Earnings (losses) attributable
to common stocks
$1-2/3 par value
Continuing operations $1,783 $1,754 $866 $1,196
Discontinued operations 242 184 - -
----- ----- ------ --------
Earnings attributable to
$1-2/3 par value $2,025 $1,938 $866 $1,196
===== ===== === =====
Earnings (losses) attributable
to Class H $21 $(27) $(17) $(80)
== == == ==
Basic earnings (losses) per share
attributable to common stocks
$1-2/3 par value
Continuing operations $2.73 $2.71 $1.35 $1.90
Discontinued operations 0.37 0.28 - -
---- ---- ------ ------
Earnings per share attributable
to $1-2/3 par value $3.10 $2.99 $1.35 $1.90
==== ==== ==== ====
Earnings (losses) per share
attributable to Class H $0.20 $(0.23) $(0.13) $(0.58)
==== ==== ==== ====
Average number of shares of common stocks
outstanding - basic (in millions)
$1-2/3 par value 654 648 641 630
Class H 106 121 135 136
Diluted earnings (losses) per share attributable to common stocks
$1-2/3 par value
Continuing operations $2.68 $2.66 $1.33 $1.86
Discontinued operations 0.36 0.28 - -
---- ---- ---- -----
Earnings per share attributable
to $1-2/3 par value $3.04 $2.94 $1.33 $1.86
==== ==== ==== ====
Earnings (losses) per share
attributable to Class H $0.19 $(0.23) $(0.13) $(0.58)
==== ==== ==== ====
Average number of shares of common stocks
outstanding - diluted (in millions)
$1-2/3 par value 667 660 652 643
Class H 112 121 135 136
II-77
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - continued
Selected Quarterly Data (Unaudited) - continued
(1) Fourth quarter 1999 results were impacted by net charges against income
from continuing operations of $110 million or $0.09 per share of $1-2/3 par
value common stock which consisted of the following special items:
An increase to income of $892 million ($553 million after-tax, or $0.86
earnings per share of $1-2/3 par value common stock) related to the
reversal of a liability for benefits payable to excess U.S. hourly
employees (see Note 4 to the GM consolidated financial statements);
A charge of $658 million ($408 million after-tax, or $0.63 loss per share
of $1-2/3 par value common stock) related to the benefit increase granted
to hourly retirees in connection with the UAW agreement (GM expenses this
benefit in the period that the contract with the UAW is ratified);
A charge of $147 million ($90 million after-tax, or $0.14 loss per share
of $1-2/3 par value common stock) related to a U.S. salaried early
retirement program (approximately 1,700 people elected participation in
this program); and
A charge of $272 million ($165 million after-tax, or $0.18 loss per share
of $1-2/3 par value common stock and $0.38 loss per share of GM Class H
common stock) related to Hughes' decision to discontinue certain of its
wireless manufacturing operations at Hughes Network Systems.
II-78
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - continued
Selected Quarterly Data (Unaudited) - continued
1998 Quarters
-----------------------------------------
1st 2nd(1) 3rd 4th (2)
--- --- --- ---
(Dollars in Millions Except Per Share Amounts)
Total net sales and revenues $40,024 $37,272 $33,525 $44,624
------ ------ ------ ------
Income (loss) from continuing operations
before income taxes
and minority interests $2,083 $511 $(419) $2,769
Income tax expense (benefit) 695 159 (144) 926
Minority interests (10) - (1) (9)
Losses of nonconsolidated associates (10) (46) (33) (150)
------ ---- ---- -----
Income (loss) from continuing
operations 1,368 306 (309) 1,684
Income (loss) from discontinued
operations 236 83 (500) 88
----- ----- --- ------
Net income (loss) 1,604 389 (809) 1,772
Dividends on preference stocks (16) (16) (16) (15)
------ ---- ---- ------
Earnings (losses) attributable
to common stocks $1,588 $373 $(825) $1,757
===== === === =====
Earnings (losses) attributable
to common stocks
$1-2/3 par value
Continuing operations $1,338 $275 $(336) $1,637
Discontinued operations 236 83 (500) 88
----- ----- --- ------
Earnings (losses) attributable
to $1-2/3 par value $1,574 $358 $(836) $1,725
===== === === =====
Earnings attributable to Class H $14 $15 $11 $32
== == == ==
Basic earnings (losses) per share
attributable to common stocks
$1-2/3 par value
Continuing operations $1.96 $0.41 $(0.52) $2.51
Discontinued operations 0.35 0.13 (0.76) 0.13
---- ---- ---- ----
Earnings (losses) per share
attributable to $1-2/3
par value $2.31 $0.54 $(1.28) $2.64
==== ==== ==== ====
Earnings per share attributable
to Class H $0.13 $0.14 $0.11 $0.30
==== ==== ==== ====
Average number of shares of common stocks
outstanding - basic (in millions)
$1-2/3 par value 682 661 654 654
Class H 104 105 106 106
Diluted earnings (losses) per share
attributable to common stocks
$1-2/3 par value
Continuing operations $1.93 $0.40 $(0.52) $2.48
Discontinued operations 0.34 0.12 (0.76) 0.13
---- ---- ---- ----
Earnings (losses) per share
attributable to $1-2/3
par value $2.27 $0.52 $(1.28) $2.61
==== ==== ==== ====
Earnings per share attributable
to Class H $0.13 $0.14 $0.11 $0.30
==== ==== ==== ====
Average number of shares of common stocks
outstanding - diluted (in millions)
$1-2/3 par value 693 672 654 665
Class H 109 111 110 109
II-79
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - concluded
Selected Quarterly Data (Unaudited) - (concluded)
- --------------------
(1)Second quarter 1998 results included a charge against income from continuing
operations of $74 million ($44 million after-tax, or $0.06 loss per share of
$1-2/3 par value common stock), related to work schedule modifications at
Opel Belgium.
(2)Fourth quarter 1998 results included charges against income from continuing
operations totaling $224 million ($228 million after-tax, or $0.34 loss per
share of $1-2/3 par value common stock), resulting from GM's competitiveness
studies.
II-80
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 9. Changes in and disagreements with accountants on accounting and
financial
disclosure
None
II-81
PART III
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEMS 10, 11, 12, AND 13
Information required by Part III (Items 10, 11, 12, and 13) of this Form 10-K
is incorporated by reference from General Motors Corporation's definitive Proxy
Statement for its 2000 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission, pursuant to Regulation 14A, not later
than 120 days after the end of the fiscal year, all of which information is
hereby incorporated by reference in, and made part of, this Form 10-K, except
that the information required by Item 10 with respect to executive officers of
the Registrant is included in Item 4A of Part I of this report.
III-1
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
Page
Number
------
(a) 1. All Financial Statements See Part II
2. Financial Statement Schedule II -
Allowances for the Years Ended December 31,
1999, 1998, and 1997 IV-3
3. Exhibits (Including Those Incorporated by Reference)
Exhibit
Number
- -------
(3)(a) Restated Certificate of Incorporation, as amended,
filed as Exhibit 3(i) to the Current Report on
Form 8-K of General Motors Corporation dated June
24, 1999, and Amendment to Article Fourth of the
Certificate of Incorporation - Division III -
Preference Stock, by reason of the Certificates of
Designations filed with the Secretary of State of
the State of Delaware on September 14, 1987 and
the Certificate of Decrease filed with the Secretary
of State of the State of Delaware on September 29,
1987 (pertaining to the Six Series of Preference
Stock contributed to the General Motors pension trusts),
incorporated by reference to Exhibit 19 to the
Quarterly Report on Form 10-Q of General Motors
Corporation for the quarter ended June 30, 1990 in
the Form SE of General Motors Corporation dated
August 6, 1990; as further amended by the Certificate
of Designations filed with the Secretary of State
of the State of Delaware on June 28, 1991 (pertaining
to Series A Conversion Preference Stock),
incorporated by reference to Exhibit 4(a) to Form S-8
Registration Statement No. 33-43744 in the Form SE
of General Motors Corporation dated November 1,
1991; as further amended by the Certificate of
Designations filed with the Secretary of State of
the State of Delaware on December 9, 1991 (pertaining to
Series B 9-1/8% Preference Stock), incorporated by
reference to Exhibit 4(a) to Form S-3 Registration
Statement No. 33-45216 in the Form SE of General
Motors Corporation dated January 27, 1992; as further
amended by the Certificate of Designations filed with
the Secretary of State of the State of Delaware on
February 14, 1992 (pertaining to Series C Convertible
Preference Stock), incorporated by reference to Exhibit
(3)(a) to the Annual Report on Form 10-K of General
Motors Corporation for the year ended December 31, 1991
in the Form SE of General Motors Corporation dated
March 20, 1992; as further amended by the Certificate
of Designations filed with the Secretary of State of
the State of Delaware on July 15, 1992 (pertaining to
Series D 7.92% Preference Stock), incorporated by
reference to Exhibit 3(a)(2) to the Quarterly Report
on Form 10-Q of General Motors Corporation for the
quarter ended June 30, 1992 in the Form SE of General
Motors Corporation dated August 10, 1992; as further
amended by the Certificate of Designations filed with
the Secretary of State of the State of Delaware on
December 15, 1992 (pertaining to Series G 9.12%
Preference Stock), incorporated by reference to Exhibit
4(a) to Form S-3 Registration Statement No. 33-49309
in the Form SE of General Motors Corporation dated
January 25, 1993; and as further amended by the
Certificate of Designations filed with the Secretary
of State of the State of Delaware on June 24, 1999
(pertaining to Series H 6.25% Automatically Convertible
Preference Stock), incorporated by reference to
Exhibit 4(a) to Form S-8 Registration Statement No.
333-31846 in the Form SE of General Motors Corporation
dated March 6, 2000. N/A
(3)(b) By-Laws, as amended, filed as Exhibit 3(ii) to the Current
Report on Form 8-K of General Motors Corporation
dated August 2, 1999. N/A
(4)(a) Form of Indenture relating to the $500,000,000 8-1/8%
Debentures Due April 15, 2016 dated as of April 1,
1986 between General Motors Corporation and
Citibank, N.A., Trustee, incorporated by reference
to Exhibit 4 to Amendment No. 1 to Form S-3
Registration Statement No. 33-4452 and resolutions
adopted by the Special Committee on April 15, 1986,
incorporated by reference to Exhibit 4(a) to the
Current Report on Form 8-K of General Motors Corporation
dated April 24, 1986. N/A
(4)(b) Form of Indenture relating to the $700,000,000 9-5/8%
Notes Due December 1, 2000 and the $1,400,000,000
Medium-Term Note Program dated as of November 15,1990
between General Motors Corporation and Citibank, N.A.,
Trustee, incorporated by reference to Exhibit 4(a) to
Form S-3 Registration Statement No. 33-37737. N/A
IV-1
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART IV - continued
ITEM 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(continued)
Exhibit Page
Number Number
- ------- ------
(4)(c) Form of Indenture relating to the $377,377,000 7.75%
Debentures Due March 15, 2036 dated as of December 7,
1995 between General Motors Corporation and
Citibank, N.A., Trustee, filed as Exhibit 4(a) to
Amendment No. 1 to Form S-3 Registration Statement
No. 33-64229. N/A
(4)(d) Instruments defining the rights of holders of nonregistered
debt of the Registrant have been omitted from this
exhibit index because the amount of debt authorized
under any such instrument does not exceed 10% of the
total assets of the Registrant and its subsidiaries.
The Registrant agrees to furnish a copy of any
such instrument to the Commission upon request. N/A
(4)(e)(i) Amended and Restated Declaration of Trust of General
Motors Capital Trust D, incorporated by reference to
Exhibit 4(c)(i) to the Current Report on Form 8-K
of General Motors Corporation dated July 1, 1997. N/A
(4)(e)(ii)Amended and Restated Declaration of Trust of General
Motors Capital Trust G, incorporated by reference to
Exhibit 4(c)(ii) to the Current Report on Form 8-K
of General Motors Corporation dated July 1, 1997. N/A
(4)(f)(i) Indenture between General Motors Corporation and
Wilmington Trust Company, incorporated by reference
to Exhibit 4(d)(i) to the Current Report on Form
8-K of General Motors Corporation dated July 1, 1997. N/A
(4)(f)(ii)First Supplemental Indenture between General Motors
Corporation and Wilmington Trust Company With
Respect To The Series D Junior Subordinated Debentures,
incorporated by reference to Exhibit 4(d)(ii)
to the Current Report on Form 8-K of General Motors
Corporation dated July 1, 1997. N/A
(4)(f)(iii)Second Supplemental Indenture between General Motors
Corporation and Wilmington Trust Company With Respect
To The Series G Junior Subordinated Debentures,
incorporated by reference to Exhibit 4(d)(iii) to
the Current Report on Form 8-K of General Motors
Corporation dated July 1, 1997. N/A
(4)(g)(i) Series D Preferred Securities Guarantee Agreement,
General Motors Capital Trust D, incorporated by
reference to Exhibit 4(g)(i) to the Current Report
on Form 8-K of General Motors Corporation dated
July 1, 1997. N/A
(4)(g)(ii)Series G Preferred Securities Guarantee Agreement,
General Motors Capital Trust G, incorporated by
reference to Exhibit 4(g)(ii) to the Current Report
on Form 8-K of General Motors Corporation dated
July 1, 1997. N/A
(10)(a)** General Motors Amended 1987 Stock Incentive Plan,
incorporated by reference to Exhibit A to the Proxy
Statement of General Motors Corporation dated
April 13,1992 N/A
(10)(b)** General Motors Performance Achievement Plan, incorporated
by reference to Exhibit A to the Proxy Statement
of General Motors Corporation dated April 16, 1982. N/A
(10)(c)** General Motors 1987 Performance Achievement Plan,
incorporated by reference to Exhibit A to the Proxy
Statement of General Motors Corporation dated
April 17,1987 N/A
(10)(d)** General Motors 1992 Performance Achievement Plan,
incorporated by reference to Exhibit A to the Proxy
Statement of General Motors Corporation dated
April 13,1992 N/A
(12) Computation of Ratios of Earnings to Fixed Charges
for the Years Ended December 31, 1999, 1998, and 1997. IV-6
(21) Subsidiaries of the Registrant as of December 31, 1999 IV-7
(23) Consent of Independent Auditors IV-13
(99) Hughes Electronics Corporation Financial Statements
and Management's Discussion and Analysis of Financial
Condition and Results of Operations IV-14
(27) Financial Data Schedule (for SEC information only) N/A
* The registrant hereby undertakes to furnish supplementally a copy of any
omitted schedule or other attachment to the Securities and Exchange
Commission upon request.
** Required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
Three reports on Form 8-K, dated October 4, 1999, October 13, 1999, and
December 10, 1999 were filed during the quarter ended December 31, 1999
reporting matters under Item 5, Other Events. Subsequently, one report on Form
8-K, dated August 2, 1999 was filed on January 14, 2000 reporting matters under
Item 5, Other Events.
IV-2
<PAGE>
<TABLE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES
<CAPTION>
Additions Additions
Balance at charged to charged to
beginning costs and other Balance at
Description of year expenses accounts Deductions end of year
- ----------- ------- -------- -------- ---------- -----------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1999
Allowances Deducted from Assets
Finance receivables (unearned income) $4,027 $ - $3,411 $3,285 $4,153
Allowance for credit losses 1,021 404 109(a) 420(b) 1,114
Accounts and notes receivable (for doubtful
receivables) 309 75 29(a) 112(b) 301
Inventories (principally for obsolescence of
service parts) 257 107(c) - - 364
Other investments and miscellaneous assets
(receivables and other) 14 9 5
Miscellaneous allowances (mortgage and other) 252 54 1 82 225
------ ---- ----- ----- -----
Total Allowances Deducted from Assets $5,880 $640 $3,550 $3,908 $6,162
===== === ===== ===== =====
For the Year Ended December 31, 1998
Allowances Deducted from Assets
Finance receivables (unearned income) $3,516 $ - $3,288 $2,777 $4,027
Allowance for credit losses 903 463 96(a) 441(b) 1,021
Accounts and notes receivable (for doubtful
receivables) 161 208 19(a) 79(b) 309
Inventories (principally for obsolescence of
service parts) 258 - - 1(c) 257
Other investments and miscellaneous assets
(receivables and other) 13 - 1 - 14
Miscellaneous allowances (mortgage and other) 202 52 113 115 252
----- ---- ----- ----- -----
Total Allowances Deducted from Assets $5,053 $723 $3,517 $3,413 $5,880
===== === ===== ===== =====
For the Year Ended December 31, 1997
Allowances Deducted from Assets
Finance receivables (unearned income) $3,642 $ - $3,161 $3,287 $3,516
Allowance for credit losses 922 523 62(a) 604(b) 903
Accounts and notes receivable (for doubtful
receivables) 127 41 41(a) 48(b) 161
Inventories (principally for obsolescence of
service parts) 302 - - 44(c) 258
Other investments and miscellaneous assets
(receivables and other) 12 - 1 - 13
Miscellaneous allowances (mortgage) 138 106 6 48 202
----- --- ----- ------ ------
Total Allowances Deducted from Assets $5,143 $670 $3,271 $4,031 $5,053
===== === ===== ===== =====
</TABLE>
Notes: (a) Primarily reflects the recovery of accounts previously written-off.
(b) Accounts written off.
(c) Represents net change of inventory allowances.
Reference should be made to the notes to consolidated financial statements.
IV-3
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
GENERAL MOTORS CORPORATION
(Registrant)
Date: March 6, 2000 By
/s/JOHN F. SMITH, JR.
---------------------------------------
(John F. Smith, Jr.
Chairman of the Board of Directors
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on this 6th day of March 2000 by the following
persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/JOHN F. SMITH, JR. Chairman of the Board of Directors
- --------------------- and Chief Executive Officer
(John F. Smith, Jr.)
/s/HARRY J. PEARCE Vice Chairman of the Board of
- ------------------ Directors
(Harry J. Pearce)
/s/G. RICHARD WAGONER, JR. President and Chief Operating Officer
- -------------------------
(G. Richard Wagoner, Jr.)
/s/J. MICHAEL LOSH Executive Vice President )
- ------------------ and Chief Financial Officer)
(J. Michael Losh) )
)Principal
)Financial
/s/ERIC A. FELDSTEIN Vice President and )Officers
- -------------------- Treasurer )
(Eric A. Feldstein) )
/s/WALLACE W. CREEK Comptroller )
- ------------------- )
(Wallace W. Creek) )Principal
)Accounting
/s/PETER R. BIBLE Chief Accounting Officer )Officers
- ----------------- )
(Peter R. Bible) )
IV-4
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES - concluded
Signature Title
----------- -------
/s/PERCY BARNEVIK Director
- -----------------
(Percy Barnevik)
/s/JOHN H. BRYAN Director
- ----------------
(John H. Bryan)
/s/THOMAS E. EVERHART Director
- ---------------------
(Thomas E. Everhart)
/s/CHARLES T. FISHER, III Director
- -------------------------
(Charles T. Fisher, III)
/s/GEORGE M. C. FISHER Director
- ----------------------
(George M. C. Fisher)
/s/NOBUYUKI IDEI Director
- ----------------
(Nobuyuki Idei)
/s/KAREN KATEN Director
- --------------
(Karen Katen)
/s/J. WILLARD MARRIOTT, JR. Director
- ---------------------------
(J. Willard Marriott, Jr.)
/s/ANN D. MCLAUGHLIN Director
- --------------------
(Ann D. McLaughlin)
/s/ECKHARD PFIEFFER Director
- -------------------
(Eckhard Pfeiffer)
/s/JOHN G. SMALE Director
- ----------------
(John G. Smale)
/s/LOUIS W. SULLIVAN Director
- --------------------
(Louis W. Sullivan)
/s/DENNIS WEATHERSTONE Director
- ----------------------
(Dennis Weatherstone)
IV-5
EXHIBIT 12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Years Ended December
31,
1999 1998 1997
---------- ---------- ----------
(Dollars in Millions)
Income from continuing operations $5,576 $3,049 $6,483
Income taxes 3,118 1,636 1,025
Losses of nonconsolidated associates 325 239 105
Minority interests 28 20 (44)
Amortization of capitalized interest 66 68 56
------- ------- ------
Income from continuing operations
before income taxes,
undistributed income of associates,
and capitalized interest 9,113 5,012 7,625
----- ----- -----
Fixed charges included in income
from continuing operations
Interest and related charges on debt 7,642 6,441 5,742
Portion of rentals deemed to be interest 284 251 264
------ ------ ------
Total fixed charges
included in income from
continuing operations 7,926 6,692 6,006
----- ----- -----
Earnings available for fixed charges $17,039 $11,704 $13,631
====== ====== ======
Fixed charges
Fixed charges included in income from
continuing operations $7,926 $6,692 $6,006
Interest capitalized in the period 95 110 126
------- ------ ------
Total fixed charges $8,021 $6,802 $6,132
===== ===== =====
Ratios of earnings to fixed charges 2.12 1.72 2.22
==== ==== ====
IV-6
EXHIBIT 21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1999
Subsidiary companies of the Registrant are listed below.
State or
Sovereign Power
Name of Subsidiary of Incorporation
------------------ ----------------
Subsidiaries included in the Registrant's consolidated financial statements
Adam Opel Aktiengesellschaft................................Germany
Adam Opel Unterstuetzungskasse GmbH.......................Germany
Alpha Trans Grundbesitz - und Vermogensverwaltungs GmbH...Germany
Autohaus am Nordring GmbH, Berlin.........................Germany
Carus Grundstucks-Vermietungsgesellschaft mbH & Co.
Object Kuno 65 KG.......................................Germany
Carus Grundstucks-Vermietungsgesellschaft mbH & Co.
Object Leo 40 KG........................................Germany
Edmund Becker und Co. AG..................................Germany
GM Europe GmbH............................................Germany
General Motors CIS........................................Russia
General Motors GmbH & Co. OHG.............................Germany
General Motors Poland Spolka, zo.o........................Poland
Opel-Automobilwerk Eisenach-PKW GmbH......................Germany
Opel China GmbH...........................................France
OPEL Guangzhou Precision Machining Co. Ltd................China
Opel Hungary Consullting Service Limited Liability
Company.................................................Hungary
Opel Performance Center GmbH..............................Germany
Opel Polen GmbH...........................................Germany
Opel Polska Sp. z oo......................................Poland
Opel Restrukturierungsgesellschaft mbH....................Germany
Opel Southeast Europe Automotive Distribution Limited
Liability Company.......................................Hungary
Opel Turkiye Limited Sirketi..............................Turkey
Aisin GM Allison Co., Ltd...................................Japan
Annunciata Corporation......................................Delaware
Argonaut Holdings, Inc......................................Delaware
Auto Lease Payment Corporation..............................Cayman Islands
North American New Cars, Inc..............................Delaware
Chevrolet Sociedad Anonima de Ahorro para Fines
Determinados..............................................Argentina
Convesco Vehicle Sales GmbH.................................Germany
Controladora General Motors, S.A. de C.V. ..................Mexico
Electro-Motive de Mexico, S.A. de C. V. ..................Mexico
General Motors de Mexico, S. de R.L. de C.V. .............Mexico
Sistemas Para Automotores de Mexico, S.A. de C.V. ........Mexico
Dealership Liquidations, Inc................................Delaware
Electro-Motive Maintenance Operations Pty Ltd. .............Australia
El-Mo-Mex, Inc..............................................Delaware
GM Automotive Services Belgium..............................Belgium
GM Auto Receivables Co. ....................................Delaware
GMC Truck Motors Development Corporation....................Delaware
GM-DI Leasing Corporation...................................Delaware
GM Ovonic L.L.C.............................................Michigan
Ovonic Energy Products, Inc...............................Michigan
General Motors Acceptance Corporation.......................Delaware
AccuTel, Inc..............................................Delaware
Autofinanciamiento GMAC, S.A. de C.V......................Mexico
Banque Opel...............................................France
Opel Bank Hungary Reszrenytarsasag......................Hungary
Basic Credit Holding Company, L.L.C.......................Delaware
Nuvell Credit Corporation...............................Delaware
Nuvell Financial Services Corp..........................Delaware
Capital Auto Receivables, Inc. ...........................Delaware
Commercial Credit Land One LLC............................New York
General Acceptance (Thailand) Ltd.*...................... Thailand
* Joint Venture Partnership
IV-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
State or
Sovereign Power
Name of Subsidiary of Incorporation
------------------ ----------------
GMAC - 20th Century Finance Corporation Ltd.*.............India
GMAC, a.s. ...............................................Czechoslovakia
GMAC Arrendamiento S.A. de C.V............................Mexico
GMAC, Australia (Finance) Limited.........................Australia
GMAC Business Credit, L.L.C...............................Delaware
GMAC Comercial Automotriz Chile S.A. .....................Chile
GMAC Automotriz Limitada................................Chile
GMAC Commercial Corporation...............................Delaware
GMAC Commercial Credit LLC................................New York
GMAC Commercial Credit Corporation-Canada/Societe De Credit
Commercial GMAC-Canada..................................Canada
GMAC Commercial Credit (Holdings) Limited.................England
GMAC Commercial Credit Limited..........................England
GMAC Commercial Credit (UK) Limited.....................England
GMAC Commercial Credit Development Limited..............England
G.M.A.C. Comercio e Aluguer de Veiculos, Lta..............Portugal
GMAC de Argentina S.A.....................................Argentina
GMAC del Ecuador S.A......................................Ecuador
G.M.A.C. Financiera de Colombia S.A. Compania de
Financiamiento Comercial................................Colombia
GMAC Holding S.A. de C. V.................................Mexico
GMAC Insurance Holdings, Inc..............................Delaware
CoverageOne, Inc........................................Delaware
GMAC RE Corp............................................Delaware
GMAC Risk Services, Inc,................................Delaware
GMAC Securities Corporation, Inc........................Delaware
GMAC Service Agreement Corporation......................Michigan
GM Motor Club, Inc......................................North Carolina
Integon Corporation.....................................Delaware
Motors Insurance Corporation ...........................Michigan
MRP Service Agreement Corporation.......................Michigan
Trinity General Agency, Inc.............................Texas
GMAC International Finance B.V............................Netherlands
GMAC International Corporation............................Delaware
GMAC Italia Leasing S.p.A. ...............................Italy
GMAC Lease B.V............................................Netherlands
GMAC Leasing Corporation .................................Delaware
Patlan Corporation .....................................Delaware
GMAC Mortgage Group, Inc..................................Michigan
GMAC Commercial Holding Corp............................Nevada
GMAC Mortgage Holdings, Inc. ...........................Delaware
GMAC Residential Holding Corp...........................Nevada
GMAC RF, INC. ..........................................Michigan
Residential Money Centers, Inc..........................Delaware
GMAC Sverige AB...........................................Sweden
General Motors Acceptance Corporation, Australia..........Delaware
Holden National Leasing Limited.........................Australia
General Motors Acceptance Corporation of Canada, Limited..Canada
Canadian Securitized Auto Receivables Corporation.......Canada
GMAC Leaseco Limited....................................Canada
General Motors Acceptance Corporation, Colombia S.A. .....Delaware
General Motors Acceptance Corporation, Continental........Delaware
GMAC Finansiering A/S...................................Denmark
GM Finance HB...........................................Sweden
General Motors Acceptance Corporation Hungary Commercial
Limited Liability Company...............................Hungary
General Motors Acceptance Corporation Italia S.p.A. ......Italy
General Motors Acceptance Corporation Nederland N.V. .....Netherlands
GMAC Espana, Sociedad Anonima de Financiacion, E.F.C....Spain
General Motors Acceptance Corporation, North America......Delaware
* Joint Venture Partnership
IV-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
State or
Sovereign Power
Name of Subsidiary of Incorporation
------------------ ----------------
General Motors Acceptance Corporation (N.Z.) Limited......New Zealand
General Motors Acceptance Corporation de Portugal -
Servicos Financeiros, S.A...............................Portugal
General Motors Acceptance Corporation, South America......Delaware
General Motors Acceptance Corporation del Ecuador S.A.
GMAC-Management (Holding).............................Ecuador
General Motors Acceptance Corporation de Venezuela, C.A.Venezuela
General Motors Acceptance Corporation Suisse S.A. ........Switzerland
General Motors Austria Beteiligungsgesellschaft m.b.H. ...Austria
OPEL Bankgesellschaft m.b.H.............................Austria
OPEL Leasinggesellschaft, m.b.H.........................Austria
Interleasing Limited......................................England
Interleasing (UK) Limited.................................England
Interleasing (UK1) Limited................................England
Interleasing (UK2) Limited................................England
Interleasing (UK3) Limited................................England
Interleasing (UK12) Limited...............................England
Lease Auto Receivables, Inc...............................Delaware
ON:Line Finance Holdings Limited..........................England
Opel Bank GmbH............................................Germany
Opel Leasing GmbH & Co. OHG*............................Germany
Opel Leasing Verwaltungs GmbH...........................Germany
Opel Bank, S.A.*..........................................Poland
P.T. GMAC Lippo Finance*..................................Indonesia
Wholesale Auto Receivables Corporation....................Delaware
General Motors de Argentina S.A.............................Argentina
General Motors Asia, Inc. ..................................Delaware
General Motors Asia Pacific (Pte) Ltd.......................Singapore
General Motors Automobiles Philippines, Inc.................Philippines
General Motors do Brasil Ltda. .............................Brazil
Brazauto Industria e Comercio Ltda........................Cayman Islands
Brazauto Trading (Cayman) Limited.........................Cayman Islands
Compass Investimentos e Participacoes Ltda................Brazil
GM Factoring Sociedade de Fomento Comercial Ltda. ........Brazil
General Motors of Canada Limited............................Canada
MOWG Motorwagenfabrik AG..................................Switzerland
General Motors Chile S.A., Industria Automotriz.............Chile
General Motors China, Inc. .................................Delaware
GM Warehousing and Trading (Shanghai) Co. Ltd. ...........China
General Motors Colmotores, S.A..............................Colombia
General Motors Commercial Corporation.......................Delaware
General Motors del Ecuador S.A..............................Ecuador
General Motors (Europe) AG..................................Switzerland
General Motors Export Corporation...........................Delaware
General Motors Foreign Sales Corporation....................Virgin Islands
General Motors Finance (Barbados) Ltd.....................Barbados
General Motors-Holden's Sales Pty Limited...................Australia
General Motors Holding Espana, S.A..........................Spain
Opel Espana de Automoviles, S.A.........................Spain
General Motors Holdings (U.K.)..............................England
General International (UK) Limited........................England
General Motors Acceptance Corporation (U.K.) Public
Limited Company.........................................England
General Motors Acceptance Corporation (U.K.)
Finance plc.........................................England
GMAC Leasing (U.K.) Limited...........................England
GMAC Leasing (U.K.) (No. 1) Limited...................England
GMAC Leasing (U.K.) (No. 2) Limited...................England
GMAC Leasing (U.K.) (No. 3) Limited...................England
IBC Vehicles Limited......................................England
Millbrook Land and Co. Ltd. ..............................England
Millbrook Pension Management Ltd..........................England
Millbrook Proving Ground Ltd. ............................England
* Joint Venture Partnership
IV-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
State or
Sovereign Power
Name of Subsidiary of Incorporation
------------------ ----------------
VHC Sub-Holdings (UK).....................................England
Vauxhall Motors (Finance) Plc...........................England
Vauxhall Motors Limited.................................England
General Motors India Limited................................India
General Motors Indonesia, Inc. .............................Delaware
General Motors Interamerica Corporation.....................Delaware
General Motors International Operations, Inc. ..............Delaware
General Motors Investment Management Corporation............Delaware
General Motors Japan Ltd. ..................................Japan
General Motors Kenya Limited................................Kenya
General Motors Korea, Inc...................................Delaware
GM Korea Co., Ltd.........................................Korea
General Motors Locomotive Group India Private Limited.......India
General Motors Nederland B.V. ..............................Netherlands
Allison Transmission Europe B.V. .........................Netherlands
General Motors Yugoslavia, d.o.o. ........................Yugoslavia
Opel C&S spol. s.r.o. ....................................Czechoslovakia
Opel Nederland B.V. ......................................Netherlands
General Motors Nordiska AB..................................Sweden
General Motors Overseas Corporation.........................Delaware
GMOC Administrative Services Corporation..................Delaware
GMOC Australia Pty. Ltd. .................................Australia
General Motors Overseas Commercial Vehicle Corporation....Delaware
General Motors Venezolana, C.A. ..........................Venezuela
Holden Ltd................................................Australia
Lidlington Engineering Company, Ltd. .....................Delaware
Truck and Bus Engineering U.K., Limited...................Delaware
General Motors Overseas Distribution Corporation............Delaware
GMODC Finance N.V. .......................................Netherlands
Antilles
General Motors Investment Services Company N.V. ..........Belgium
General Motors Peru S.A. ...................................Peru
General Motors Receivables Corporation......................Delaware
General Motors Retail Holdings, Inc.........................Delaware
GMRH Kansas City, Inc.....................................Delaware
GMRH New York, Inc........................................Delaware
GMRH Philadelphia, Inc....................................Delaware
GMRH Pittsburgh, Inc......................................Delaware
GMRH Seattle, Inc.........................................Delaware
GMRH St. Louis, Inc.......................................Delaware
GMRHLA, Inc...............................................Delaware
General Motors (Thailand) Ltd. .............................Thailand
General Motors Trust Company................................New Hampshire
General Motors Uruguay, S.A. ...............................Uruguay
General Motors U.S. Trading Corp. ..........................Nevada
Hughes Electronics Corporation..............................Delaware
DIRECTV Enterprises, Inc..................................Delaware
DIRECTV Customer Services, Inc..........................Delaware
DIRECTV, Inc............................................California
DIRECTV Merchandising, Inc..............................Delaware
DIRECTV Operations, Inc.................................California
USSB II, Inc............................................Minnesota
First HNS Mauritius , Ltd.................................Mauritius
Hughes Ispat Limited....................................India
Kellerton Corporation...................................Virgin Islands
HNS-Clairtel CP, Inc......................................Delaware
HNS-India, Inc............................................Delaware
HNS-Mauritius Holdings..................................Mauritius
HNS India Private Limited (India).........................India
HNS-India VSAT, Inc.......................................Delaware
Hughes Escorts Communications Limited...................India
IV-10
<PAGE>
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
State or
Sovereign Power
Name of Subsidiary of Incorporation
------------------ ----------------
HNS-Shanghai, Inc.........................................Delaware
Shanghai Hughes Network Systems.........................China
Hughes Aircraft Holdings Canada Ltd.......................England
Hughes do Brasil - Electronica e Comunicacoes Ltda........Brazil
Hughes Electronics Foreign Sales Corporation..............Barbados
Hughes Electronics International Corporation..............Delaware
Hughes Electronics Realty, Inc............................Delaware
Hughes Electronics Systems International..................California
Hughes Foreign Sales Corporation..........................Virgin Islands
Hughes International Sales Corporation....................California
Hughes International Sales Corporation No. 2..............California
Hughes Investment Management Company......................California
Hughes Network Systems Europe S.r.L.......................Italy
Hughes Network Systems France.............................France
Hughes Network Systems International Service Company......Delaware
Hughes Network Systems Limited............................England
HOT Telecommunications, N.V.............................Netherlands
Hughes Telecommunications & Space Company.................Delaware
Hughes Communications, Inc..............................California
Hughes Space and Communications Company.................Delaware
Spectrolab, Inc.........................................California
Hughes International de Mexico, S.A. de C.V. .............Mexico
HNS de Mexico, S.A. de C.V..............................Mexico
Hughes-Avicom International, Inc..........................California
Interactive Distance Learning, Inc........................Delaware
One Touch Systems, Inc..................................California
Lower St. Croix Marketing Co., Inc........................Minnesota
MDP, Ltd. ................................................California
XMC Holdings, Ltd.......................................California
Primestar, Inc............................................Delaware
P.T. Hughes Network Systems Co., Ltd......................Indonesia
Holden New Zealand Limited..................................New Zealand
General Motors New Zealand Pensions Limited...............New Zealand
IBC Pension Trustees Limited................................England
IBC Vehicles (Distribution) Limited.........................England
Jennings Motors, Inc........................................Delaware
Motors Holding San Fernando Valley, Inc.....................Delaware
Omnibus BB Transportes, S. A................................Ecuador
ONSTAR Corporation..........................................Delaware
Opel Austria GmbH...........................................Austria
Opel Belgium N.V. ..........................................Belgium
Opel Ireland Limited........................................Ireland
Opel Italia S.p.A...........................................Italy
Opel Norge AS...............................................Norway
Opel Oy.....................................................Finland
Opel Suisse S.A. ...........................................Switzerland
GM-Saab Communication GmbH................................Switzerland
Premier Investment Group, Inc...............................Delaware
PT General Motors Indonesia.................................Indonesia
Radiadores Richard, S.A.....................................Argentina
Renaissance Center Management Company.......................Michigan
Riverfront Holdings, Inc....................................Delaware
Saturn Corporation..........................................Delaware
Saturn County Bond Corporation..............................Delaware
WRE, Inc....................................................Michigan
Grand Pointe Holdings, Inc. ..............................Michigan
IV-11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
State or
Sovereign Power
Name of Subsidiary of Incorporation
------------------ ----------------
284 directly or indirectly owned subsidiaries
Companies not included in the Registrant's consolidated financial statements,
for which no financial statements are submitted:
34 other directly or indirectly owned domestic and foreign subsidiaries
13 active subsidiaries
21 inactive subsidiaries
21 fifty-percent owned companies and 39 less than fifty-percent owned
companies the investments in which are accounted for by the equity
method.
In addition, the Registrant owns 100% of the voting control of the following
companies:
302 dealerships, including certain dealerships operating under dealership
assistance plans, engaged in retail distribution of General Motors
products
217 dealerships operating in the United States
85 dealerships operating in foreign countries
The number of dealerships operating under dealership assistance plans decreased
by a net of 29 during 1999.
Companies not shown by name, if considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.
During 1999, there were changes in the number of subsidiaries and companies of
the Registrant, as follows:
5 directly and 45 indirectly owned domestic subsidiaries, and 61
indirectly owned foreign subsidiaries were organized or acquired. 29
indirectly owned domestic subsidiaries, and 101 indirectly owned foreign
subsidiaries were dissolved, sold, or spun-off. A less than fifty-percent
interest was acquired in 14 companies, while interests in 15 fifty-percent
owned and 30 less than fifty-percent owned companies were terminated. 3
indirectly owned foreign subsidiaries went from fifty percent owned to
greater than fifty percent owned. 2 indirectly owned foreign subsidiaries
went from 100% owned to 50% owned. 2 indirectly owned domestic and 2
indirectly owned foreign subsidiaries went from active to inactive. 2
indirectly owned foreign subsidiaries went from less than 50% owned to 50%
owned. 1 indirectly owned foreign subsidiary went from less than 50% owned
to inactive.
* * * * * * *
IV-12
EXHIBIT 23
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
General Motors Corporation:
We consent to the incorporation by reference of our report on page II-24
dated January 20, 2000 (March 7, 2000 as to Note 27)and of our report on page
IV-15 dated January 19, 2000 (March 1, 2000 as to Note 21) appearing in this
Annual Report on Form 10-K of General Motors Corporation for the year ended
December 31, 1999, in the following Registration Statements:
Registration
Form Statement No. Description
- ---- ------------- -----------
S-3 333-13797 General Motors Corporation Debt Securities
S-3 333-61613 General Motors Corporation Debt Securities
S-3 33-47343 General Motors Corporation $1-2/3 Par Value Common
(Post-Effective Stock
Amendment No. 1)
S-3 33-49035 General Motors Corporation $1-2/3 Par Value Common
(Amendment No. 1) Stock
S-3 33-56671 General Motors Corporation $1-2/3 Par Value Common
(Amendment No. 1) Stock
S-3 33-49309 General Motors Corporation Dividend Reinvestment
Plan
S-8 333-90089 General Motors Personal Savings Plan for
Hourly-Rate Employees in the United States
S-8 333-90097 General Motors Stock Incentive Plan
S-8 333-90095 General Motors Savings-Stock Purchase Program for
Salaried Employees in the United States
S-8 333-76441 The Hughes Non-Bargaining Employees Thrift and
Savings Plan
The Hughes Bargaining Employees Thrift and Savings
Plan
S-8 333-76433 GMAC Mortgage Corporation Savings Incentive Plan
S-8 333-90087 Hughes Electronics Corporation Incentive Plan
S-8 333-21029 Saturn Individual Savings Plan for Represented
Members
S-8 333-17937 Saturn Personal Choices Savings Plan for
Non-Represented Members
S-8 333-44957 General Motors 1998 Stock Option Plan
S-8 333-66653 ASEC Manufacturing Savings Plan
S-8 333-31846 General Motors Deferred Compensation Plan
for Executive Employees
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
March 10, 2000
IV-13
EXHIBIT 99
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in Millions)
Statement of Operations Data:
<S> <C> <C> <C>
Total revenues $5,560.3 $3,480.6 $2,838.3
Total operating costs and expenses 5,988.3 3,526.8 2,794.8
-------- -------- --------
Operating profit (loss) (428.0) (46.2) 43.5
Other income (expense), net (232.0) (57.0) 330.6
Income tax provision (benefit) (236.9) (142.3) 162.0
Minority interests in net losses of subsidiaries 32.0 24.4 24.8
-------- -------- --------
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change (391.1) 63.5 236.9
Income from discontinued operations, net
of taxes 99.8 196.4 170.6
Gain on sale of discontinued operations, net of
taxes - - 62.8
Extraordinary item, net of taxes - - (20.6)
Cumulative effect of account change, net of taxes - (9.2) -
-------- -------- --------
Net income (loss) (291.3) 250.7 449.7
Adjustments to exclude the effect of GM purchase
accounting adjustments 21.0 21.0 21.0
Preferred stock dividends (50.9) - -
-------- -------- --------
Earnings (Loss) Used for Computation of Available
Separate Consolidated Net Income (Loss) $ (321.2) $ 271.7 $ 470.7
======== ======== ========
</TABLE>
IV-14
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
SELECTED SEGMENT DATA
Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(Dollars in Millions)
Direct-To-Home Broadcast
Total Revenues $ 3,785.0 $ 1,816.1 $ 1,276.9
Operating Loss (292.1) (228.1) (254.6)
EBITDA (1) 19.9 (125.8) (168.5)
EBITDA Margin (1) 0.5% N/A N/A
Depreciation and Amortization $ 312.0 $ 102.3 $ 86.1
Segment Assets 9,056.6 2,190.4 1,408.7
Capital Expenditures (2) 516.9 230.8 105.6
Satellite Services
Total Revenues $ 810.6 $ 767.3 $ 629.9
Operating Profit 338.3 318.3 292.9
Operating Profit Margin 41.7% 41.5% 46.5%
EBITDA (1) $ 618.8 $ 553.3 $ 438.1
EBITDA Margin (1) 76.3% 72.1% 69.6%
Depreciation and Amortization $ 280.5 $ 235.0 $ 145.2
Segment Assets 5,984.7 5,890.5 5,682.4
Capital Expenditures (3) 956.4 921.7 625.7
Network Systems
Total Revenues $ 1,384.7 $ 1,076.7 $ 1,011.3
Operating Profit (Loss) (227.3) 10.9 74.1
Operating Profit Margin N/A 1.0% 7.3%
EBITDA (1) $ (178.1) $ 52.6 $ 106.1
EBITDA Margin (1) N/A 4.9% 10.5%
Depreciation and Amortization $ 49.2 $ 41.7 $ 32.0
Segment Assets 1,167.3 1,299.0 1,215.6
Capital Expenditures 35.0 40.0 43.1
Eliminations and Other
Total Revenues $ (420.0) $ (179.5) $ (79.8)
Operating Loss (246.9) (147.3) (68.9)
EBITDA (1) (237.9) (138.4) (71.9)
Depreciation and Amortization 9.0 8.9 (3.0)
Segment Assets 2,388.4 3,237.5 3,834.8
Capital Expenditures 157.0 136.3 (61.7)
Total
Total Revenues $ 5,560.3 $ 3,480.6 $ 2,838.3
Operating Profit (Loss) (428.0) (46.2) 43.5
EBITDA (1) 222.7 341.7 303.8
EBITDA Margin (1) 4.0% 9.8% 10.7%
Depreciation and Amortization $ 650.7 $ 387.9 $ 260.3
Total Assets 18,597.0 12,617.4 12,141.5
Capital Expenditures 1,665.3 1,328.8 712.7
Certain prior period amounts have been reclassified to conform with the 1999
classifications.
(1) EBITDA (Earnings (Loss) Before Interest, Taxes, Depreciation and
Amortization) is the sum of operating profit (loss) and depreciation and
amortization. EBITDA margin is calculated by dividing EBITDA by total
revenues.
(2) Includes expenditures related to satellites amounting to $136.0 million in
1999 and $70.2 million in 1998.
(3) Includes expenditures related to satellites amounting to $532.8 million,
$726.3 million and $606.1 million, respectively. Also included in the 1999
and 1998 amounts are $369.5 million and $155.5 million, respectively,
related to the early buy-out of satellite sale-leasebacks.
IV-15
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
The following discussion excludes purchase accounting adjustments related
to General Motors' acquisition of Hughes.
This Annual Report may contain certain statements that Hughes believes are,
or may be considered to be, "forward-looking statements," within the meaning of
Section 27A 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, local political or economic developments in or
affecting countries where Hughes has operations, ability to obtain export
licenses, competition, ability to achieve cost reductions, technological risk,
limitations on access to distribution channels, the success and timeliness of
satellite launches, in-orbit performance of satellites, ability of customers to
obtain financing and Hughes' ability to access capital to maintain its financial
flexibility. Additionally, Hughes and its 81% 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
Annual Report are made only as of the date of this Annual Report and we
undertake no obligation to publicly update these forward-looking statements to
reflect subsequent events or circumstances.
General
Business Overview
The continuing operations of Hughes are comprised of the following segments:
Direct-To-Home Broadcast, Satellite Services and Network Systems. The
discontinued operations of Hughes consist of its satellite systems manufacturing
businesses, which in January 2000, Hughes agreed to sell to The Boeing Company.
Also included in discontinued operations for 1997 is the Avicom in-flight
entertainment business, which was sold to Rockwell Collins, Inc. in December
1997. These transactions are discussed more fully below in "Liquidity and
Capital Resources - Acquisitions, Investments and Divestitures."
Hughes' financial information does not include the business of Delco
Electronics Corporation ("Delco") or Hughes' defense electronics business.
These businesses were divested as part of Hughes' recapitalization in December
1997, as more fully discussed in Note 1 to the financial statements.
The Direct-To-Home Broadcast segment consists primarily of the United States
and Latin America DIRECTV businesses, which provide digital multi-channel
entertainment. The DIRECTV U.S. operations grew significantly during 1999 with
Hughes' acquisition of the 2.3 million subscriber direct broadcast satellite
medium-power business of PRIMESTAR in April 1999 and Hughes' acquisition of
United States Satellite Broadcasting ("USSB"), a provider of premium
subscription programming services, in May 1999. DIRECTV intends to continue to
operate the medium-power PRIMESTAR business, PRIMESTAR by DIRECTV, through the
end of 2000. During such time, the medium-power subscribers will continue to be
offered the opportunity to transition to the high-power DIRECTV service. The
USSB acquisition provided DIRECTV with 25 channels of video programming,
including premium networks such as HBO, Showtime, Cinemax and The Movie Channel,
which are now being offered to DIRECTV's subscribers. The results of operations
for PRIMESTAR and USSB have been included in Hughes' financial information since
their dates of acquisition. See Note 17 to the financial statements and
"Liquidity and Capital Resources - Acquisitions, Investments and Divestitures,"
below, for further discussion of these transactions.
In addition, DIRECTV U.S. launched local broadcast network services in the
fourth quarter of 1999. Currently, DIRECTV is providing major local broadcast
networks to 23 U.S. markets and plans to increase these markets to at least 25
in the first half of 2000. DIRECTV U.S. also launched foreign language
programming in seven U.S. cities through its DIRECTV Para Todos /TM/ service,
which currently provides programming packages with up to 21 Spanish special
interest channels combined with up to 77 English channels. DIRECTV expects to
expand the DIRECTV Para Todos service nationwide in the first half of 2000 and
to expand its programming in other languages. The launch of these services did
not materially affect revenues in 1999, but is expected to result in increased
revenues in 2000 and thereafter.
The Latin America DIRECTV businesses are comprised of Galaxy Latin America,LLC
("GLA"), Hughes' 78% owned subsidiary that provides DIRECTV services to 27
countries in Latin America and the Caribbean Basin; SurFin Ltd. ("SurFin"), a
company 75% owned by Hughes, that provides financing of subscriber receiver
equipment to certain GLA operating companies; Grupo Galaxy Mexicana, S.R.L. de
C.V. ("GGM"), the exclusive distributor of DIRECTV in Mexico which was acquired
in February 1999; and Galaxy Brasil, Ltda. ("GLB"), the exclusive distributor of
DIRECTV in Brazil, which was acquired in July 1999. The results of operations
IV-16
<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
for SurFin, GGM, and GLB have been included in Hughes' financial information
since their dates of acquisition. See Note 17 to the financial statements and
"Liquidity and Capital Resources - Acquisitions, Investments and Divestitures,"
below, for further discussion of these transactions.
Also included as part of the non-operating results of the Direct-To-Home
Broadcast segment is DIRECTV Japan, a company 42.2% owned by Hughes that
provides DIRECTV services in Japan. On March 1, 2000, Hughes announced that
DIRECTV Japan's operations would be discontinued and that its subscribers would
migrate to SkyPerfecTV, a company in Japan providing direct-to-home satellite
broadcasting. In connection with this transaction, Hughes will receive an
ownership interest in SkyPerfecTV. See "Liquidity and Capital
Resources-Acquisitions, Investments and Divestitures," below, for further
discussion.
In June 1999, Hughes announced a new strategic alliance with AOL to develop
and market digital entertainment and Internet services nationwide. This alliance
is expected to accelerate subscriber growth and revenue per subscriber for
DIRECTV, DirecPC(R) and eventually the new broadband services to be delivered
via Spaceway(TM). As part of this alliance, Hughes and AOL plan to introduce two
new enhanced TV and Internet-based interactive services in 2000. The first is a
combination television receiver that will allow the consumer not only to receive
DIRECTV's extensive programming, but also to access "AOL TV," a new service that
will bring AOL's extensive interactive and Internet content to the consumer's
television. The second is a high-speed Internet service called "AOL Plus via
DirecPC" that will be delivered using Hughes Network Systems' DirecPC satellite
network. Additionally, Hughes and AOL also plan to jointly develop new services
and content for DIRECTV.
The Satellite Services segment consists of PanAmSat, Hughes' 81% owned
subsidiary. PanAmSat provides satellite services to its customers primarily
through long-term operating lease contracts for the full or partial use of
satellite transponder capacity. In May 1997, Hughes and PanAmSat Corporation
merged their respective satellite service operations into a new publicly-held
company, which retained the name PanAmSat Corporation. As a result of this
merger, Hughes obtained a 71.5% ownership interest in PanAmSat. Since the date
of the merger, Hughes has included PanAmSat's results of operations in its
financial information. In May 1998, Hughes purchased an additional 9.5%
interest in PanAmSat, increasing Hughes' ownership to 81%. See Note 17 to the
financial statements and the "Liquidity and Capital Resources - Acquisitions,
Investments and Divestitures" section, below, for further discussion of these
transactions.
The Network Systems segment consists of Hughes Network Systems ("HNS"), a
manufacturer of DIRECTV receiver equipment and provider of satellite and
wireless communications ground equipment and business communications services.
In December 1999, HNS recorded a pre-tax non-operating gain of approximately
$39.4 million resulting from the sale of securities of its 56.1% owned
subsidiary, Hughes Software Systems Private Limited ("HSS"), in conjunction with
HSS' initial public offering in India. In January 2000, Hughes announced the
discontinuation of its mobile cellular and narrowband local loop product lines
at HNS. As a result of this decision, HNS recorded a fourth quarter 1999 pre-tax
charge to continuing operations of $272.1 million. The charge represents the
write-off of receivables and inventories, licenses, software and equipment with
no alternative use.
The Network Systems segment was also affected in February 1999 by a
notification received by Hughes from the Department of Commerce that it intended
to deny a U.S. government export license that Hughes was required to obtain in
connection with its contract with Asia-Pacific Mobile Telecommunications
Satellite Pte. Ltd. ("APMT") for the provision of a satellite-based mobile
telecommunications system. As a result, APMT and Hughes terminated the contract
on April 9, 1999, resulting in a pre-tax charge to Hughes' earnings of $92.0
million in the first quarter of 1999. Of the $92.0 million charge, $11.0
million was attributable to the Network Systems segment and the remainder to
Hughes Space and Communications which is included in discontinued operations.
The charge represented the write-off of receivables and inventory, with no
alternative use, related to the contract.
Satellite Fleet
At December 31, 1999, Hughes had a fleet of 25 satellites, five owned by
DIRECTV and 20 owned and operated by PanAmSat. The satellite fleet was expanded
in the fourth quarter of 1999 with the launch of DTV-1R and Galaxy-XI. DTV-1R
was placed into service at DIRECTV's 101 degree west longitude orbital slot and
an existing satellite, DBS-1, was moved to DIRECTV's 110 degree west longitude
orbital slot. The DTV-1R satellite adds additional capacity for DIRECTV U.S.'
basic programming and local network channels. Galaxy-XI will become an integral
component of PanAmSat's Galaxy cable neighborhood and is expected to be
operational in the first half of 2000.
PanAmSat expects to add additional satellites as part of its comprehensive
satellite expansion and restoration plan adopted in 1998. 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 this plan, two satellites were
successfully launched, Galaxy-XI in 1999 and Galaxy-XR in January 2000. In
addition, five satellites are now under construction for PanAmSat by Hughes
Space and Communications. PanAmSat expects to launch four of these satellites
in 2000 and one in 2001.
In the third quarter of 2000, DIRECTV U.S. expects to launch DIRECTV 5, which
will replace the DIRECTV 4 satellite located at 119 degree west longitude.
DIRECTV U.S. has also contracted with Hughes
IV-17
<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Space and Communications to build DIRECTV 4S, a high-powered spot-beam satellite
that will provide additional capacity for new local channel service or other new
services beginning in 2002.
On March 17, 1999, Hughes announced its intention to make an initial
investment of $1.4 billion in the Spaceway satellite system. The Spaceway
system, when completed, will provide high-speed, two-way communications of
video, voice and data directly to companies and individual consumers. Hughes
expects that this initial investment will allow it to construct three high-
powered satellites to provide broadband network services ``on demand'' for
video-conferencing, data transfer and other purposes in North America by 2003.
Hughes is currently assessing the possibility of providing Spaceway services to
most of the world using high-orbit satellites as well as complementary services
from a low-orbit system. These subsequent phases would require significant
additional investment.
Hughes' in-orbit satellites are subject to the risk of failing prematurely due
to, among other things, mechanical failure, collision with objects in space or
an inability to maintain proper orbit. Satellites are subject to the risk of
launch delay and failure, destruction and damage while on the ground or during
launch and failure to become fully operational once launched. Delays in the
production or launch of a satellite or the complete or partial loss of a
satellite, in-orbit or during launch, could have a material adverse impact on
the operation of Hughes' businesses. With respect to both in-orbit and launch
problems, insurance carried by PanAmSat and Hughes does not compensate for
business interruption or loss of future revenues or customers. Hughes has, in
the past, experienced technical anomalies on some of its satellites. Service
interruptions caused by these anomalies, depending on their severity, could
result in claims by affected customers for termination of their transponder
agreements, cancellation of other service contracts or the loss of other
customers.
Results of Operations
1999 compared to 1998
Overall
Revenues. Revenues increased 59.8% to $5,560.3 million in 1999 from $3,480.6
million in 1998. The Direct-To-Home Broadcast segment was the primary
contributor to the growth in revenues resulting from record subscriber growth in
both the U.S. and Latin America DIRECTV businesses and from additional revenues
for the U.S. DIRECTV businesses from the PRIMESTAR and USSB acquisitions. Also
contributing to the growth in revenues were increased sales of DIRECTV receiver
equipment at the Network Systems segment.
Operating Costs and Expenses. Operating costs and expenses grew to $5,988.3
million in 1999 from $3,526.8 million in 1998. Broadcast programming and other
costs increased $863.7 million during 1999 due primarily to the added costs for
the PRIMESTAR by DIRECTV and premium channel services. Cost of products sold
increased $348.0 million in 1999 from 1998 due to the increased sales of DIRECTV
receiver equipment discussed above and the write-off of $91.5 million of
inventory associated with the discontinued wireless product lines at the Network
Systems segment. Selling, general and administrative expenses increased by
$987.0 million due primarily to increased costs at the Direct-To-Home Broadcast
segment for subscriber acquisition costs and added costs for the PRIMESTAR by
DIRECTV business and a charge of $180.6 million at the Network Systems
segment resulting from the write-off of receivables, licenses and equipment
associated with the discontinued wireless product lines. Depreciation and
amortization increased $262.8 million in 1999 over 1998 due primarily to added
goodwill, intangibles and property, plant and equipment resulting from the
acquisitions discussed above, and additions to PanAmSat's satellite fleet.
EBITDA. 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 Hughes' 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.
EBITDA declined to $222.7 million in 1999 from $341.7 million in 1998. The
decline was attributable to charges incurred at the Network Systems segment
which included the $272.1 million charge related to the discontinued wireless
product lines and the $11.0 million write-off related to the termination of the
APMT contract. These declines were offset by an increase in EBITDA of $145.7
million at the Direct-To-Home Broadcast segment and $65.5 million at the
Satellite Services segment.
Operating Loss. Hughes' operating loss was $428.0 million in 1999, compared
to $46.2 million in 1998. The increased operating loss resulted from the
decrease in EBITDA, discussed above, and higher depreciation and amortization
IV-18
<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
at the Direct-To-Home Broadcast segment resulting primarily from goodwill from
recent acquisitions.
Interest Income and Expense. Interest income declined to $27.0 million in 1999
compared to $112.3 million in 1998. This change resulted from a decline in cash
and cash equivalents. Interest expense increased to $122.7 million in 1999 from
$17.5 million in 1998. The increase in interest expense resulted from an
increase in debt and interest associated with liabilities for above-market
programming contracts assumed in the acquisitions of PRIMESTAR and USSB. The
changes in cash and cash equivalents and debt are discussed in more detail below
under "Liquidity and Capital Resources."
Other, Net. Other, net declined to a net expense of $136.3 million in 1999
from a net expense of $151.8 million in 1998. Other, net for 1999 included
losses from equity method investments of $189.2 million of which $134.9 million
related to DIRECTV Japan, offset by the gain of $39.4 million from the sale of
securities in the HSS initial public offering and other miscellaneous items.
Other, net for 1998 included losses from equity method investments of $128.3
million, of which $83.2 million related to DIRECTV Japan, and a provision of
$34.5 million for estimated losses associated with the bankruptcy filings of two
Network Systems segment customers. These losses were offset by the gains on the
sale of property and investments of about $15.0 million.
Income Taxes. Hughes recognized an income tax benefit of $236.9 million in
1999 compared to $142.3 million in 1998. The higher tax benefit in 1999
resulted primarily from higher losses from continuing operations. The income
tax benefit in 1998 included a favorable adjustment relating to an agreement
with the Internal Revenue Service regarding the treatment of research and
experimentation credits for the years 1983 through 1995.
Income (Loss) From Continuing Operations. Hughes reported a loss from
continuing operations in 1999 of $391.1 million compared with 1998 income from
continuing operations of $63.5 million.
Discontinued Operations. Revenues for the satellite systems manufacturing
businesses decreased to $2,240.7 million for 1999 from revenues of $2,820.4
million for 1998. Revenues, excluding intercompany transactions, were $1,780.4
million for 1999 and $2,483.3 million for 1998. The decrease in revenues was
principally due to contract revenue adjustments and delayed revenue recognition
that resulted from increased development costs and schedule delays on several
new product lines and decreased activity associated with the contract with ICO
Global Communications (Operations) Ltd.
The satellite systems manufacturing businesses reported an operating loss of
$0.6 million for 1999 compared to operating profit of $286.3 million for 1998.
The reported operating loss, excluding intercompany transactions, amounted to
$10.4 million for 1999 compared to operating profit of $295.3 million for 1998.
The 1999 operating loss included a pre-tax charge of $125.0 million that
resulted from increased development costs and schedule delays on several new
product lines, a one-time pre-tax charge of $81.0 million resulting from the
termination of the APMT contract and decreased activity associated with a
contract with ICO Global Communications (Operations) Ltd.
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 a payment from the U.S. government as
a final settlement of the suit and as a result, recognized as income from
discontinued operations a pre-tax gain of $154.6 million.
Accounting Changes. In 1998, Hughes adopted American Institute of Certified
Public Accountants Statement of Position 98-5, Reporting on the Costs of Start-
Up Activities. Statement of Position 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 at January
1, 1998 was $9.2 million after-tax.
Direct-To-Home Broadcast Segment
Revenues for the Direct-To-Home Broadcast segment more than doubled to
$3,785.0 million in 1999 from $1,816.1 million in 1998. Operating losses grew
to $292.1 million in 1999 from $228.1 million in 1998 while EBITDA increased to
$19.9 million in 1999 from negative $125.8 million in 1998.
United States. The DIRECTV U.S. businesses reported revenues of $3,404.6
million in 1999, more than twice the reported revenues of $1,604.1 million in
1998. The increase in revenues resulted from an increase in subscribers for the
high-power business and added revenues from PRIMESTAR by DIRECTV and premium
channel services. Subscribers for the high-power DIRECTV business increased by
2.2 million subscribers (1.6 million excluding PRIMESTAR conversions and
incremental subscribers from USSB) during 1999 to 6.7 million subscribers at the
end of 1999. Including PRIMESTAR by DIRECTV subscribers there were over 8
million subscribers at the end of 1999. Average monthly revenue per subscriber
for the high-power business increased to $58 for 1999 from $46 for 1998. This
increase resulted primarily from the addition of the premium channel services in
April of 1999.
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HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
EBITDA for 1999 was $151.2 million in 1999 compared to negative $17.9 million
in 1998. The change in EBITDA resulted from the increased revenues that were
partially offset by increased subscriber acquisition costs and added operating
costs from the PRIMESTAR by DIRECTV and premium channel services. The DIRECTV
U.S. businesses reported an operating loss of $97.9 million in 1999 compared to
$100.0 million in 1998. The decreased operating loss resulted from increased
EBITDA which was generally offset by increased depreciation and amortization
that resulted from the PRIMESTAR and USSB acquisitions.
Latin America. Revenues for the Latin America DIRECTV businesses increased
82.3% to $315.3 million in 1999 from $173.0 million in 1998. The increase in
revenues reflects an increase in subscribers and the consolidation of the GGM,
GLB and SurFin businesses. Subscribers grew to 804,000 at the end of 1999 from
484,000 at the end of 1998. Average revenue per subscriber decreased to $36 in
1999 from $41 in 1998. The decline in average revenue per subscriber resulted
from currency devaluations in Brazil.
EBITDA was negative $105.6 million in 1999 compared to negative $93.0 million
in 1998. The change in EBITDA resulted primarily from additional losses from
the consolidation of GGM and GLB. The Latin America DIRECTV businesses incurred
an operating loss of $168.4 million in 1999 compared to $113.2 million in 1998.
The increased operating loss resulted from the decline in EBITDA and higher
depreciation and amortization that resulted from the GGM, GLB and SurFin
transactions.
Satellite Services Segment
Revenues increased for the Satellite Services segment by $43.3 million to
$810.6 million in 1999 from $767.3 million in 1998. This increase was primarily
due to increased operating lease revenues, partially offset by a decrease in
sales and sales-type lease revenues. Operating lease revenues, which reflect
long-term satellite service agreements from which PanAmSat derives revenues over
the duration of the contract, were 97% of total 1999 revenues and increased by
6.9% to $787.5 million from $736.7 million in 1998. Total sales and sales-type
lease revenues were $23.1 million for 1999 compared to $30.6 million for
1998.
EBITDA was $618.8 million compared to $553.3 million in 1998. The increase
was principally due to higher revenue that resulted from the commencement of new
service agreements on additional satellites placed into service in 1999 and
lower leaseback expense resulting from the exercise of certain early buy-out
opportunities under sale-leaseback agreements during 1999. Operating profit was
$338.3 million in 1999, an increase of $20.0 million over 1998. The increase
resulted from the higher EBITDA in 1999 offset by increased depreciation expense
resulting from increased capital from additions to the satellite fleet.
Backlog for the Satellite Services segment, which consists primarily of
operating leases on satellite transponders, was $4,856.3 million in 1999
compared to $4,461.9 million in 1998.
Network Systems Segment
Revenues for the Network Systems segment increased 28.6% to $1,384.7 million
in 1999 from $1,076.7 million in 1998. The higher revenues resulted from
greater shipments of DIRECTV receiver equipment. Shipments of DIRECTV receiver
equipment totaled about 2.1 million units in 1999 compared to about 0.7 million
units in 1998.
The Network Systems segment reported negative EBITDA of $178.1 million in 1999
compared to EBITDA of $52.6 million in 1998. The Network Systems segment
incurred an operating loss of $227.3 million in 1999 compared to operating
profit of $10.9 million in 1998. The decline in EBITDA and operating profit
resulted from the $272.1 million charge related to the discontinuation of the
wireless product lines, offset in part by the increased sales of DIRECTV
receiver equipment.
Backlog for the Network Systems segment, which consists primarily of private
business networks and satellite-based mobile telephony equipment orders, was
$996.0 million in 1999 compared to $1,333.4 million in 1998.
Eliminations and Other
The elimination of revenues increased to $420.0 million in 1999 from $179.5
million in 1998 due primarily to increased manufacturing subsidies received by
the Network Systems segment from the DIRECTV businesses which resulted from the
increased DIRECTV receiver equipment shipments.
Operating losses for "elimination and other" increased to $246.9 million in
1999 from $147.3 million in 1998. The increase was primarily due to increases in
eliminations of intercompany profit and corporate expenditures. The increased
intercompany profit elimination resulted from the increased intercompany sales
noted above and increased corporate expenditures resulted primarily from higher
pension and other employee costs.
1998 compared to 1997
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<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Overall
Revenues. Revenues in 1998 increased 22.6% to $3,480.6 million compared with
$2,838.3 million in 1997. Each of Hughes' business segments contributed to the
growth in revenue, which included continued strong subscriber growth in the
Direct-to-Home Broadcast segment, the effect of the PanAmSat merger and
increased operating lease revenues for video, data and Internet-related services
in the Satellite Services segment and increased sales of DIRECTV receiver
equipment in the Network Systems segment.
Operating Costs and Expenses. Operating costs and expenses increased to
$3,526.8 million in 1998 from $2,794.8 million in 1997. Broadcast programming
and other costs increased $299.1 million during 1998 due to increased
programming costs at the Direct-To-Home Broadcast segment and the effects of a
full year of costs from PanAmSat. The increase in costs of products sold of
$68.2 million during 1998 resulted primarily from the costs related to the
increased shipments of DIRECTV receiver equipment. Selling, general and
administrative expenses increased $237.1 million in 1998 due primarily to
increased marketing and subscriber acquisition costs in the Direct-to-Home
Broadcast segment and increased expenditures to support the growth in the
remaining business segments. The increase in depreciation and amortization
expense of $127.6 million in 1998 resulted from increased goodwill amortization
related to the PanAmSat transactions and increased capital expenditures in the
Direct-to-Home Broadcast and Satellite Services segments.
EBITDA increased slightly during 1998 to $341.7 million from $303.8 million in
1997. The increase in EBITDA resulted from the full year effects of PanAmSat
and improved EBITDA at DIRECTV U.S. These EBITDA improvements were offset by
higher corporate expenses, primarily related to pension and other employee
costs, and a decline in EBITDA in 1998 at the Network Systems segment due
principally to lower sales of wireless telephone systems and private business
networks in the Asia-Pacific region and provisions for estimated losses
associated with uncollectible amounts due from certain wireless customers.
Operating Profit (Loss). Hughes incurred an operating loss of $46.2 million in
1998 compared with operating profit of $43.5 million in 1997. This decline
resulted from increased goodwill amortization, resulting primarily from the
PanAmSat transactions, which more than offset the improvement in EBITDA.
Interest Income and Expense. Interest income increased to $112.3 million in
1998 compared to $33.0 million in 1997, due primarily to higher cash balances
resulting from the recapitalization of Hughes. Interest expense decreased $73.5
million to $17.5 million in 1998 versus $91.0 million in 1997 resulting from the
repayment of debt, arising from the PanAmSat merger, at the end of 1997.
Other, net. Other, net for 1998 relates primarily to losses from
unconsolidated subsidiaries of $128.3 million, attributable principally to
equity investments, including American Mobile Satellite Corporation and DIRECTV
Japan, and a provision for estimated losses associated with bankruptcy filings
by two customers of the Network Systems segment. Other, net for 1997 includes a
$489.7 million pre-tax gain recognized in connection with the May 1997 PanAmSat
merger offset by losses from unconsolidated subsidiaries of $72.2 million.
Income Taxes. Hughes recorded a tax benefit of $142.3 million in 1998 compared
to a tax provision of $162.0 million in 1997. Income taxes in 1998 benefited
from the favorable adjustment relating to a fourth quarter 1998 agreement with
the Internal Revenue Service regarding the treatment of research and
experimentation costs for the years 1983 through 1995 and also reflect the tax
benefit recorded for the losses incurred from continuing operations.
Income (Loss) From Continuing Operations. Income from continuing operations
was $63.5 million in 1998 compared with $236.9 million in 1997.
Discontinued Operations and Extraordinary Item. On December 15, 1997, Hughes
Avicom International, Inc. was sold to Rockwell Collins, Inc., resulting in an
after-tax gain of $62.8 million. Hughes recorded an extraordinary after-tax
charge of $20.6 million in 1997 related to the refinancing of PanAmSat's debt.
For additional information see Note 8 to the financial statements.
Also included in discontinued operations are the results of the satellite
systems manufacturing businesses. Revenues for the satellite systems
manufacturing businesses increased 13.2% in 1998 to $2,820.4 million from
$2,491.9 million in 1997. Revenues, excluding intercompany sales, were $2,483.3
million in 1998 compared to $2,290.0 million in 1997. The increase in revenues
resulted primarily from higher commercial satellite sales to customers such as
Thuraya Satellite Telecommunications Company, PanAmSat, ICO Global
Communications and Orion Asia Pacific Corporation. Operating profit for the
satellite systems manufacturing businesses in 1998 was $286.3 million, an
increase of 52.9% over $187.2 million in 1997. Operating profit, excluding
intercompany transactions, was $295.3 million in 1998 compared to $241.9 million
in 1997. The increase was primarily due to the higher commercial satellite sales
noted above.
Accounting Changes. In 1998, Hughes adopted American Institute of Certified
Public Accountants Statement of Position 98-5, Reporting on the Costs of Start-
Up Activities. Statement of Position 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 at January
1, 1998 was $9.2 million after-tax.
IV-21
<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Direct-To-Home Broadcast Segment
The Direct-to-Home Broadcast segment's revenues for 1998 increased 42.2% to
$1,816.1 million from $1,276.9 million in 1997. EBITDA for the segment improved
in 1998 to negative $125.8 million compared to negative $168.5 million in 1997.
The operating loss for the segment declined to $228.1 million in 1998 from
$254.6 million in 1997.
United States. The DIRECTV U.S. business was the biggest contributor to the
segment's revenue growth with revenues of $1,604.1 million for 1998, a 45.4%
increase over prior year's revenues of $1,103.3 million. The large increase in
revenues resulted primarily from an increase in subscribers. Subscribers grew to
about 4.5 million at the end of 1998 compared to 3.3 million at the end of 1997.
Average monthly revenue per subscriber also increased during 1998 to $46,
compared to $44 for 1997.
DIRECTV U.S. reported negative EBITDA of $17.9 million in 1998 compared to
negative EBITDA of $68.0 million in 1997. The full-year 1998 operating loss for
DIRECTV U.S. was $100.0 million compared with $137.0 million in 1997. The
improvement in EBITDA and lower operating loss was principally due to increased
subscriber revenues which more than offset increased sales and marketing
expenditures.
Latin America. Revenues for the Latin America DIRECTV businesses increased to
173.0 million in 1998 from $70.0 million in 1997. The increase in revenues
resulted from an increase in subscribers to 484,000 at the end of 1998 from
300,000 at the end of 1997.
EBITDA was negative $93.0 million in 1998 compared to negative $96.5 million
in 1997. The operating loss was $113.2 million in 1998 compared with $111.8
million in 1997. The increased operating loss resulted from higher sales and
marketing expenditures and subscriber acquisition costs.
Satellite Services Segment
Revenues for the Satellite Services segment in 1998 increased 21.8% to $767.3
million from $629.9 million in 1997. The increase in revenues was due to the May
1997 PanAmSat merger and increased operating lease revenues from the
commencement of service agreements for full-time video distribution, as well as
short-term special events and an increase in data and Internet-related service
agreements. The increase was partially offset by a decrease in sales and sales-
type lease revenues.
As a result of the increased revenues described above, the Satellite Services
segment's EBITDA and operating profit improved. EBITDA increased to $553.3
million in 1998 from $438.1 million in 1997. Operating profit increased 8.7% to
$318.3 million in 1998, compared with the prior year's operating profit of
$292.9 million. Operating profit margin in 1998 declined to 41.5% from 46.5% in
the prior year principally due to goodwill amortization associated with the
PanAmSat merger, a provision for losses relating to the May 1998 failure of
PanAmSat's Galaxy IV satellite and increased depreciation expense resulting from
increased capital expenditures by PanAmSat.
Backlog for the Satellite Services segment, which consists primarily of
operating leases on satellite transponders, was $4,461.9 million in 1998
compared to $5,772.5 million in 1997.
Network Systems Segment
Revenues for the Network Systems segment in 1998 were $1,076.7 million
compared with $1,011.3 million in 1997. The increase in revenues resulted from
the growth in sales of DIRECTV receiver equipment and increased sales of private
business networks and satellite-based mobile telephony equipment offset by lower
international sales of wireless telephony systems and private business networks,
primarily in the Asia-Pacific region.
EBITDA was $52.6 million in 1998, a decrease of $53.5 million from 1997.
Operating profit in 1998 was $10.9 million compared with $74.1 million in 1997
and operating profit margin declined to 1.0% from 7.3%. These decreases were
primarily due to a $26.0 million provision for estimated losses associated with
the bankruptcy filing by a customer, provision for uncollectible amounts due
from certain wireless customers and lower international sales of wireless
telephony systems and private business networks, primarily in the Asia Pacific
region.
Backlog for the Network Systems segment, which consists primarily of private
business networks and satellite-based mobile telephony equipment orders, was
$1,333.4 million in 1998 compared to $1,101.4 million in 1997.
Eliminations and Other
The elimination of revenues increased $99.7 million in 1998 to $179.5 million
due primarily to increased intercompany activity resulting from the PanAmSat
merger and increased manufacturing subsidies received by the Network Systems
segment from DIRECTV that resulted from the increased shipment of DIRECTV
receiver equipment.
Operating losses for "eliminations and other" increased to $147.3 million in
1998 from $68.9 million in 1997. The increase was primarily due to increases in
eliminations of intercompany profit and corporate expenditures. The increased
intercompany profit elimination resulted from the increased intercompany sales
noted above and increased corporate expenditures resulted primarily from higher
pension and other employee costs.
IV-22
<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Liquidity and Capital Resources
Cash and cash equivalents were $238.2 million at December 31, 1999 compared to
$1,342.0 million at December 31, 1998. The decrease in cash resulted primarily
from increased investing activities, offset in part by increased borrowings and
the issuance of preferred stock.
Cash provided by operating activities was $379.5 million in 1999, compared
to $612.1 million in 1998 and $90.6 million in 1997. The change in 1999 from
1998 resulted primarily from increased cash requirements for working capital
offset by increased income from continuing operations excluding non-cash
adjustments such as depreciation and amortization, the loss resulting from the
discontinuation of the wireless product lines and deferred taxes. The change in
1998 from 1997 resulted primarily from increased income from continuing
operations excluding non-cash adjustments and decreased working capital
requirements.
Cash used by investing activities was $3,941.8 million in 1999, compared to
$2,128.5 million in 1998 and $2,115.6 million in 1997. The increase in 1999
investing activities reflects the acquisitions of PRIMESTAR and the related
Tempo Satellite assets, USSB, SurFin, GGM and GLB. The 1999 increase is also due
to investments in DIRECTV Japan convertible bonds, the early buy-out of
satellite sale-leasebacks at PanAmSat and an increase in expenditures for
property, compared to 1998. The increase in 1998 investing activities reflects
the purchase of an additional 9.5% interest in PanAmSat, the early buy-out of
satellite sale-leasebacks at PanAmSat and an increase in expenditures for
satellites, compared to 1997, offset in part by proceeds from insurance claims
for the full or partial loss of certain PanAmSat satellites.
Cash provided by (used in) financing activities was $2,577.5 million in 1999,
compared to $(63.6) million in 1998 and $5,014.0 million in 1997. 1999 financing
activities reflect increased borrowings and proceeds from the issuance of
preferred stock. 1998 financing activities include the payment to General Motors
for the Delco post-closing price adjustment stemming from the Hughes
Transactions, offset in part by net long-term borrowings. 1997 financing
activities reflect the impact of the PanAmSat merger, the Hughes Transactions
and cash contributions from the Parent Company.
Cash provided by (used in) discontinued operations was $(119.0) million in
1999, compared to $138.3 million in 1998 and $(211.5) million in 1997. The
decrease in 1999 was due to increased working capital requirements, increased
development costs, the termination of the APMT contract and decreased activity
associated with the ICO contract. The increase in 1998 compared to 1997 was due
to a decrease in working capital requirements.
Liquidity Measurement. As a measure of liquidity, the current ratio (ratio of
current assets to current liabilities) at December 31, 1999 and 1998 was 1.46
and 3.03, respectively. Working capital decreased by $1,513.3 million to
$1,215.9 million at December 31, 1999 from $2,729.2 million at December 31,
1998. The change in working capital resulted principally from the decrease in
cash and cash equivalents discussed above.
Property and Satellites. Property, net of accumulated depreciation, increased
$540.0 million to $1,223.0 million in 1999 from $683.0 million in 1998. The
increase in property resulted primarily from capital expenditures of about
$506.4 million, additions resulting from acquisitions of about $281.6 million,
offset by depreciation of $227.0 million. The increase in capital expenditures
of $262.5 million in 1999 over 1998 was primarily due to an increase in
subscriber leased DIRECTV receiver equipment used in the conversion of PRIMESTAR
subscribers. Satellites, net of accumulated depreciation, increased $709.8
million to $3,907.3 million in 1999 from the $3,197.5 million reported in 1998.
Capital expenditures, including expenditures related to satellites, increased to
$1,665.3 million in 1999 from $1,328.8 million in 1998. 1999 capital
expenditures include $789.4 million for the construction of satellites and
$369.5 million for the early buy-out of satellite sale-leasebacks.
Common Stock Dividend Policy and Use of Cash. As discussed in Note 15 to the
financial statements, 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 Class H common stock. Similarly,
since such time, Hughes has not paid dividends on its common stock to GM and
does not currently intend to do so in the foreseeable future. Future Hughes
earnings, if any, are expected to be retained for the development of the
businesses of Hughes. Hughes expects to have significant cash requirements in
2000 primarily due to capital expenditures of approximately $1.5 to $2.0 billion
for satellites and property. In addition, Hughes expects to increase its
investment in affiliated companies, primarily related to its international
DIRECTV businesses. These cash requirements are expected to be funded from a
combination of cash provided from operations, cash to be received upon
completion of the Boeing transaction, amounts available under credit facilities
and debt and equity offerings, as needed.
Debt and Credit Facilities. Short-Term Borrowings. In October 1999, Hughes
issued $500.0 million ($498.9 million net of unamortized discount) of floating
rate notes to a group of institutional investors in a private placement. The
notes bear interest at a variable rate which was 7.45% at December 31, 1999 .
Interest is payable quarterly and the notes are due and payable on October 23,
2000.
Notes Payable. PanAmSat issued five, seven, ten and thirty-year notes
totaling $750.0 million in January 1998. The outstanding principal balances and
interest rates for the five, seven, ten and thirty-year notes as of December 31,
1999 were $200 million at 6.0%, $275 million at 6.125%, $150 million at 6.375%
and $125 million at $6.875%, respectively. Principal on the notes is payable at
maturity, while interest is payable semi-annually.
IV-23
<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
In July 1999, in connection with the early buy-out of satellite sale-
leasebacks, PanAmSat assumed $124.1 million of variable rate notes, all of which
were outstanding at December 31, 1999. The notes bear interest at various rates.
The weighted average interest rate on the notes at December 31, 1999 was 6.75%.
The notes mature on various dates through January 2, 2002.
Revolving Credit Facilities. Hughes has three unsecured revolving credit
facilities totaling $1.6 billion, consisting of a $750.0 million multi-year
facility, a $350.0 million 364-day facility, and a $500.0 million bridge
facility. The multi-year credit facility provides for a commitment of $750.0
million through December 5, 2002 and borrowings bear interest at various rates,
of which the weighted average rate at December 31, 1999 was 7.09%. The 364-day
facility provides for a commitment of $350.0 million through November 22, 2000.
These facilities also provide backup capacity for Hughes' commercial paper
program. The bridge facility provides for a commitment of $500.0 million through
the earlier of November 22, 2000 or the receipt of proceeds from the issuance of
any debt securities of Hughes in a public offering. $500.0 million was
outstanding under the multi-year facility at December 31, 1999. No amounts were
outstanding under the commercial paper program, 364-day, or bridge facilities at
December 31, 1999.
PanAmSat maintains a $500.0 million multi-year revolving credit facility that
provides for short-term and long-term borrowings and a $500.0 million commercial
paper program that provides for short-term borrowings. The multi-year revolving
credit facility provides for a commitment through December 24, 2002 . Borrowings
under the credit facility and commercial paper program are limited to $500.0
million in the aggregate. No amounts were outstanding under either the multi-
year revolving credit facility or the commercial paper program at December 31,
1999.
At December 31, 1999, Hughes' 75% owned subsidiary, SurFin, had a total of
$227.9 million outstanding under a $400.0 million unsecured revolving credit
facility expiring on June 2002. Borrowings under the credit facility bear
interest at various rates of interest. The weighted average interest rate on
these borrowings at December 31, 1999 was 6.84%.
Other. At December 31, 1999, GLB had a total of $24.3 million outstanding
under variable rate notes bearing interest at various rates. The weighted
average interest rate of the notes was 11.9% at December 31, 1999. Principal is
payable in varying amounts at maturity in April and May 2002, and interest is
payable monthly.
Other long-term debt totaling $16.2 million and $28.9 million at December 31,
1999 and 1998, respectively, consisted primarily of notes bearing fixed rates of
interest of 9.61% to 11.11%. Principal is payable at maturity in April 2007,
while interest is payable semi-annually.
As part of a debt refinancing program undertaken by PanAmSat in 1997, an
extraordinary charge of $20.6 million ($34.4 million before taxes) was recorded
that resulted from the excess of the price paid for the debt over its carrying
value, net of deferred financing costs.
Hughes has filed a shelf registration statement with the Securities and
Exchange Commission with respect to an issuance of up to $2.0 billion of debt
securities from time to time. No amounts have been issued as of December 31,
1999.
Acquisitions, Investments and Divestitures. On March 1, 2000, Hughes announced
that DIRECTV Japan's operations will be discontinued and that its subscribers
would migrate to SkyPerfecTV. As a result of this transaction, Hughes will
acquire a 6.8% interest in SkyPerfecTV, which is expected to complete an IPO
during its fiscal year ending March 31, 2001. Hughes will be required to fund a
substantial portion of the costs to be incurred over the next six to nine months
to exit the DIRECTV Japan business. Hughes will accrue such exit costs during
the first quarter of fiscal 2000. The first quarter charge will be offset by the
fair value of the SkyPerfecTV interest received; however the amounts are not yet
estimable. In addition, Hughes will continue to record its share of DIRECTV
Japan's operating losses during 2000.
On January 13, 2000, Hughes announced that it had reached an agreement to sell
its satellite systems manufacturing businesses to Boeing for $3.75 billion in
cash. The final transaction, which is subject to regulatory approval, is
expected to close in the second or third quarter of 2000 and result in an after-
tax gain in excess of $1 billion. The financial results for the satellite
systems manufacturing businesses are treated as discontinued operations for all
periods presented herein.
Also on January 13, 2000, Hughes announced the discontinuation of its mobile
cellular and narrowband local loop product lines at Hughes Network Systems. As a
result of this decision, Hughes recorded a fourth quarter 1999 pre-tax charge to
continuing operations of $272.1 million. The charge represents the write-off of
receivables and inventories, licenses, software and equipment with no
alternative use.
In September and November of 1999, DIRECTV Japan, Hughes' 42.2% owned
affiliate, raised a total of approximately $281 million through the issuance of
bonds, convertible into common stock, to five of its major shareholders,
including $244.7 million issued to Hughes.
On July 28, 1999, GLA acquired GLB, the exclusive distributor of DIRECTV in
Brazil, from Tevecap S.A. for approximately $114.0 million plus the assumption
of debt. In connection with the transaction, Tevecap also sold its 10% equity
interest in GLA to Hughes and The Cisneros Group of Companies, the
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HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
remaining GLA partners, which increased Hughes' ownership interest in GLA to
77.8%. As part of the transaction, Hughes also increased its ownership interest
in SurFin from 59.1% to 75.0%. The total consideration paid in the transactions
amounted to approximately $101.1 million.
On May 20, 1999, Hughes acquired by merger all of the outstanding capital
stock of USSB, a provider of premium subscription television programming via the
digital broadcasting system that it shares with DIRECTV. The total
consideration of about $1.6 billion paid in July 1999, consisted of about $0.4
billion in cash and 22.6 million shares of Class H common stock.
On April 28, 1999, Hughes completed the acquisition of PRIMESTAR's 2.3 million
subscriber medium-power direct-to-home satellite business. The purchase price
consisted of $1.1 billion in cash and 4.9 million shares of Class H common
stock, for a total purchase price of $1.3 billion. As part of the agreement to
acquire PRIMESTAR, Hughes agreed to purchase the high-power satellite assets and
related orbital frequencies of Tempo Satellite Inc., a wholly-owned subsidiary
of TCI Satellite Entertainment Inc. The purchase price for the Tempo Satellite
assets consisted of $500 million in cash. 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 February 1999, Hughes acquired an additional ownership interest in GGM, a
Latin America local operating company which is the exclusive distributor of
DIRECTV in Mexico, from Grupo MVS, S.R.L. de C.V. Hughes' equity ownership
represents 49.0% of the voting equity and all of the non-voting equity of GGM.
In October 1998, Hughes acquired from Grupo MVS an additional 10.0% interest in
GLA, increasing Hughes' ownership interest to 70.0%. Hughes also acquired an
additional 19.8% interest in SurFin, a company providing financing of subscriber
receiver equipment for certain local operating companies located in Latin
America and Mexico, increasing Hughes' ownership percentage from 39.3% to 59.1%.
The aggregate purchase price for these transactions was $197.0 million in cash.
In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat for
$851.4 million in cash, increasing its ownership interest in PanAmSat to 81.0%.
PanAmSat was originally acquired in May 1997, when Hughes and PanAmSat completed
the merger of their respective satellite service operations into a new publicly-
held company, which retained the name PanAmSat Corporation. Hughes contributed
its Galaxy satellite services business in exchange for a 71.5% interest in the
new company. Existing PanAmSat stockholders received a 28.5% interest in the new
company and $1.5 billion in cash. Such cash consideration and other funds
required to consummate the merger were funded by new debt financing totaling
$1,725.0 million borrowed from GM, which was subsequently repaid in December
1997. The PanAmSat merger was treated as a partial sale of the Galaxy business
by Hughes and resulted in a one-time pre-tax gain of $489.7 million ($318.3
million after-tax).
The financial information included herein, reflect the acquisitions discussed
above from their respective dates of acquisition. The acquisitions were
accounted for by the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on the estimated fair values at the date of acquisition. The
excess of the purchase price over the estimated fair values of the net assets
acquired has been recorded as goodwill, resulting in goodwill additions of
$3,612.4 million and $702.9 million for the years ended December 31, 1999 and
1998, respectively.
The December 31, 1999 financial statements for the PRIMESTAR transaction
reflect a preliminary allocation of the purchase price for the transaction based
upon information currently available. Adjustments relating to the tangible
assets, including equipment located on customer premises; intangible assets,
including customer lists and dealer network; 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 Hughes
management. The foregoing appraisals, review and analysis are expected to be
completed by March 31, 2000. Accordingly, the final purchase price allocations
may be different from the amounts reflected herein. As a result of the
acquisitions of GGM, SurFin and GLB, foreign currency risk, as more fully
described in ``Market Risk Disclosure,'' has increased for Hughes and may
increase in the future.
On December 15, 1997, Hughes sold substantially all of the assets and
liabilities of the Hughes Avicom business to Rockwell Collins, Inc. for cash,
which resulted in an after-tax gain of $62.8 million. Hughes Avicom is treated
as a discontinued operation for all periods prior to its disposition.
Also, in December 1997, Hughes repurchased from AT&T for $161.8 million, a
2.5% equity interest in DIRECTV, ending AT&T's marketing agreement to distribute
the DIRECTV direct broadcast satellite television service and DIRECTV(TM)
receiver equipment.
New Accounting Standards. In September 1999, the Financial Accounting
Standards Board ("FASB") issued Emerging Issues Task Force Issue 99-10 ("EITF
99-10"), Percentage Used to Determine the Amount of Equity Method Losses. EITF
99-10 addresses the percentage of ownership that should be used to compute
equity method losses when the investment has been reduced to zero and the
investor holds other securities of the investee. EITF 99-10 requires that
equity method losses should not be recognized solely on the percentage of common
stock owned; rather, an entity-wide approach should be
IV-25
<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
adopted. Under such an approach, equity method losses must be recognized based
on the ownership level that includes other equity securities (e.g., preferred
stock) and loans/advances to the investee or based on the change in the
investor's claim on the investee's book value. Hughes adopted EITF 99-10 during
the third quarter of 1999 which resulted in Hughes recording a higher percentage
of DIRECTV Japan's losses subsequent to the effective date of September 23,
1999. The unfavorable impact of adopting EITF 99-10 was $39.0 million after-tax.
In June 1998, the 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, as amended, by
January 1, 2001, as required. Hughes does not expect that the adoption of SFAS
No. 133 will have a material impact on Hughes' results of operations and
financial position.
IV-26
<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Commitments and Contingencies
Hughes may be required to make a cash payment to, or receive a cash payment
from, Raytheon in connection with the merger of the defense electronics business
of Hughes with Raytheon in 1997. The amount of any such cash payment to or from
Raytheon, if any, is not determinable at this time.
There is a pending grand jury investigation into whether Hughes should be
accused of criminal violations of the export control laws arising out of the
participation of two of its employees on a committee formed to review the
findings of Chinese engineers regarding the failure of a Long March rocket in
China in 1996. Hughes is also subject to the authority of the State Department
to impose sanctions for non-criminal violations of the Arms Export Control Act.
The possible criminal and/or civil sanctions could include fines as well as
debarment from various export privileges and participating in government
contracts. If Hughes were to enter into a settlement of this matter prior to
the closing of the Boeing transaction that involves a debarment from sales to
the U.S. government or a material suspension of Hughes' export licenses or other
material limitation on projected business activities of the satellite systems
manufacturing businesses, Boeing would not be obligated to complete the purchase
of Hughes' satellite systems manufacturing businesses. Hughes does not expect
the grand jury investigation or State Department review to result in a material
adverse effect upon its business. However, there can be no assurance as to
those conclusions.
Hughes has contracts with ICO Global Communications (Operations), Ltd. to
build the satellites and related components for ICO's global wireless
communications system. ICO's parent company recently filed for bankruptcy
protection under Chapter 11. If ICO's parent company is unable to confirm a plan
of reorganization that provides for full payment to Hughes under these
contracts, ICO may be unable to pay these amounts and the most likely outcome
would be a liquidation proceeding. In the event that a liquidation becomes
probable, Hughes would expect to record a pre-tax charge to income of up to
approximately $350 million, of which $100 million would be attributable to
continuing operations and $250 million would be attributable to discontinued
operations. A portion of the purchase price to be paid by Boeing will be placed
in escrow under certain circumstances if prior to completing this sale to
Boeing, Hughes' contracts with ICO are not assumed by ICO with bankruptcy court
approval or new similar contracts are not entered into with bankruptcy court
approval.
At December 31, 1999, minimum future commitments under noncancelable operating
leases having lease terms in excess of one year are primarily for real property
and aggregated $250.8 million, payable as follows: $102.8 million in 2000,
$52.3 million in 2001, $24.2 million in 2002, $17.8 million in 2003, $12.5
million in 2004 and $41.2 million thereafter. Certain of these leases contain
escalation clauses and renewal or purchase options. Rental expenses under
operating leases, net of sublease rental income, were $58.5 million in 1999,
$82.7 million in 1998 and $89.1 million in 1997.
Hughes is contingently liable under standby letters of credit and bonds in the
amount of $222.0 million at December 31, 1999. In Hughes' past experience, no
material claims have been made against these financial instruments. In
addition, at December 31, 1999, Hughes has guaranteed up to $209.1 million of
bank debt, including $105.0 million related to American Mobile Satellite
Corporation. Of the bank debt guaranteed, $105.0 million matures in March 2003;
$55.4 million matures in September 2007; the remaining $48.7 million is due in
variable amounts over the next five years.
In connection with the direct-to-home broadcast businesses, Hughes has
commitments related to certain programming agreements which are variable based
upon the number of underlying subscribers and market penetration rates. Minimum
payments over the terms of applicable contracts are anticipated to be about
$1,000.0 million to $1,150.0 million.
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 about $1.5 billion relating to DirecPC/AOL-Plus, DIRECTV,
DIRECTV/AOL TV and DirecDuo.
See Note 20 to the financial statements for further discussion of the above
matters and various legal proceedings and claims that could be material,
individually or in the aggregate, to Hughes' continuing operations or financial
position.
IV-27
<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Year 2000
A comprehensive, company-wide, Year 2000 program was initiated in 1996 to
identify and remediate potential Year 2000 problems. The Year 2000 program was
implemented in seven phases which included awareness, inventory, assessment,
remediation, testing, implementation and contingency planning. Hughes incurred
and expensed approximately $10.0 million during 1999, approximately $4.0 million
during 1998 and approximately $1.0 million through 1997, related to the
assessment of, and ongoing efforts in connection with, its Year 2000 program.
Future spending for remaining system remediation and testing is currently
estimated to be from $0.6 million to $1.0 million.
As of the date of this report, Hughes has experienced no significant problems
related to the Year 2000 conversion either domestically or in foreign locations.
After extensive system verification and testing, all computerized information
and process control systems are operating normally. The performance of critical
customers and suppliers continues without notable change. Production and
business activities are normal at all locations. Hughes also has not received
any material complaints regarding any Year 2000 issues related to its products.
However, Hughes cannot provide assurance that problems will not arise.
Hughes continues to monitor the status of its operations, suppliers and
distribution channels to ensure no significant business interruptions.
In addition to the above, the satellite systems manufacturing businesses
incurred expenditures related to the Year 2000 conversion of about $11.0 million
and $5.0 million during 1999 and 1998, respectively. Future spending for the
satellite systems manufacturing businesses is estimated at about $1.0 million.
As of the date of this report, the satellite systems manufacturing businesses
have experienced no significant problems related to the Year 2000 conversions,
however, Hughes cannot provide assurance that problems will not arise.
Each Hughes operating company is funding its respective Year 2000 efforts with
current and future operating cash flows.
IV-28
<PAGE>
HUGHES ELECTRONICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
Security Ratings
On January 14, 2000, subsequent to the announced sale of Hughes' satellite
systems manufacturing businesses to Boeing, Standard and Poor's Rating Services
("S&P") and Moody's Investors Service ("Moody's") each affirmed its respective
debt ratings for Hughes. S&P maintained its BBB - minus credit rating, which
indicates the issuer has adequate capacity to pay interest and repay principal.
S&P maintained the short-term corporate credit and commercial paper ratings at
A-3. S&P revised its outlook to positive from negative.
Moody's confirmed Hughes' Baa2 long-term credit and P-2 commercial paper
ratings. While the outlook remains negative, Moody's ended its review for
possible downgrade. The Baa2 rating for senior debt indicates adequate
likelihood of interest and principal payment and principal security. The P-2
commercial paper rating is the second highest rating available and indicates
that the issuer has a strong ability for repayment relative to other issuers.
Debt ratings by the various rating agencies reflect each agency's opinion of
the ability of issuers to repay debt obligations as they come due. Lower
ratings generally result in higher borrowing costs. A security rating is not a
recommendation to buy, sell, or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating organization. Each rating
should be evaluated independently of any other rating.
Market Risk Disclosure
The following discussion and the estimated amounts generated from the
sensitivity analyses referred to below include forward-looking statements of
market risk which assume for analytical purposes that certain adverse market
conditions may occur. Actual future market conditions may differ materially
from such assumptions because the amounts noted below are the result of analyses
used for the purpose of assessing possible risks and the mitigation thereof.
Accordingly, the forward-looking statements should not be considered projections
by Hughes of future events or losses.
General
Hughes' cash flows and earnings are subject to fluctuations resulting from
changes in foreign currency exchange rates, interest rates and changes in the
market value of its equity investments. Hughes manages its exposure to these
market risks through internally established policies and procedures and, when
deemed appropriate, through the use of derivative financial instruments.
Hughes' policy is to not enter into speculative derivative instruments for
profit or execute derivative instrument contracts for which there are no
underlying exposures. Hughes does not use financial instruments for trading
purposes and is not a party to any leveraged derivatives.
Foreign Currency Risk
Hughes generally conducts its business in U.S. dollars with a small amount of
business conducted in a variety of foreign currencies and therefore is exposed
to fluctuations in foreign currency exchange rates. Hughes' objective in
managing the exposure to foreign currency changes is to reduce earnings and cash
flow volatility associated with foreign exchange rate fluctuations.
Accordingly, Hughes enters into foreign exchange-forward contracts to mitigate
risks associated with future foreign currency firm commitments. Foreign
exchange-forward contracts are legal agreements between two parties to purchase
and sell a foreign currency, for a price specified at the contract date, with
delivery and settlement in the future. At December 31, 1999, the impact of a
hypothetical 10% adverse change in exchange rates on the fair values of foreign
exchange-forward contracts and foreign currency denominated assets and
liabilities would not be significant.
Investments
Hughes maintains investments in publicly-traded common stock of unaffiliated
companies and is therefore subject to equity price risk. These investments are
classified as available-for-sale and, consequently, are reflected in the balance
sheets at fair value with unrealized gains or losses, net of taxes, recorded as
part of accumulated other comprehensive income (loss), a separate component of
stockholder's equity. At December 31, 1999, the fair values of the investments
in such common stock were $1,025.2 million. The investments were valued at the
market closing prices at December 31, 1999. No actions have been taken by Hughes
to hedge this market risk exposure. A 10% decline in the market price of these
investments would cause the fair value of the investments in common stock to
decrease by $102.5 million as of December 31, 1999.
Interest Rate Risk
Hughes is subject to interest rate risk related to its $2.1 billion of debt
outstanding at December 31, 1999. As of December 31, 1999, debt consisted of
Hughes' $500.0 million floating rate line of credit and a $498.9 million
floating rate note, PanAmSat's fixed-rate borrowings of $750.0 million, and
various other floating and fixed rate borrowings. Hughes is subject to
fluctuating interest rates which may adversely impact its results of operations
and cash flows for its variable rate bank borrowings. Fluctuations in interest
rates may also adversely effect the market value of Hughes' fixed-rate
borrowings. At December 31, 1999, outstanding borrowings bore interest at rates
ranging from 6.00% to 11.11%. The potential fair value loss resulting from a
hypothetical 10% decrease in interest rates related to Hughes' outstanding debt
would be approximately $29.0 million as of December 31, 1999.
Credit Risk
Hughes is exposed to credit risk in the event of non-performance by the
counterparties to its foreign exchange-forward contracts. While Hughes believes
this risk is remote, credit risk is managed through the periodic monitoring and
approval of financially sound counterparties.
IV-29
<PAGE>
HUGHES ELECTRONICS CORPORATION
RESPONSIBILITIES FOR FINANCIAL STATEMENTS
The following financial statements of Hughes Electronics Corporation (as
more fully described in Note 1 to the financial statements) were prepared by
management, which is responsible for their integrity and objectivity. The
statements have been prepared in conformity with generally accepted accounting
principles and, as such, include amounts based on judgments of management.
Management is further responsible for maintaining internal control designed to
provide reasonable assurance that the books and records reflect the transactions
of the company and that established policies and procedures are carefully
followed. Perhaps the most important feature in internal control is that it is
continually reviewed for effectiveness and is augmented by written policies and
guidelines, the careful selection and training of qualified personnel and a
strong program of internal audit.
Deloitte & Touche LLP, an independent auditing firm, is engaged to audit the
financial statements of Hughes Electronics Corporation and issue reports
thereon. The audit is conducted in accordance with generally accepted auditing
standards that comprehend the consideration of internal control and tests of
transactions to the extent necessary to form an independent opinion on the
financial statements prepared by management. The Independent Auditors' Report
appears on the next page.
The Board of Directors, through its Audit Committee, is responsible for
assuring that management fulfills its responsibilities in the preparation of the
financial statements and engaging the independent auditors. The Audit Committee
reviews the scope of the audits and the accounting principles being applied in
financial reporting. The independent auditors, representatives of management,
and the internal auditors meet regularly (separately and jointly) with the Audit
Committee to review the activities of each, to ensure that each is properly
discharging its responsibilities and to assess the effectiveness of internal
control. It is management's conclusion that internal control at December 31,
1999 provides reasonable assurance that the books and records reflect the
transactions of the company and that established policies and procedures are
complied with. To ensure complete independence, Deloitte & Touche LLP has full
and free access to meet with the Audit Committee, without management
representatives present, to discuss the results of the audit, the adequacy of
internal control, and the quality of financial reporting.
/s/MICHAEL T. SMITH /s/ROXANNE S. AUSTIN
Michael T. Smith Roxanne S. Austin
Chairman of the Board and Senior Vice President and
Chief Executive Officer Chief Financial Officer
IV-30
<PAGE>
HUGHES ELECTRONICS CORPORATION
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Hughes Electronics Corporation:
We have audited the accompanying Balance Sheets of Hughes Electronics
Corporation (as more fully described in Note 1 to the financial statements) as
of December 31, 1999 and 1998 and the related Statements of Operations and
Available Separate Consolidated Net Income (Loss), Statements of Changes in
Stockholder's Equity and Statements of Cash Flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of Hughes Electronics Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Hughes Electronics Corporation at December
31, 1999 and 1998 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the accompanying financial statements, effective
January 1, 1998, Hughes Electronics Corporation changed its method of accounting
for costs of start-up activities by adopting American Institute of Certified
Public Accountants Statement of Position 98-5, Reporting on the Costs of Start-
Up Activities.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Los Angeles, California
January 19, 2000
(March 1, 2000 as to Note 21)
IV-31
<PAGE>
<TABLE>
HUGHES ELECTRONICS CORPORATION
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
STATEMENTS OF OPERATIONS AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
<CAPTION>
Years Ended December 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in Millions)
Revenues
<S> <C> <C> <C>
Direct broadcast, leasing and other services $4,550.1 $2,640.2 $1,984.7
Product sales 1,010.2 840.4 853.6
-------- -------- --------
Total Revenues 5,560.3 3,480.6 2,838.3
-------- -------- --------
Operating Costs and Expenses
Broadcast programming and other costs 2,075.1 1,211.4 912.3
Cost of products sold 954.6 606.6 538.4
Selling, general and administrative expenses 2,307.9 1,320.9 1,083.8
Depreciation and amortization 647.4 384.6 257.0
Amortization of GM purchase accounting adjustments 3.3 3.3 3.3
-------- -------- --------
Total Operating Costs and Expenses 5,988.3 3,526.8 2,794.8
-------- -------- --------
Operating Profit (Loss) (428.0) (46.2) 43.5
Interest income 27.0 112.3 33.0
Interest expense (122.7) (17.5) (91.0)
Other, net (136.3) (151.8) 388.6
-------- -------- --------
Income (Loss) From Continuing Operations Before
Income Taxes, Minority Interests, Extraordinary Item
and Cumulative Effect of Accounting Change (660.0) (103.2) 374.1
Income tax provision (benefit) (236.9) (142.3) 162.0
Minority interests in net losses of subsidiaries 32.0 24.4 24.8
-------- -------- --------
Income (Loss) from continuing operations before extraordinary
item and cumulative effect of accounting change (391.1) 63.5 236.9
Income from discontinued operations, net of taxes 99.8 196.4 170.6
Gain on sale of discontinued operations, net of taxes - - 62.8
-------- -------- --------
Income (Loss) before extraordinary item and cumulative
effect of accounting change (291.3) 259.9 470.3
Extraordinary item, net of taxes - - (20.6)
Cumulative effect of accounting change, net of taxes - (9.2) -
-------- -------- --------
Net Income (Loss) (291.3) 250.7 449.7
Adjustments to exclude the effect of GM purchase
accounting adjustments 21.0 21.0 21.0
-------- -------- --------
Earnings (Loss) excluding the effect of GM purchase
accounting adjustments (270.3) 271.7 470.7
Preferred stock dividends (50.9) - -
-------- -------- --------
Earnings (Loss) Used for Computation of Available
Separate Consolidated Net Income (Loss) $ (321.2) $ 271.7 $ 470.7
======== ======== ========
Available Separate Consolidated Net Income (Loss)
Average number of shares of General Motors Class H
Common Stock outstanding (in millions) (Numerator) 124.7 105.3 101.5
Average Class H dividend base (in millions) (Denominator) 418.5 399.9 399.9
Available Separate Consolidated Net Income (Loss) $ (95.7) $ 71.5 $ 119.4
======== ======== ========
</TABLE>
____________
Reference should be made to the Notes to Financial Statements.
IV-32
<PAGE>
<TABLE>
HUGHES ELECTRONICS CORPORATION
BALANCE SHEETS
<CAPTION>
December 31,
-----------------------
ASSETS 1999 1998
---------- ----------
(Dollars in Millions)
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 238.2 $ 1,342.0
Accounts and notes receivable, net of allowances of
$92.9 and $23.9 960.9 764.6
Contracts in process 155.8 179.0
Inventories 236.1 286.6
Net assets of discontinued operations 1,224.6 1,005.8
Deferred income taxes 254.3 209.7
Prepaid expenses and other 788.1 287.5
--------- ---------
Total Current Assets 3,858.0 4,075.2
Satellites, net 3,907.3 3,197.5
Property, net 1,223.0 683.0
Net Investment in Sales-type Leases 146.1 173.4
Intangible Assets, net 7,406.0 3,185.9
Investments and Other Assets 2,056.6 1,302.4
--------- ---------
Total Assets $18,597.0 $12,617.4
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 1,062.2 $ 691.8
Deferred revenues 130.5 43.8
Short-term borrowings and current portion of long-term debt 555.4 156.1
Accrued liabilities and other 894.0 454.3
--------- ---------
Total Current Liabilities 2,642.1 1,346.0
--------- ---------
Long-Term Debt 1,586.0 778.7
Other Liabilities and Deferred Credits 1,454.2 957.7
Deferred Income Taxes 689.1 641.1
Commitments and Contingencies
Minority Interests 544.3 481.7
Stockholder's Equity
Capital stock and additional paid-in capital 9,809.5 8,146.1
Preferred stock 1,487.5 -
Retained earnings (deficit) (84.4) 257.8
--------- ---------
Subtotal Stockholder's Equity 11,212.6 8,403.9
--------- ---------
Accumulated Other Comprehensive Income (Loss)
Minimum pension liability adjustment (7.3) (6.8)
Accumulated unrealized gains on securities 466.0 16.1
Accumulated foreign currency translation adjustments 10.0 (1.0)
--------- ---------
Accumulated other comprehensive income 468.7 8.3
--------- ---------
Total Stockholder's Equity 11,681.3 8,412.2
--------- ---------
Total Liabilities and Stockholder's Equity $18,597.0 $12,617.4
========= =========
</TABLE>
____________
Reference should be made to the Notes to Financial Statements.
IV-33
<PAGE>
<TABLE>
HUGHES ELCTRONICS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in Millions)
<CAPTION>
Capital Stock
Parent and Accumulated
Company's Additional Retained Other Total
Net Paid-In Preferred Earnings Comprehensive Stockholder's Comprehensive
Investment Capital Stock (Deficit) Income (Loss) Equity Income
---------- ------- ----- --------- ------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net contribution from Parent
Company 1,124.2 1,124.2
Transfer of capital from Parent
Company's net investment (4,063.8) $4,063.8 -
Capital contribution resulting
from the Hughes Transactions 4,259.0 4,259.0
Minimum pension liability
adjustment resulting from the
Hughes Transactions (6.3) (6.3)
Unrealized gains on securities
resulting from the Hughes
Transactions 21.4 21.4
Net income 442.6 $ 7.1 449.7 $ 449.7
Foreign currency translation
adjustments 0.6 0.6 0.6
-------
Comprehensive income $ 450.3
--------- -------- -------- ------- ------ --------- =======
Balance at December 31, 1997 - 8,322.8 - 7.1 10.3 8,340.2
Net Income 250.7 250.7 $ 250.7
Delco post-closing price
adjustment (199.7) (199.7)
Tax benefit from exercise
of GM Class H common
stock options 23.0 23.0
Minimum pension liability
adjustment (0.5) (0.5) (0.5)
Foreign currency translation
adjustments 3.8 3.8 3.8
Unrealized gains on securities:
Unrealized holding gains 1.8 1.8 1.8
Less: reclassification
adjustment for gains
included in net income (7.1) (7.1) (7.1)
-------
Comprehensive income $ 248.7
--------- -------- -------- ------- ------ --------- =======
Balance at December 31, 1998 - 8,146.1 - 257.8 8.3 8,412.2
Net Loss (291.3) (291.3) $(291.3)
Preferred stock $1,487.5 1,487.5
Preferred stock dividends (50.9) (50.9)
Shares reacquired (11.1) (11.1)
Stock options exercised 114.4 114.4
Shares issued in connection
with acquisitions 1,506.7 1,506.7
Tax benefit from exercise of
GM Class H common stock
options 53.4 53.4
Minimum pension liability
adjustment (0.5) (0.5) (0.5)
Foreign currency translation
adjustments 11.0 11.0 11.0
Unrealized gains on securities 449.9 449.9 449.9
-------
Comprehensive income $ 169.1
--------- -------- -------- ------- ------ --------- =======
Balance at December 31, 1999 $ - $9,809.5 $1,487.5 $ (84.4) $468.7 $11,681.3
========= ======== ======== ======= ====== =========
</TABLE>
- --------------------------
Reference should be made to the Notes to Financial Statements.
* * * * * * * * * * *
IV-34
<PAGE>
<TABLE>
HUGHES ELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Cash Flows from Operating Activities (Dollars in Millions)
Income (Loss) from continuing operations before extraordinary
<S> <C> <C> <C>
item and cumulative effect of accounting change $ (391.1) $ 63.5 $ 236.9
Adjustments to reconcile income (loss) from continuing
operations before extraordinary item and cumulative effect
of accounting change to net cash provided by operating activities
Depreciation and amortization 650.7 387.9 260.3
Equity losses from unconsolidated affiliates 189.2 128.3 72.2
Amortization of gains on sale-leasebacks (10.8) (36.2) (42.9)
Net gain on sale of investments and businesses sold (30.0) (13.7) (489.7)
Gross profit on sales-type leases - - (33.6)
Net loss on discontinuation of wireless product lines 272.1 - -
Net loss on disposal of assets 2.7 - -
Deferred income taxes and other 271.1 99.6 220.5
Change in other operating assets and liabilities
Accounts and notes receivable 35.0 (49.4) (246.2)
Contracts in process 23.2 1.7 (19.5)
Inventories (38.7) 12.9 (39.9)
Prepaid expenses and other (494.0) (91.6) (138.0)
Collections of principal on net investment in sales-type leases 22.2 40.6 22.0
Accounts payable 101.4 224.0 (183.9)
Deferred revenues (50.3) (34.0) (21.2)
Accrued liabilities and other 59.6 (19.0) 207.3
Other (232.8) (102.5) 286.3
--------- --------- ---------
Net Cash Provided by Operating Activities 379.5 612.1 90.6
--------- --------- ---------
Cash Flows from Investing Activities
Investment in companies, net of cash acquired (2,443.7) (1,231.0) (1,796.8)
Investment in convertible bonds (244.7) - -
Expenditures for property (506.4) (243.9) (137.4)
Increase in satellites (789.4) (929.4) (633.5)
Early buy-out of satellites under sale and leaseback (245.4) (155.5) -
Proceeds from sale of discontinued operations - - 155.0
Proceeds from disposal of property 15.8 20.0 55.1
Proceeds from sale of investments - 12.4 242.0
Proceeds from insurance claims 272.0 398.9 -
--------- --------- ---------
Net Cash Used in Investing Activities (3,941.8) (2,128.5) (2,115.6)
--------- --------- ---------
Cash Flows from Financing Activities
Net increase in notes and loans payable 343.0 - -
Long-term debt borrowings 8,165.6 1,165.2 2,383.3
Repayment of long-term debt (7,494.4) (1,024.1) (2,851.9)
Net proceeds from issuance of preferred stock 1,485.0 - -
Stock options exercised 114.4 - -
Purchase and retirement of GM Class H common stock (11.1) - -
Preferred stock dividends paid to General Motors (25.0) - -
Premium paid to retire debt - - (34.4)
Contributions from Parent Company - - 1,124.2
Payment to General Motors for Delco post-closing price adjustment - (204.7) -
Capital contribution resulting from Hughes Transactions - - 4,392.8
--------- --------- ---------
Net Cash Provided by (Used in) Financing Activities 2,577.5 (63.6) 5,014.0
--------- --------- ---------
Net cash provided by (used in) continuing operations (984.8) (1,580.0) 2,989.0
Net cash provided by (used in) discontinued operations (119.0) 138.3 (211.5)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1,103.8) (1,441.7) 2,777.5
Cash and cash equivalents at beginning of the year 1,342.0 2,783.7 6.2
--------- --------- ---------
Cash and cash equivalents at end of the year $ 238.2 $ 1,342.0 $ 2,783.7
========= ========= =========
</TABLE>
- --------------------------
Reference should be made to the Notes to Financial Statements.
IV-35
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1: Basis of Presentation and Description of Business
On December 17, 1997, Hughes Electronics Corporation ("Hughes Electronics")
and General Motors Corporation ("GM"), the parent of Hughes Electronics,
completed a series of transactions (the "Hughes Transactions") designed to
address strategic challenges facing the three principal businesses of Hughes
Electronics and unlock stockholder value in GM. The Hughes Transactions
included the tax-free spin-off of the defense electronics business ("Hughes
Defense") to holders of GM $1-2/3 par value and Class H common stocks, the
transfer of Delco Electronics Corporation ("Delco"), the automotive electronics
business, to GM's Delphi Automotive Systems unit and the recapitalization of GM
Class H common stock into a new tracking stock, GM Class H common stock, that is
linked to the remaining telecommunications and space business. The Hughes
Transactions were followed immediately by the merger of Hughes Defense with
Raytheon Company ("Raytheon"). For the periods prior to the consummation of the
Hughes Transactions on December 17, 1997, Hughes Electronics, consisting of its
defense electronics, automotive electronics and telecommunications and space
businesses, is hereinafter referred to as former Hughes or Parent Company.
In connection with the recapitalization of Hughes Electronics on December 17,
1997, the telecommunications and space business of former Hughes, consisting
principally of its direct-to-home broadcast, satellite services, satellite
systems and network systems businesses, was contributed to the recapitalized
Hughes Electronics. Such telecommunications and space business, both before and
after the recapitalization, is hereinafter referred to as Hughes. The
accompanying financial statements and footnotes pertain only to Hughes and do
not include balances of former Hughes related to Hughes Defense or Delco.
Prior to the Hughes Transactions, the Hughes businesses were effectively
operated as divisions of former Hughes. For the period prior to December 18,
1997, these financial statements include allocations of corporate expenses from
former Hughes, including research and development, general management, human
resources, financial, legal, tax, quality, communications, marketing,
international, employee benefits and other miscellaneous services. These costs
and expenses have been charged to Hughes based either on usage or using
allocation methodologies primarily based upon total revenues, certain tangible
assets and payroll expenses. Management believes the allocations were made on a
reasonable basis; however, they may not necessarily reflect the financial
position, results of operations or cash flows of Hughes on a stand-alone basis
in the future. Also, prior to December 18, 1997, interest expense in the
Statements of Operations and Available Separate Consolidated Net Income (Loss)
included an allocated share of total former Hughes' interest expense.
Revenues, operating costs and expenses, and other non-operating results for
discontinued operations are excluded from Hughes' results from continuing
operations for all periods presented herein. The financial results of these
businesses are presented in Hughes' Statements of Operations and Available
Separate Consolidated Net Income (Loss) in a single line item entitled "income
from discontinued operations, net of taxes," the related assets and liabilities
are presented in the balance sheets on a single line item entitled "net assets
of discontinued operations" and the net cash flows as "net cash provided by
(used in) discontinued operations. See further discussion in Note 17.
The accompanying 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,
with certain amounts allocated to the satellite systems manufacturing
businesses.
Hughes is a leading provider of digital entertainment, information and
communication services and satellite-based private business networks. Hughes is
the world's leading digital multi-channel entertainment service provider with
its programming distribution service known as DIRECTV, which was introduced in
the U.S. in 1994 and was the first high-powered, all digital, direct-to-home
("DTH") television distribution service in North America. DIRECTV began service
in Latin America in 1996. Hughes is also the owner and operator of the largest
commercial satellite fleet in the world through its 81% owned subsidiary,
PanAmSat. Hughes is also a leading provider of satellite wireless
communications ground equipment and business communications services. Its
equipment and services are applied in, among other things, data, video and audio
transmission, cable and network television distribution, private business
networks, digital cellular communications and DTH satellite broadcast
distribution of television programming.
IV-36
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 2: Summary of Significant Accounting Policies
Principles of Combination and Consolidation
Prior to December 18, 1997, the financial statements present, on a combined
basis, the financial position, results of operations and cash flows of the
telecommunications and space business owned and operated by former Hughes.
Subsequent to the Hughes Transactions, the accompanying financial statements are
presented on a consolidated basis. The financial statements include the
accounts of Hughes and its domestic and foreign subsidiaries that are more than
50% owned or controlled by Hughes, with investments in associated companies in
which Hughes owns at least 20% of the voting securities or has significant
influence accounted for under the equity method of accounting.
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported therein. Due to the inherent uncertainty involved in
making estimates, actual results reported in future periods may be based upon
amounts which differ from those estimates.
Revenue Recognition
Revenues are generated from sales of DTH broadcast subscriptions, and the sale
of transponder capacity and related services through outright sales, sales-type
leases and operating lease contracts, and sales of communications equipment and
services.
Sales are generally recognized as products are shipped or services are
rendered. DTH subscription revenues are recognized when programming is viewed
by subscribers. Programming payments received from subscribers in advance of
viewing are recorded as deferred revenue until earned.
Satellite transponder lease contracts qualifying for capital lease treatment
(typically based on the term of the lease) are accounted for as sales-type
leases, with revenues recognized equal to the net present value of the future
minimum lease payments. Upon entering into a sales-type lease, the cost basis
of the transponder is charged to cost of products sold. The portion of each
periodic lease payment deemed to be attributable to interest income is
recognized in each respective period. Contracts for sales of transponders
typically include telemetry, tracking and control ("TT&C") service agreements.
Revenues related to TT&C service agreements are recognized as the services are
performed.
Transponder and other lease contracts that do not qualify as sales-type leases
are accounted for as operating leases. Operating lease revenues are recognized
on a straight-line basis over the respective lease term. Differences between
operating lease payments received and revenues recognized are deferred and
included in accounts and notes receivable or investments and other assets.
A small percentage of revenues are derived from long-term contracts for the
sale of large wireless communications systems. Sales under long-term contracts
are recognized primarily using the percentage-of-completion (cost-to-cost)
method of accounting. Under this method, sales are recorded equivalent to costs
incurred plus a portion of the profit expected to be realized, determined based
on the ratio of costs incurred to estimated total costs at completion. Profits
expected to be realized on long-term contracts are based on estimates of total
sales value and costs at completion. These estimates are reviewed and revised
periodically throughout the lives of the contracts, and adjustments to profits
resulting from such revisions are recorded in the accounting period in which the
revisions are made. Estimated losses on contracts are recorded in the period in
which they are identified.
Hughes has from time to time entered into agreements for the sale and
leaseback of certain of its satellite transponders. However, as a result of
early buy-out transactions described in Note 4, no obligations under sale-
leaseback agreements remain at December 31, 1999. Prior to the completion of the
early buy-out transactions, the leasebacks were classified as operating leases
and, therefore, the capitalized cost and associated depreciation related to
satellite transponders sold were not included in the accompanying financial
statements. Gains resulting from the sale and leaseback transactions were
deferred and amortized over the leaseback period. Leaseback expense was recorded
using the straight-line method over the term of the lease, net of amortization
of the deferred gains. Differences between operating leaseback payments made and
expense recognized were deferred and included in other liabilities and deferred
credits.
Cash Flows
Cash equivalents consist of highly liquid investments purchased with original
maturities of 90 days or less.
Net cash from operating activities includes cash payments made for interest of
$174.6 million, $53.2 million and $156.8 million in 1999, 1998 and 1997,
respectively. Net cash refunds received by Hughes for prior year income taxes
amounted to $197.2 million and $59.9 million in 1999 and 1998, respectively.
Cash payments for income taxes amounted to $24.0 million in 1997.
Certain non-cash transactions occurred in connection with the consummation of
the Hughes Transactions on December 17, 1997, resulting in a contribution of a
net liability of $133.8 million.
IV-37
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 2: Summary of Significant Accounting Policies - Continued
In 1997, in a separate non-cash transaction, Hughes' subsidiary, PanAmSat
Corporation ("PanAmSat"), converted its outstanding preferred stock into debt
amounting to $438.5 million.
Contracts in Process
Contracts in process are stated at costs incurred plus estimated profit, less
amounts billed to customers and advances and progress payments applied.
Engineering, tooling, manufacturing, and applicable overhead costs, including
administrative, research and development and selling expenses, are charged to
costs and expenses when incurred. Amounts billed under retainage provisions of
contracts are not significant, and substantially all amounts are collectible
within one year. Advances offset against contract related receivables amounted
to $114.5 million and $112.0 million at December 31, 1999 and 1998,
respectively.
Inventories
Inventories are stated at the lower of cost or market principally using the
average cost method.
Major Classes of Inventories
(Dollars in Millions) 1999 1998
------ ------
Productive material and supplies $ 59.1 $ 55.0
Work in process 67.0 118.6
Finished goods 110.0 113.0
------ ------
Total $236.1 $286.6
====== ======
Property, Satellites and Depreciation
Property and satellites are carried at cost. Satellite costs include
construction costs, launch costs, launch insurance and capitalized interest.
Capitalized satellite costs represent the costs of successful satellite
launches. The proportionate cost of a satellite, net of depreciation and
insurance proceeds, is written off in the period a full or partial loss of the
satellite occurs. Depreciation is computed generally using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements
are amortized over the lesser of the life of the asset or term of the lease.
Intangible Assets
Goodwill, which represents the excess of the cost over the net tangible and
identifiable intangible assets of acquired businesses, and intangible assets are
amortized using the straight-line method over periods not exceeding 40 years.
Software Development Costs
Other assets include certain software development costs capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. Capitalized software development costs at December 31, 1999 and 1998,
net of accumulated amortization of $98.7 million and $70.6 million,
respectively, totaled $70.4 million and $104.1 million. The software is
amortized using the greater of the units of revenue method or the straight-line
method over its estimated useful life, not in excess of five years. Software
program reviews are conducted to ensure that capitalized software development
costs are properly treated and costs associated with programs that are not
generating revenues are appropriately written off.
Valuation of Long-Lived Assets
Hughes periodically evaluates the carrying value of long-lived assets to be
held and used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair value of the long-lived asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Losses on long-lived assets to be disposed of are determined in a similar
manner, except that fair values are reduced for the cost of disposal.
IV-38
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 2: Summary of Significant Accounting Policies - Continued
Foreign Currency
Substantially all of Hughes' foreign operations have determined the local
currency to be their functional currency. Accordingly, these foreign entities
translate assets and liabilities from their local currencies to U.S. dollars
using year-end exchange rates while income and expense accounts are translated
at the average rates in effect during the year. The resulting translation
adjustment is recorded as part of accumulated other comprehensive income (loss),
a separate component of stockholder's equity. Gains and losses resulting from
remeasurement into the functional currency of transactions denominated in non-
functional currencies are recognized in earnings. Net foreign currency
transaction gains and losses included in operations were not material for all
years presented.
Financial Instruments and Investments
Hughes maintains investments in equity securities of unaffiliated companies.
These investments are considered available-for-sale and carried at current fair
value with unrealized gains or losses, net of taxes, reported as part of
accumulated other comprehensive income (loss), a separate component of
stockholder's equity. Fair value is determined by market quotes, when
available, or by management estimate.
Market values of financial instruments, other than debt and derivative
instruments, are based upon management estimates. Market values of debt and
derivative instruments are determined by quotes from financial institutions.
The carrying value of cash and cash equivalents, accounts and notes
receivable, investments and other assets, accounts payable, amounts included in
accrued liabilities and other meeting the definition of a financial instrument
and debt approximated fair value at December 31, 1999.
Hughes' derivative contracts primarily consist of foreign exchange-forward
contracts. Hughes enters into these contracts to reduce its exposure to
fluctuations in foreign exchange rates. Foreign exchange-forward contracts are
accounted for as hedges to the extent they are designated as, and are effective
as, hedges of firm foreign currency commitments. Gains and losses on foreign
exchange-forward contracts designated as hedges of firm foreign currency
commitments are recognized in income in the same period as gains and losses on
the underlying transactions are recognized.
Stock Compensation
Hughes issues stock options to employees with grant prices equal to the fair
value of the underlying security at the date of grant. No compensation cost has
been recognized for options in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees. See Note 12 for information regarding the pro forma effect on
earnings of recognizing compensation cost based on the estimated fair value of
the stock options granted, as required by SFAS No. 123, Accounting for Stock-
Based Compensation.
Compensation related to stock awards is recognized ratably over the vesting
period and, where required, periodically adjusted to reflect changes in the
stock price of the underlying security.
Product and Service Related Expenses
Advertising and research and development costs are expensed as incurred.
Advertising expenses were $115.8 million in 1999, $130.0 million in 1998 and
$74.2 million in 1997. Expenditures for research and development were $98.8
million in 1999, $92.6 million in 1998 and $81.9 million in 1997.
Market Concentrations and Credit Risk
Hughes provides services and extends credit to a number of wireless
communications equipment customers and to a large number of DTH consumers.
Management monitors its exposure to credit losses and maintains allowances for
anticipated losses.
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 at January 1, 1998 was $9.2 million
after-tax.
IV-39
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 2: Summary of Significant Accounting Policies - Concluded
New Accounting Standards
In September 1999, the Financial Accounting Standards Board ("FASB") issued
Emerging Issues Task Force Issue 99-10 ("EITF 99-10"), Percentage Used to
Determine the Amount of Equity Method Losses. EITF 99-10 addresses the
percentage of ownership that should be used to compute equity method losses when
the investment has been reduced to zero and the investor holds other securities
of the investee. EITF 99-10 requires that equity method losses should not be
recognized solely on the percentage of common stock owned; rather, an entity-
wide approach should be adopted. Under such an approach, equity method losses
must be recognized based on the ownership level that includes other equity
securities (e.g., preferred stock) and loans/advances to the investee or based
on the change in the investor's claim on the investee's book value. Hughes
adopted EITF 99-10 during the third quarter of 1999 which resulted in Hughes
recording a higher percentage of DIRECTV Japan's losses subsequent to the
effective date of September 23, 1999. The unfavorable impact of adopting
EITF 99-10 was $39.0 million after-tax.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 , as amended, 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 will adopt SFAS No. 133 by January 1, 2001, as required. Hughes
does not expect that the adoption of SFAS No. 133 will have a material impact on
Hughes' results of operations or financial position.
Reclassifications
Certain reclassifications have been made to the prior year balances to conform
to the 1999 presentation.
Note 3: Property and Satellites, Net
Estimated
Useful Lives
(Dollars in Millions) (years) 1999 1998
------------- -------- --------
Land and improvements 7 - 25 $ 51.4 $ 32.5
Buildings and leasehold improvements 2 - 30 197.0 136.3
Machinery and equipment 3 - 10 795.2 642.4
Equipment under operating lease 6 333.1 -
Furniture, fixtures and office machines 3 - 13 92.3 67.7
Construction in progress - 363.4 206.6
-------- --------
Total 1,832.4 1,085.5
Less accumulated depreciation 609.4 402.5
-------- --------
Property, net $1,223.0 $ 683.0
======== ========
Satellites 12 - 16 $4,683.1 $3,783.2
Less accumulated depreciation 775.8 585.7
-------- --------
Satellites, net $3,907.3 $3,197.5
======== ========
Hughes capitalized interest of $65.1 million, $55.3 million and $64.5 million
during 1999, 1998 and 1997, respectively, as part of the cost of its satellites
under construction.
Note 4: Leasing Activities
Future minimum payments due from customers under sales-type leases and related
service agreements, and noncancelable satellite transponder operating leases as
of December 31, 1999 are as follows:
Sales-Type Leases
--------------------
Minimum Service
Lease Agreement
(Dollars in Millions) Payments Payments Operating Leases
- --------------------- -------- --------- ----------------
2000 $ 42.0 $ 5.3 $ 702.0
2001 43.4 5.7 626.4
2002 43.4 5.7 575.0
2003 43.4 5.7 538.5
2004 39.7 5.2 503.1
Thereafter 37.1 5.2 1,911.3
------ ----- --------
Total $249.0 $32.8 $4,856.3
====== ===== ========
IV-40
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 4: Leasing Activities - Concluded
The components of the net investment in sales-type leases are as follows:
(Dollars in Millions) 1999 1998
------ ------
Total minimum lease payments $249.0 $301.9
Less unearned interest income and allowance
for doubtful accounts 81.1 106.0
------ ------
Total net investment in sales-type leases 167.9 195.9
Less current portion 21.8 22.5
------ ------
Total $146.1 $173.4
====== ======
In 1996 and 1992, Hughes entered into sale-leaseback agreements for certain
satellite transponders with other companies, including General Motors Acceptance
Corporation ("GMAC"), a subsidiary of GM. Deferred gains from these sale-
leaseback agreements are amortized over the expected term of the leaseback
period. In 1998, PanAmSat exercised certain early buy-out options and
repurchased a portion of the leased transponders for a total payment of $155.5
million. In 1999, PanAmSat exercised early buy-out options for the remaining
transponders for $245.4 million in cash and $124.1 million of assumed debt. As a
result of the above transactions, no deferred amounts remain outstanding at
December 31, 1999.
Note 5: Intangible Assets
At December 31, 1999 and 1998, Hughes had $6,642.3 million and $3,184.6
million, respectively, of goodwill, net of accumulated amortization. Goodwill is
amortized over 10 to 40 years. Hughes also had , net of accumulated
amortization, $763.7 million and $1.3 million of intangible assets at December
31, 1999 and 1998, respectively, which are amortized over 2 to 40 years.
Intangible assets consist mainly of FCC licenses, customer lists and dealer
networks.
Note 6: Investments
Hughes has various investments that are accounted for under the equity method
of accounting. Under the equity method of accounting, the investment is recorded
at cost and adjusted for the appropriate share of the net earnings or losses of
the investee. Investee losses are recorded up to the amount of the investment
plus advances and loans made to the investee, and financial guarantees made on
behalf of the investee. Aggregate investments in affiliated companies, including
advances and loans, accounted for under the equity method at December 31, 1999
and 1998, amounted to $317.4 million and $57.1 million, respectively. Of these
amounts, approximately $232.1 million and $55.9 million at December 31, 1999 and
1998, respectively, represent the investment in DIRECTV Japan, net of
accumulated losses of $237.6 million and $102.7 million as of December 31, 1999
and 1998, respectively. Hughes' pre-tax share of losses of investees is
disclosed in Note 13, Other Income and Expenses.
Investments in marketable equity securities stated at current fair value and
classified as available-for-sale totaled $1,025.2 million and $486.0 million at
December 31, 1999 and 1998, respectively. Accumulated unrealized holding gains,
net of taxes, recorded as part of accumulated other comprehensive income (loss),
a separate component of stockholder's equity, were $466.0 million and $16.1
million as of December 31, 1999 and 1998, respectively.
Note 7: Accrued Liabilities and Other
(Dollars in Millions) 1999 1998
------ ------
Payroll and other compensation $157.2 $ 93.5
Contract-related provisions 82.3 38.5
Provision for consumer finance and rebate programs 107.3 93.0
Programming contract liabilities 82.6 -
Other 464.6 229.3
------ ------
Total $894.0 $454.3
====== ======
Included in other liabilities and deferred credits are long-term programming
contract liabilities which totaled $627.1 million at December 31, 1999.
Note 8: Short-Term Borrowings and Long-Term Debt
Short-Term Borrowings
In October 1999, Hughes issued $500.0 million ($498.9 million net of
unamortized discount) of floating rate notes in a private placement with a group
of institutional investors. The notes bear interest at a variable rate which was
7.45% at December 31, 1999. Interest is payable quarterly and the notes are due
and payable on October 23, 2000.
IV-41
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 8: Short-Term Borrowings and Long-Term Debt - Concluded
Long-Term Debt Interest Rates at
(Dollars in Millions) December 31, 1999 1999 1998
------------------ -------- ------
Notes payable 6.00% - 6.875% $ 874.1 $750.0
Revolving credit facilities 6.77% - 7.10% 727.9 155.9
Other debt 11.69% - 12.29% 40.5 28.9
-------- ------
Total debt 1,642.5 934.8
Less current portion 56.5 156.1
-------- ------
Total long-term debt $1,586.0 $778.7
======== ======
Notes payable. PanAmSat issued five, seven, ten and thirty-year notes totaling
$750.0 million in January 1998. The outstanding principal balances and interest
rates for the five, seven, ten and thirty-year notes as of December 31, 1999
were $200 million, $275 million, $150 million and $125 million, respectively.
Principal on the notes is payable at maturity, while interest is payable semi-
annually.
In July 1999, in connection with the early buy-out of satellite sale-
leasebacks, PanAmSat assumed $124.1 million of variable rate notes, all of which
were outstanding at December 31, 1999. The notes mature on various dates
through January 2, 2002.
Revolving credit facilities. Hughes has three unsecured revolving credit
facilities totaling $1.6 billion, consisting of a $750.0 million multi-year
facility, a $350.0 million 364-day facility, and a $500.0 million bridge
facility. The multi-year credit facility provides for a commitment of $750.0
million through December 5, 2002. The 364-day facility provides for a
commitment of $350.0 million through November 22, 2000. These facilities also
provide backup capacity for Hughes' commercial paper program. The bridge
facility provides for a commitment of $500.0 million through the earlier of
November 22, 2000 or the receipt of proceeds from the issuance of any debt
securities of Hughes in a public offering. $500.0 million was outstanding under
the multi-year facility at December 31, 1999. No amounts were outstanding under
the commercial paper program, 364-day, or bridge facilities at December 31,
1999.
Each of Hughes' credit facilities contain covenants that Hughes must comply
with. The covenants require Hughes to maintain a minimum level of consolidated
net worth and not to exceed certain specified ratios. At December 31, 1999,
Hughes was in compliance with all such covenants.
PanAmSat maintains a $500.0 million multi-year revolving credit facility that
provides for short-term and long-term borrowings and a $500.0 million commercial
paper program that provides for short-term borrowings. The multi-year revolving
credit facility provides for a commitment through December 24, 2002. Borrowings
under the credit facility and commercial paper program are limited to $500.0
million in the aggregate. No amounts were outstanding under either the multi-
year revolving credit facility or the commercial paper program at December 31,
1999.
At December 31, 1999, Hughes' 75% owned subsidiary, SurFin Ltd. ("SurFin"),
had a total of $227.9 million outstanding under a $400.0 million unsecured
revolving credit facility expiring in June 2002.
Other. At December 31, 1999, Galaxy Latin America, LLC's ("GLA") 100% owned
subsidiary, Galaxy Brasil, Ltda. ("GLB"), had a total of $24.3 million
outstanding under variable rate notes payable in varying amounts at maturity in
April and May 2002.
Other long-term debt at December 31, 1999 and 1998 consisted primarily of
notes that are payable at maturity in April 2007.
As part of a debt refinancing program undertaken by PanAmSat in 1997, an
extraordinary charge of $20.6 million ($34.4 million before taxes) was recorded
that resulted from the excess of the price paid for the debt over its carrying
value, net of deferred financing costs.
Hughes has filed a shelf registration statement with the Securities and
Exchange Commission with respect to an issuance of up to $2.0 billion of debt
securities from time to time. No amounts have been issued as of December 31,
1999.
The aggregate maturities of long-term debt for the five years subsequent to
December 31, 1999 are $56.5 million in 2000, $21.2 million in 2001, $798.8
million in 2002, $200.0 million in 2003 and $566.0 million in 2005 and
thereafter.
Note 9: Income Taxes
The provision for income taxes is based on reported income from continuing
operations before income taxes, minority interests, extraordinary item and
cumulative effect of accounting change. Deferred income tax assets and
liabilities reflect the impact of temporary differences between the amounts of
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes, as measured by applying currently enacted
tax laws.
Hughes and former Hughes (prior to December 18, 1997), and their domestic
subsidiaries join with General Motors in filing a consolidated U.S. federal
income tax return. The portion of the consolidated income tax liability or
receivable recorded by Hughes is generally equivalent to the amount that would
have been recorded on a separate return basis.
Prior to December 18, 1997, income tax expense was allocated to Hughes as if
Hughes filed a separate income tax return.
IV-42
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 9: Income Taxes - Continued
The income tax provision (benefit) consisted of the following:
(Dollars in Millions) 1999 1998 1997
-------- -------- -------
Taxes currently payable (refundable):
U.S. federal $(406.5) $(201.9) $(51.9)
Foreign 30.1 15.9 9.5
State and local (24.2) (36.5) 7.7
------- ------- ------
Total (400.6) (222.5) (34.7)
------- ------- ------
Deferred tax liabilities (assets):
U.S. federal 185.0 50.8 181.9
State and local (21.3) 29.4 14.8
------- ------- ------
Total 163.7 80.2 196.7
------- ------- ------
Total income tax provision (benefit) $(236.9) $(142.3) $162.0
======= ======= ======
Income (loss) from continuing operations before income taxes, minority
interests, extraordinary item and cumulative effect of accounting change
included the following components:
(Dollars in Millions) 1999 1998 1997
-------- -------- -------
U.S. income (loss) $(519.0) $ (10.2) $415.3
Foreign loss (141.0) (93.0) (41.2)
------- ------- ------
Total $(660.0) $(103.2) $374.1
======= ======= ======
The combined income tax provision (benefit) was different than the amount
computed using the U.S. federal statutory income tax rate for the reasons set
forth in the following table:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Expected tax (refund) at U.S. federal statutory income tax rate $(231.0) $ (36.1) $131.0
Research and experimentation tax benefits and resolution of tax
contingencies (78.9) (172.9) (35.3)
Foreign sales corporation tax benefit (13.6) (15.6) (13.0)
U.S. state and local income taxes (29.5) (4.6) 14.6
Losses of equity method investees 60.3 36.7 25.3
Minority interests in losses of partnership 19.0 19.3 17.5
Non-deductible goodwill amortization 31.0 20.0 9.7
Other 5.8 10.9 12.2
------- ------- ------
Total income tax provision (benefit) $(236.9) $(142.3) $162.0
======= ======= ======
</TABLE>
Temporary differences and carryforwards which gave rise to deferred tax assets
and liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
(Dollars in Millions) Assets Liabilities Assets Liabilities
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Accruals and advances $ 106.1 $143.6
Sales and leasebacks - 65.4
Customer deposits, rebates and commissions 44.1 $ 114.1 52.9
State taxes 27.9 - 38.8
Gain on PanAmSat merger - 186.3 - $191.1
Satellite launch insurance costs - 136.8 - 103.1
Depreciation and amortization - 545.0 - 437.5
Net operating loss and tax credit carryforwards 287.3 - 77.8 -
Programming contract liabilities 285.0 - - -
Unrealized gains on securities - 318.6 - 1.2
Write-off related to wireless product lines 95.9 - - -
Other 204.4 100.7 70.9 83.7
-------- -------- ------ ------
Subtotal 1,050.7 1,401.5 449.4 816.6
Valuation allowance (84.0) - (64.2) -
-------- -------- ------ ------
Total deferred taxes $ 966.7 $1,401.5 $385.2 $816.6
======== ======== ====== ======
</TABLE>
IV-43
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 9: Income Taxes - Concluded
No income tax provision has been made for the portion of undistributed
earnings of foreign subsidiaries deemed permanently reinvested that amounted to
approximately $29.7 million and $18.5 million at December 31, 1999 and 1998,
respectively. Repatriation of all accumulated earnings would have resulted in
tax liabilities of $10.4 million in 1999 and $6.4 million in 1998.
At December 31, 1999, Hughes has $84.0 million of deferred tax assets relating
to foreign operating loss carryforwards expiring in varying amounts between 2000
and 2004. A valuation allowance was provided for all foreign operating loss
carryforwards. At December 31, 1999, a Hughes subsidiary has $45.2 million of
alternative minimum tax credits generated in separate filing years, which can be
carried forward indefinitely. At December 31, 1999, Hughes' subsidiaries have
$126.2 million of deferred tax assets relating to federal net operating loss
carryforwards which will expire in varying amounts between 2009 and 2018. Hughes
has $11.9 million of deferred tax assets relating to state net operating loss
carryforwards which will expire in varying amounts between 2004 and 2018. Hughes
also has $20 million of research and experimentation credits which will expire
in 2019.
Hughes has an agreement with Raytheon which governs Hughes' rights and
obligations with respect to U.S. federal and state income taxes for all periods
prior to the merger of Hughes Defense with Raytheon. Hughes is responsible for
any income taxes pertaining to those periods prior to the merger, including any
additional income taxes resulting from U.S. federal and state tax audits.
Hughes is entitled to any U.S. federal and state income tax refunds relating to
those years.
The U.S. federal income tax returns of former Hughes have been examined
through 1994. All years prior to 1986 are closed. Issues relating to the years
1986 through 1994 are being contested through various stages of administrative
appeal. The Internal Revenue Service ("IRS") is currently examining former
Hughes' U.S. federal tax returns for years 1995 through 1997. Management
believes that adequate provision has been made for any adjustment which might be
assessed for open years.
Hughes reached an agreement with the IRS regarding a claim for refund of U.S.
federal income taxes related to the treatment of research and experimentation
costs for the years 1983 through 1995. Hughes recorded a total of $172.9
million of research and experimentation tax benefits during 1998, a substantial
portion of which related to the above noted agreement with the IRS and covered
prior years.
Hughes has taxes receivable from GM at December 31, 1999 and 1998,
respectively, of approximately $610.6 million and $379.3 million of which $290.8
million and $45.1 million, respectively, are included in prepaid expenses and
other in the balance sheets.
Note 10: Retirement Programs and Other Postretirement Benefits
Substantially all of Hughes' employees participate in Hughes' contributory and
non-contributory defined benefit retirement plans. Benefits are based on years
of service and compensation earned during a specified period of time before
retirement. Additionally, an unfunded, nonqualified pension plan covers certain
employees. Hughes also maintains a program for eligible retirees to participate
in health care and life insurance benefits generally until they reach age 65.
Qualified employees who elected to participate in the Hughes contributory
defined benefit pension plans may become eligible for these health care and life
insurance benefits if they retire from Hughes between the ages of 55 and 65.
Prior to December 18, 1997, the pension related assets and liabilities and the
postretirement benefit plans were maintained by former Hughes for its non-
automotive businesses and were not included in the Hughes balance sheet. A
portion of former Hughes' net pension expense and postretirement benefit cost
was allocated to Hughes and is included in the Statements of Operations and
Available Separate Consolidated Net Income (Loss). For 1997, the pension
expense and post retirement benefit cost components were not determined
separately for the Hughes participants. The 1997 information presented below is
based on pro rata allocations from former Hughes for each pension and
postretirement benefit component.
IV-44
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
<TABLE>
Note 10: Retirement Programs and Other Postretirement Benefits - Continued
The components of the pension benefit obligation and the other postretirement
benefit obligation, as well as the net benefit obligation recognized in the
balance sheets, are shown below:
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
------------------ -------------------
(Dollars in Millions) 1999 1998 1999 1998
-------- ------- ------- ---------
Change in Benefit Obligation
<S> <C> <C> <C> <C>
Net benefit obligation at beginning of year $341.8 $316.4 $ 24.7 $ 19.5
Service cost 14.5 13.6 0.6 0.5
Interest cost 23.9 22.5 1.5 1.2
Plan participants' contributions 3.0 3.0 - -
Actuarial (gain) loss (31.3) 17.1 (2.7) 5.1
Benefits paid (34.2) (30.8) (1.3) (1.6)
------ ------ ------ ------
Net benefit obligation at end of year 317.7 341.8 22.8 24.7
------ ------ ------ ------
Change in Plan Assets
Fair value of plan assets at beginning of year 346.6 337.0 - -
Actual return on plan assets 69.6 30.3 - -
Employer contributions 3.0 4.3 (1.3) (1.6)
Plan participants' contributions 3.0 3.0 - -
Benefits paid (34.2) (30.8) 1.3 1.6
Transfers 2.1 2.8 - -
------ ------ ------ ------
Fair value of plan assets at end of year 390.1 346.6 - -
------ ------ ------ ------
Funded status at end of year 72.4 4.8 (22.8) (24.7)
Unamortized amount resulting from changes
in plan provisions (0.4) 1.9 - -
Unamortized net amount resulting from changes
in plan experience and actuarial assumptions (38.7) 26.7 (1.4) 0.7
------ ------ ------ ------
Net amount recognized at end of year $ 33.3 $ 33.4 $(24.2) $(24.0)
====== ====== ====== ======
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost $ 43.0 $ 42.0
Accrued benefit cost (24.6) (23.2) $(24.2) $(24.0)
Intangible asset 2.6 3.2 - -
Deferred tax assets 5.0 4.6 - -
Accumulated other comprehensive loss 7.3 6.8 - -
------ ------ ------ ------
Net amount recognized at end of year $ 33.3 $ 33.4 $(24.2) $(24.0)
====== ====== ====== ======
</TABLE>
Included in the pension plan assets at December 31, 1999 and 1998 are GM Class
H common stock of $0.6 million and $0.4 million, GM $1-2/3 common stock of $0.3
million and $1.3 million and GMAC bonds of $0.5 million and $0.6 million,
respectively.
IV-45
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 10: Retirement Programs and Other Postretirement Benefits - Concluded
Other
Postretirement
Weighted-average assumptions as of Pension Benefits Benefits
December 31 ---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
Discount rate 7.75% 6.75% 7.50% 6.50%
Expected return on plan assets 9.50% 9.50% N/A N/A
Rate of compensation increase 5.00% 5.00% N/A N/A
For measurement purposes, a 9.0% annual rate of increase per capita cost of
covered health care benefits was assumed for 2000. The rate was assumed to
decrease gradually 0.5% per year to 6.0% in 2006.
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
--------------------------- ------------------------
(Dollars in Millions) 1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------
Components of net periodic benefit cost
<S> <C> <C> <C> <C> <C> <C>
Benefits earned during the year $ 14.5 $ 13.6 $ 11.4 $0.6 $ 0.5 $ 0.5
Interest accrued on benefits earned in
prior years 23.9 22.5 22.4 1.5 1.2 1.2
Expected return on assets (28.5) (26.3) (24.7) - - -
Amortization components
Asset at date of adoption - (2.7) (3.0) - - -
Amount resulting from changes in
plan provisions 0.4 0.4 0.4 - - -
Net amount resulting from changes
in plan experience and actuarial
assumptions 4.7 2.7 2.0 - (0.1) (0.2)
------ ------ ------ ---- ----- -----
Net periodic benefit cost $ 15.0 $ 10.2 $ 8.5 $2.1 $ 1.6 $ 1.5
====== ====== ====== ==== ===== =====
</TABLE>
The projected benefit obligation and accumulated benefit obligation for the
pension plans with accumulated benefit obligations in excess of plan assets were
$52.9 million and $42.4 million, respectively, as of December 31, 1999 and $49.8
million and $38.9 million, respectively, as of December 31, 1998. The pension
plans with accumulated benefit obligations in excess of plan assets do not have
any underlying assets.
A one-percentage point change in assumed health care cost trend rates would
have the following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
(Dollars in Millions) Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components $0.4 $(0.3)
Effect on postretirement benefit obligation 3.2 (2.8)
</TABLE>
Hughes maintains 401(k) plans for qualified employees. A portion of employee
contributions are matched by Hughes and amounted to $12.5 million, $10.6 million
and $9.6 million in 1999, 1998 and 1997, respectively.
Hughes has disclosed certain amounts associated with estimated future
postretirement benefits other than pensions and characterized such amounts as
"other postretirement benefit obligation." Notwithstanding the recording of such
amounts and the use of these terms, Hughes does not admit or otherwise
acknowledge that such amounts or existing postretirement benefit plans of Hughes
(other than pensions) represent legally enforceable liabilities of Hughes.
Note 11: Stockholder's Equity
In connection with the Hughes Transactions, Hughes was recapitalized on
December 17, 1997 at which time 1,000 shares of $1.00 par value common stock,
representing all of the authorized and outstanding common stock of Hughes, were
issued to GM. Prior to December 17, 1997, the equity of Hughes was comprised of
Parent Company's net investment in its telecommunications and space business.
IV-46
<PAGE>
<TABLE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 11: Stockholder's Equity - Concluded
The following represents changes in the components of accumulated other
comprehensive income (loss), net of taxes, as of December 31:
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- --------------------------
Tax Tax
Pre-tax (Credit) Net Pre-tax (Credit) Net Pre-tax Tax Net
(Dollars in Millions) Amount Expense Amount Amount Expense Amount Amount Expense Amount
-------- -------- ------- -------- -------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Minimum pension
liability adjustments $ (0.8) $ (0.3) $ (0.5) $ (0.8) $(0.3) $(0.5) - - -
Foreign currency
translation
adjustments $ 11.0 - $ 11.0 $ 3.8 - $ 3.8 $0.6 - $0.6
Unrealized gains
on securities $767.3 $317.4 $449.9 $ 3.0 $ 1.2 $ 1.8 - - -
Reclassification
adjustment for gains
included in net income - - - $(11.8) $(4.7) $(7.1) - - -
</TABLE>
Note 12: Incentive Plans
Under the Hughes Electronics Corporation Incentive Plan ("the Plan"), as
approved by the GM Board of Directors in 1999, shares, rights or options to
acquire up to 77.6 million shares of GM Class H common stock on a cumulative
basis were available for grant through December 31, 1999.
The GM Executive Compensation Committee may grant options and other rights to
acquire shares of GM Class H common stock under the provisions of the Plan. The
option price is equal to 100% of the fair market value of GM Class H common
stock on the date the options are granted. These nonqualified options generally
vest over two to four years, expire ten years from date of grant and are subject
to earlier termination under certain conditions.
As part of the Hughes Transactions, the outstanding options of former Hughes
employees who continued as Hughes employees were converted on December 18, 1997
into options to purchase recapitalized GM Class H common stock. Recognition of
compensation expense was not required in connection with the conversion.
Changes in the status of outstanding options were as follows:
Shares Under Weighted-Average
GM Class H Common Stock Option Exercise Price
------------ ----------------
Outstanding at December 31, 1997 13,961,615 $29.08
Granted 4,180,525 51.02
Exercised (1,506,241) 23.22
Terminated (937,179) 31.79
---------- ------
Outstanding at December 31, 1998 15,698,720 $35.32
Granted 5,004,275 48.23
Exercised (3,436,057) 29.84
Terminated (1,431,582) 40.46
---------- ------
Outstanding at December 31, 1999 15,835,356 $39.84
========== ======
IV-47
<PAGE>
HUGHES ELECTRONICS CORPOATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 12: Incentive Plans - Concluded
The following table summarizes information about the Plan stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ----------------------------
Weighted-
Average
Remaining Weighted- Weighted-
Range of Number Contractual Average Number Average
Exercise Prices Outstanding Life (years) Exercise Price Exercisable Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$9.86 to $20.00 326,686 2.9 $15.06 326,686 $ 15.06
20.01 to 30.00 663,549 4.9 22.24 663,549 22.24
30.01 to 40.00 6,634,506 7.1 31.74 3,842,272 32.01
40.01 to 50.00 5,573,775 9.0 46.37 17,712 47.63
50.01 to 85.72 2,636,840 8.5 55.78 1,031,719 54.79
--------------- ---------- --- ------ --------- -------
$9.86 to $85.72 15,835,356 7.8 $39.84 5,881,938 $ 33.59
===== ====== ========== === ===== ========= =======
</TABLE>
At December 31, 1999, 43.1 million shares were available for grant under the
Plan subject to GM Executive Compensation Committee approval.
On May 5, 1997, PanAmSat adopted a stock option incentive plan with terms
similar to the Plan. As of December 31, 1999, PanAmSat had 3,455,832 options
outstanding to purchase its common stock with exercise prices ranging from
$29.00 per share to $59.75 per share. The options vest ratably over three to
four years and have a remaining life ranging from seven years to nine years. At
December 31, 1999, 439,420 options were exercisable at a weighted average
exercise price of $36.46. The PanAmSat options have been considered in the
following pro forma analysis.
The following table presents pro forma information as if Hughes recorded
compensation cost using the fair value of issued options on their grant date, as
required by SFAS No. 123, Accounting for Stock Based Compensation:
(Dollars in Millions) 1999 1998 1997
-------- ------ ------
Earnings (loss) used for computation of available
separate consolidated net income (loss)
as reported $(321.2) $271.7 $470.7
pro forma (384.9) 186.7 427.2
The pro forma amounts for compensation cost are not indicative of the effects
on operating results for future periods.
For stock options granted prior to the Hughes Transactions, the estimated
compensation cost was based upon an allocation from former Hughes which was
calculated using the Black-Scholes valuation model for estimation of the fair
value of its options. The following table presents the estimated weighted-
average fair value of options granted and the assumptions used for the 1999,
1998 and 1997 calculations (for 1998 and 1997, stock volatility was estimated
based upon a three-year average derived from a study of a Hughes determined peer
group):
1999 1998 1997
-------- -------- -------
Estimated fair value per option granted $ 24.02 $ 22.78 $26.90
Average exercise price per option granted 48.23 51.02 31.71
Expected stock volatility 38.0% 32.8% 32.5%
Risk-free interest rate 5.2% 5.6% 5.9%
Expected option life (in years) 7.0 6.2 7.0
Note 13: Other Income and Expenses
(Dollars in Millions) 1999 1998 1997
------- ------- ------
Equity losses from unconsolidated affiliates $(189.2) $(128.3) $(72.2)
Gain on PanAmSat merger - - 489.7
Gain from sale of common stock of an affiliate 39.4 - -
Other 13.5 (23.5) (28.9)
------- ------- ------
Total other, net $(136.3) $(151.8) $388.6
======= ======= ======
IV-48
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 13: Other Income and Expenses - Concluded
Equity losses from unconsolidated affiliates at December 31, 1999 are
primarily comprised of losses at DIRECTV Japan, of which Hughes owns 42.2%,
Hughes Ispat Limited, of which Hughes owns 45%, Galaxy Entertainment de
Venezuela, C.A., of which Hughes owns 20% and American Mobile Satellite
Corporation ("AMSC"). During the third quarter of 1999, AMSC issued new shares
of its common stock, resulting in Hughes recording an increase in its investment
in AMSC of $50.2 million with an offsetting adjustment to other comprehensive
income (loss), a separate component of stockholder's equity. The issuance of the
new shares diluted Hughes' ownership in AMSC to 14%. Since Hughes no longer
exerted significant influence over AMSC's operations, the accounting for the
AMSC investment from the equity method to the cost basis of accounting.
Note 14: Related-Party Transactions
In the ordinary course of its operations, Hughes provides telecommunications
services and sells electronic components to, and purchases sub-components from,
related parties.
The following table summarizes significant related-party transactions:
(Dollars in Millions) 1999 1998 1997
----- ----- -----
Revenues $46.5 $40.5 $25.0
Costs and expenses
Purchases 35.2 29.0 38.4
Allocation of corporate expenses - - 57.9
Allocated interest - - 31.6
Note 15: Available Separate Consolidated Net Income (Loss)
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 (124.7 million, 105.3 million and 101.5
million during 1999, 1998 and 1997, 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 418.5 million during 1999 and 399.9 million
during 1998 and 1997. Upon conversion of the GM Series H preference stock into
GM Class H common stock, both the numerator and the denominator used in the
computation of ASCNI will increase by the number of shares of the GM Class H
common stock issued (see further discussion in Note 16). 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 17), 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 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.
IV-49
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 15: Available Separate Consolidated Net Income (Loss) - Concluded
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, 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 on the open market. Upon purchase, these shares are retired and therefore
decrease the numerator and denominator of the fraction referred to above.
Dividends may be paid on the GM Class H common stock only when, as, and if
declared by GM's Board of Directors in its sole discretion. Dividends may be
paid on GM Class H common stock to the extent of the amount initially determined
to be available for the payment of dividends on GM Class H common stock, plus
the portion of earnings of GM after the closing of the Hughes Transactions
attributed to GM Class H common stock. The GM Board determined that the amount
initially available for the payment of dividends on shares of the recapitalized
GM Class H common stock was the cumulative amount available for the payment of
dividends on GM Class H common stock immediately prior to the closing of the
Hughes Transactions, reduced by a pro rata portion of the net reduction in GM's
total stockholder's equity resulting from the Hughes Transactions. As of
December 31, 1999 , the amount available for the payment of dividends on GM
Class H common stock was $5.4 billion . The GM Board does not currently intend
to pay cash dividends on the recapitalized GM Class H common stock.
Note 16: Hughes Series A Preferred Stock
On June 24, 1999, as part of a strategic alliance with Hughes, America Online
("AOL") invested $1.5 billion in shares of GM Series H 6.25% Automatically
Convertible Preference Stock ("GM Series H Preference Stock"). The GM Series H
preference stock will automatically convert into GM Class H common stock in
three years based upon a variable conversion factor linked to the GM Class H
common stock price at the time of conversion, and accrues quarterly dividends at
a rate of 6.25% per year. It may be converted earlier in certain limited
circumstances. GM immediately invested the $1.5 billion received from AOL in
shares of Hughes Series A Preferred Stock designed to correspond to the
financial terms of the GM Series H preference stock. Dividends on the Hughes
Series A Preferred Stock are payable to GM quarterly at an annual rate of 6.25%.
These preferred stock dividends payable to GM will reduce Hughes' earnings used
for computation of the ASCNI of Hughes, which will have an effect equivalent to
the payment of dividends on the Series H preference stock as if those dividends
were paid by Hughes. Upon conversion of the GM Series H preference stock into GM
Class H common stock, Hughes will redeem the Series A Preferred Stock through a
cash payment to GM equal to the fair market value of the GM Class H common stock
issuable upon the conversion. Simultaneous with GM's receipt of the cash
redemption proceeds, GM will make a capital contribution to Hughes of the same
amount. In connection with this capital contribution, the denominator of the
fraction used in the computation of the ASCNI of Hughes will be increased by the
corresponding number of shares of GM Class H common stock issued. Accordingly,
upon conversion of the GM Series H preference stock into GM Class H common
stock, both the numerator and denominator used in the computation of ASCNI will
increase by the amount of the GM Class H common stock issued.
Note 17: Acquisitions, Investments and Divestitures
Acquisitions and Investments
In September and November of 1999, DIRECTV Japan raised a total of
approximately $281 million through the issuance of bonds, convertible into
common stock, to five of its major shareholders, including $244.7 million issued
to Hughes.
On July 28, 1999, GLA acquired GLB, the exclusive distributor of DIRECTV
services in Brazil, from Tevecap S.A. for approximately $114.0 million plus the
assumption of debt. In connection with the transaction, Tevecap also sold its
10% equity interest in GLA to Hughes and The Cisneros Group of Companies, the
remaining GLA partners, which increased Hughes' ownership interest in GLA to
77.8%. As part of the transaction, Hughes also increased its ownership interest
in SurFin from 59.1% to 75.0%. The total consideration paid in the transactions
amounted to approximately $101.1 million.
IV-50
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 17: Acquisitions, Investments and Divestitures - Continued
On May 20, 1999, Hughes acquired by merger all of the outstanding capital
stock of U.S. Satellite Broadcasting Company ("USSB"), a provider of premium
subscription television programming via the digital broadcasting system that it
shares with DIRECTV. The total consideration of approximately $1.6 billion paid
in July 1999, consisted of approximately $0.4 billion in cash and 22.6 million
shares of Class H common stock.
On April 28, 1999, Hughes completed the acquisition of PRIMESTAR's 2.3
million subscriber medium-power direct-to-home satellite business. The purchase
price consisted of $1.1 billion in cash and 4.9 million shares of Class H common
stock, for a total purchase price of $1.3 billion. As part of the agreement to
acquire PRIMESTAR, Hughes agreed to purchase the high-power satellite assets and
related orbital frequencies of Tempo Satellite Inc., a wholly-owned subsidiary
of TCI Satellite Entertainment Inc. The purchase price for the Tempo Satellite
assets consisted of $500 million in cash. 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.
Hughes agreed, in connection with its acquisition of PRIMESTAR, to exit the
medium-power business prior to May 1, 2001. Hughes formulated a detailed exit
plan during the second quarter of 1999 and immediately began to migrate the
medium-power customers to DIRECTV's high-power platform. Accordingly, Hughes
accrued exit costs of $150 million in determining the purchase price allocated
to the net assets acquired. The principal components of such exit costs include
penalties to terminate assumed contracts and costs to remove medium-power
equipment from customer premises. The timing of subscriber migration and exit of
the medium-power business is currently estimated to occur by the end of 2000,
but is subject to change pending final management determination, which could
result in an adjustment to the amount of accrued exit costs. The amount of
accrued exit costs remaining at December 31, 1999 was $123.9 million.
In February 1999, Hughes acquired an additional ownership interest in Grupo
Galaxy Mexicana, S.R.L. de C.V. ("GGM"), a Latin America local operating company
which is the exclusive distributor of DIRECTV in Mexico, from Grupo MVS, S.R.L.
de C.V. Hughes' equity ownership represents 49.0% of the voting equity and all
of the non-voting equity of GGM. In October 1998, Hughes acquired from Grupo
MVS an additional 10.0% interest in GLA, increasing Hughes' ownership interest
to 70.0%. Hughes also acquired an additional 19.8% interest in SurFin, a
company providing financing of subscriber receiver equipment for certain local
operating companies located in Latin America and Mexico, increasing Hughes'
ownership percentage from 39.3% to 59.1%. The aggregate purchase price for
these transactions was $197.0 million in cash.
In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat for
$851.4 million in cash, increasing its ownership interest in PanAmSat to 81.0%.
PanAmSat was originally acquired in May 1997, when Hughes and PanAmSat completed
the merger of their respective satellite service operations into a new publicly-
held company, which retained the name PanAmSat Corporation. Hughes contributed
its Galaxy satellite services business in exchange for a 71.5% interest in the
new company. Existing PanAmSat stockholders received a 28.5% interest in the new
company and $1.5 billion in cash. Such cash consideration and other funds
required to consummate the merger were funded by new debt financing totaling
$1,725.0 million borrowed from GM, which was subsequently repaid in December
1997. The PanAmSat merger was treated as a partial sale of the Galaxy business
by Hughes and resulted in a one-time pre-tax gain of $489.7 million ($318.3
million after-tax).
The financial information included herein reflects the acquisitions
discussed above from their respective dates of acquisition. The acquisitions
were accounted for by the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on the estimated fair values at the date of acquisition. The
excess of the purchase price over the estimated fair values of the net assets
acquired has been recorded as goodwill, resulting in goodwill additions of
$3,612.4 million and $702.9 million for the years ended December 31, 1999 and
1998, respectively.
The December 31, 1999 financial statements reflect a preliminary allocation
of the purchase price for the PRIMESTAR transaction based upon information
currently available. Adjustments relating to the tangible assets, including
equipment located on customer premises; intangible assets, including customer
lists and dealer network; 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 Hughes management.
The foregoing appraisals, review and analysis are expected to be completed by
March 31, 2000. Accordingly, the final purchase price allocations may be
different from the amounts reflected herein.
IV-51
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 17: Acquisitions, Investments and Divestitures - Concluded
The following selected unaudited pro forma information is being provided to
present a summary of the combined results of Hughes and USSB and PRIMESTAR for
1999 and 1998 as if the acquisitions had occurred as of the beginning of the
respective periods, giving effect to purchase accounting adjustments. The pro
forma data presents only significant transactions, is presented for
informational purposes only and may not necessarily reflect the results of
operations of Hughes had these companies operated as part of Hughes for each of
the periods presented, nor are they necessarily indicative of the results of
future operations. The pro forma information excludes the effect of non-
recurring charges.
(Dollars in Millions) 1999 1998
--------- --------
Total Revenues $6,350.3 $5,318.6
Income (loss) before extraordinary item and
cumulative effect of accounting change (297.1) 160.0
Net income (loss) (297.1) 150.8
Pro forma available separate consolidated net
Income (loss) (103.1) 53.4
Divestitures
On January 13, 2000, Hughes announced that it had reached an agreement to sell
its satellite systems manufacturing businesses to The Boeing Company ("Boeing")
for $3.75 billion in cash. The final transaction, which is subject to regulatory
approval, is expected to close in the second or third quarter of 2000. The
financial results for the satellite systems manufacturing businesses are treated
as discontinued operations for all periods presented herein.
On December 15, 1997, Hughes sold substantially all of the assets and
liabilities of the Hughes Avicom business to Rockwell Collins, Inc. for cash,
which resulted in an after-tax gain of $62.8 million. Hughes Avicom is treated
as a discontinued operation for all periods prior to its disposition.
Summarized financial information for the discontinued operations
follows:
(Dollars in Millions) 1999 1998 1997
-------- -------- --------
Revenues $1,780.4 $2,483.3 $2,392.5
Income tax provision 42.9 97.6 74.7
Net income 99.8 196.4 170.6
Hughes also announced on January 13, 2000, the discontinuation of its mobile
cellular and narrowband local loop product lines at Hughes Network Systems. As a
result of this decision, Hughes recorded a fourth quarter 1999 pre-tax charge to
continuing operations of $272.1 million. The charge represents the write-off of
receivables and inventories, licenses, software and equipment with no
alternative use.
Also, in December 1997, Hughes repurchased from AT&T for $161.8 million, a
2.5% equity interest in DIRECTV, ending AT&T's marketing agreement to distribute
the DIRECTV direct broadcast satellite television service and DIRECTV/TM/
receiver equipment.
Note 18: Derivative Financial Instruments and Risk Management
In the normal course of business, Hughes enters into transactions that expose
it to risks associated with foreign exchange rates. Hughes utilizes derivative
instruments in an effort to mitigate these risks. Hughes' policy is to not
enter into speculative derivative instruments for profit or execute derivative
instrument contracts for which there are no underlying exposures. Instruments
used as hedges must be effective at reducing the risk associated with the
exposure being hedged and designated as a hedge at the inception of the
contract. Accordingly, changes in market values of hedge instruments are highly
correlated with changes in market values of the underlying transactions, both at
the inception of the hedge and over the life of the hedge contract.
Hughes primarily uses foreign exchange-forward contracts to hedge firm
commitments denominated in foreign currencies. Foreign exchange-forward
contracts are legal agreements between two parties to purchase and sell a
foreign currency, for a price specified at the contract date, with delivery and
settlement in the future. The total notional amounts of contracts afforded
hedge accounting treatment at December 31, 1999 and 1998 were not significant.
Hughes is exposed to credit risk in the event of non-performance by the
counterparties to its foreign exchange-forward contracts. While Hughes believes
this risk is remote, credit risk is managed through the periodic monitoring and
approval of financially sound counterparties.
IV-52
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 19: Segment Reporting
Hughes' segments, which are differentiated by their products and services,
include Direct-To-Home Broadcast, Satellite Services, and Network Systems.
Direct-To-Home Broadcast is engaged in acquiring, promoting, selling and/or
distributing digital entertainment programming via satellite to residential and
commercial customers. Satellite Services is engaged in the selling, leasing and
operating of satellite transponders and providing services for cable television
systems, news companies, Internet service providers and private business
networks. Network Systems is engaged in manufacturing DIRECTV receiver equipment
and providing satellite wireless communications ground equipment and business
communications services. Other includes the corporate office and other entities.
Selected information for Hughes' operating segments are reported as follows:
<TABLE>
<CAPTION>
Direct-To-
Home Satellite Network
(Dollars in Millions) Broadcast Services Systems Other Eliminations Total
- --------------------------- ----------- --------- --------- --------- ------------- ----------
1999
<S> <C> <C> <C> <C> <C> <C>
External Revenues $3,781.7 $ 673.6 $1,091.7 $ 13.3 - $ 5,560.3
Intersegment Revenues 3.3 137.0 293.0 2.5 $(435.8) -
-------- -------- -------- -------- ------- ---------
Total Revenues $3,785.0 $ 810.6 $1,384.7 $ 15.8 $(435.8) $ 5,560.3
-------- -------- -------- -------- ------- ---------
Operating Profit (Loss) $ (292.1) $ 338.3 $ (227.3) $ (143.8) $(103.1) $ (428.0)
Depreciation and
Amortization 312.0 280.5 49.2 20.8 (11.8) 650.7
Intangibles, net 4,308.5 2,368.6 46.9 682.0 - 7,406.0
Segment Assets 9,056.6 5,984.7 1,167.3 2,765.9 (377.5) 18,597.0
Capital Expenditures (1) 516.9 956.4 35.0 170.0 (13.0) 1,665.3
-------- -------- -------- -------- ------- ---------
1998
External Revenues $1,813.7 $ 643.8 $1,000.6 $ 22.5 - $ 3,480.6
Intersegment Revenues 2.4 123.5 76.1 1.4 $(203.4) -
-------- -------- -------- -------- ------- ---------
Total Revenues $1,816.1 $ 767.3 $1,076.7 $ 23.9 $(203.4) $ 3,480.6
-------- -------- -------- -------- ------- ---------
Operating Profit (Loss) $ (228.1) $ 318.3 $ 10.9 $ (114.2) $ (33.1) $ (46.2)
Depreciation and
Amortization 102.3 235.0 41.7 13.9 (5.0) 387.9
Intangibles, net - 2,433.5 53.6 698.8 - 3,185.9
Segment Assets 2,190.4 5,890.5 1,299.0 3,470.6 (233.1) 12,617.4
Capital Expenditures (1) 230.8 921.7 40.0 3.3 133.0 1,328.8
-------- -------- -------- -------- ------- ---------
1997
External Revenues $1,276.9 $ 537.3 $ 998.3 $ 25.8 - $ 2,838.3
Intersegment Revenues - 92.6 13.0 2.7 $(108.3) -
-------- -------- -------- -------- ------- ---------
Total Revenues $1,276.9 $ 629.9 $1,011.3 $ 28.5 $(108.3) $ 2,838.3
-------- -------- -------- -------- ------- ---------
Operating Profit (Loss) $ (254.6) $ 292.9 $ 74.1 $ (63.7) $ (5.2) $ 43.5
Depreciation and
Amortization 86.1 145.2 32.0 - (3.0) 260.3
Intangibles, net - 2,498.5 - 63.6 - 2,562.1
Segment Assets 1,408.7 5,682.4 1,215.6 3,918.0 (83.2) 12,141.5
Capital Expenditures (1) 105.6 625.7 43.1 0.4 (62.1) 712.7
-------- -------- -------- -------- ------- ---------
</TABLE>
(1) Includes expenditures related to satellites in segments as follows: $136.0
million and $70.2 million in 1999 and 1998, respectively, for Direct-To-Home
Broadcast segment; $532.8 million, $726.3 million and $606.1 million in
1999, 1998 and 1997, respectively, for Satellite Services segment. Satellite
Services segment also includes $369.5 million and $155.5 million in 1999 and
1998, respectively, related to the early buy-out of satellite sale-
leasebacks.
IV-53
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 19: Segment Reporting - Concluded
A reconciliation of operating profit (loss) to income (loss) from continuing
operations before income taxes, minority interests, extraordinary item and
cumulative effect of accounting change, as shown in the Statement of Operations
and Available Separate Consolidated Net Income (Loss), follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Operating profit (loss) $(428.0) $ (46.2) $ 43.5
Interest income 27.0 112.3 33.0
Interest expense (122.7) (17.5) (91.0)
Other, net (136.3) (151.8) 388.6
------ ------ -----
Income (loss) from continuing operations before income
taxes, minority interests, extraordinary item and
cumulative effect of accounting change $(660.0) $(103.2) $374.1
======= ======= ======
</TABLE>
The following table presents revenues earned from customers located in
different geographic areas. Property is grouped by its physical location. All
satellites are reported as United States assets.
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
Net Net Net
Total Total Property & Total Property & Total Property &
(Dollars in Millions) Revenues Satellites Revenues Satellites Revenues Satellites
---------- ---------- ---------- ---------- ---------- ----------
North America
<S> <C> <C> <C> <C> <C> <C>
United States $4,407.9 $4,891.8 $2,645.6 $3,830.6 $1,781.5 $3,178.6
Canada and Mexico 114.6 51.8 56.9 2.0 44.8 -
-------- -------- -------- -------- -------- --------
Total North America 4,522.5 4,943.6 2,702.5 3,832.6 1,826.3 3,178.6
-------- -------- -------- -------- -------- --------
Europe
United Kingdom 175.2 10.5 111.3 14.1 25.8 10.4
Other 47.6 0.2 61.2 0.3 121.7 0.1
-------- -------- -------- -------- -------- --------
Total Europe 222.8 10.7 172.5 14.4 147.5 10.5
-------- -------- -------- -------- -------- --------
Latin America
Brazil 157.7 151.1 150.9 4.6 102.1 -
Other 245.3 9.8 104.2 11.1 90.4 -
-------- -------- -------- -------- -------- --------
Total Latin America 403.0 160.9 255.1 15.7 192.5 -
-------- -------- -------- -------- -------- --------
Asia
Japan 103.6 0.7 67.5 0.5 21.1 0.5
India 85.1 12.4 79.9 14.7 41.9 12.7
China 27.7 1.2 63.4 1.7 154.3 1.5
Other 108.5 0.5 65.5 0.6 359.9 0.4
-------- -------- -------- -------- -------- --------
Total Asia 324.9 14.8 276.3 17.5 577.2 15.1
-------- -------- -------- -------- -------- --------
Total Middle East 11.9 - 20.0 - 47.2 -
Total Africa 75.2 0.3 54.2 0.3 47.6 -
-------- -------- -------- -------- -------- --------
Total $5,560.3 $5,130.3 $3,480.6 $3,880.5 $2,838.3 $3,204.2
======== ======== ======== ======== ======== ========
</TABLE>
Note 20: Commitments and Contingencies
In connection with the 1997 spin-off of the defense electronics business of
Hughes' predecessor as part of the Hughes restructuring transactions and the
subsequent merger of that business with Raytheon Company, the terms of the
merger agreement provided processes for resolving disputes that might arise in
connection with post-closing financial adjustments that were also called for by
the terms of the merger agreement. These financial adjustments might require a
cash payment from Raytheon to Hughes or vice versa.
IV-54
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 20: Commitments and Contingencies - Continued
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
Hughes has proposed.
On June 3, 1999, the National Rural Telecommunications Cooperative ("NRTC")
filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc.,
which Hughes refers to together in this description as `` DIRECTV'', in the U.S.
District Court for the Central District of California, alleging that DIRECTV has
breached the DBS Distribution Agreement with the NRTC. The DBS Distribution
Agreement provides the NRTC with certain rights, in certain specified portions
of the United States, with respect to DIRECTV programming delivered over 27 of
the 32 frequencies at the 101 (degrees) west longitude orbital location. The
NRTC claims that DIRECTV has wrongfully deprived it of the exclusive right to
distribute programming formerly provided by USSB over the other five frequencies
at 101 (degrees). DIRECTV denies that the NRTC is entitled to exclusive
distribution rights to the former USSB programming because, among other things,
the NRTC's exclusive distribution rights are limited to programming distributed
over 27 of the 32 frequencies at 101 (degrees). The NRTC's complaint seeks, in
the alternative, the right to distribute former USSB programming on a non-
exclusive basis and the recovery of related revenues from the date USSB was
acquired by Hughes. DIRECTV maintains that the NRTC's right under the DBS
Distribution Agreement is to market and sell the former USSB programming as its
agent and the NRTC is not entitled to the claimed revenues. DIRECTV intends to
vigorously defend against the NRTC claims. DIRECTV has also filed a counterclaim
against the NRTC seeking a declaration of the parties' rights under the DBS
Distribution Agreement.
On August 26, 1999, the NRTC filed a second lawsuit against DIRECTV alleging
that DIRECTV has breached the DBS Distribution Agreement. In this lawsuit, the
NRTC is asking the court to require DIRECTV to pay the NRTC a proportionate
share of unspecified financial benefits that DIRECTV derives from programming
providers and other third parties. DIRECTV denies that it owes any sums to the
NRTC on account of the allegations in these matters and plans to vigorously
defend itself against these claims.
Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two
largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV in
the U.S. District Court in Los Angeles. The plaintiffs allege, among other
things, that DIRECTV has interfered with their contractual relationship with the
NRTC. The plaintiffs plead that their rights and damages are derivative of the
rights and claims asserted by the NRTC in its two cases against DIRECTV. The
plaintiffs also allege that DIRECTV has interfered with their contractual
relationships with manufacturers and distributors by preventing those parties
from selling receiving equipment to the plaintiffs' dealers. DIRECTV denies that
it has wrongfully interfered with any of plaintiffs' business relationships and
will vigorously defend the lawsuit. Although an amount of loss, if any, cannot
be estimated at this time, an unfavorable outcome could be reached in the NRTC
and Pegasus litigation that could be material to Hughes' results of operations
or financial position.
General Electric Capital Corporation ("GECC") and DIRECTV, Inc. entered into a
contract on July 31, 1995, in which GECC agreed to establish and manage a
private label consumer credit program for consumer purchases of hardware and
related DIRECTV programming. Under the contract, GECC also agreed to provide
certain related services to DIRECTV, including credit risk scoring, billing and
collections services. DIRECTV agreed to act as a surety for loans complying with
the terms of the contract. Hughes guaranteed DIRECTV's performance under the
contract. A complaint and counterclaim have been filed by the parties in the
U.S. District Court for the District of Connecticut concerning GECC's
performance and DIRECTV's obligation to act as a surety. GECC claims damages
from DIRECTV in excess of $140 million. DIRECTV is seeking damages from GECC in
excess of $45 million. Hughes intends to vigorously contest GECC's allegations
and pursue its own contractual rights and remedies. Hughes does not believe that
the litigation will have a material adverse impact on its results of operations
or financial position. Pretrial discovery is completed. No specific trial date
has been set, but a trial may be held in 2000.
IV-55
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Continued
Note 20: Commitments and Contingencies - Concluded
There is a pending grand jury investigation into whether Hughes should be
accused of criminal violations of the export control laws arising out of the
participation of two of its employees on a committee formed to review the
findings of Chinese engineers regarding the failure of a Long March rocket in
China in 1996. Hughes is also subject to the authority of the State Department
to impose sanctions for non-criminal violations of the Arms Export Control Act.
The possible criminal and/or civil sanctions could include fines as well as
debarment from various export privileges and participating in government
contracts. If Hughes were to enter into a settlement of this matter prior to
the closing of the Boeing transaction that involves a debarment from sales to
the U.S. government or a material suspension of Hughes' export licenses or other
material limitation on projected business activities of the satellite systems
manufacturing businesses, Boeing would not be obligated to complete the purchase
of Hughes' satellite systems manufacturing businesses. Hughes does not expect
the grand jury investigation or State Department review to result in a material
adverse effect upon its business.
Hughes Space and Communications International, a wholly owned subsidiary of
Hughes Space and Communications Company, has certain contracts 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 ICO's parent company (which Hughes has agreed to sell to Boeing as
part of the sale of Hughes' satellite systems manufacturing businesses). On
August 27, 1999, the ICO parent company filed for bankruptcy protection under
Chapter 11 in U.S. Bankruptcy Court in Wilmington, Delaware. On December 3,
1999, the U.S. Bankruptcy Court in this case granted final approval of debtor-
in-possession financing in the amount of $500 million to a group led by Craig
McCaw, the Chairman of Teledesic LLC, a company establishing a global broadband
Internet-in-the-Sky satellite communications network. In October 1999, McCaw
and his group also agreed to provide an additional $700 million in financing
upon the ICO parent's emergence from bankruptcy court protection, to the extent
that this financing is not provided by other investors. This exit financing is
expected to be completed in mid-2000, upon court approval and consummation of
the ICO parent company reorganization plan. There can be no assurance when the
consummation of the reorganization plan will occur or if the ICO parent company
will be successful in confirming any plan of reorganization. If it is unable to
do so the most likely outcome would be a liquidation proceeding. In the event
that a liquidation becomes probable, Hughes would expect to record a pre-tax
charge to income of up to approximately $350 million, of which $100 million
would be attributable to continuing operations and $250 million would be
attributable to discontinued operations. A portion of the purchase price to be
paid by Boeing will be placed in escrow under certain circumstances if prior to
completing this sale to Boeing, Hughes' contracts with ICO are not assumed by
ICO with bankruptcy court approval or new similar contracts are not entered into
with bankruptcy court approval.
At December 31, 1999, minimum future commitments under noncancelable operating
leases having lease terms in excess of one year are primarily for real property
and aggregated $250.8 million, payable as follows: $102.8 million in 2000, $52.3
million in 2001, $24.2 million in 2002, $17.8 million in 2003, $12.5 million in
2004 and $41.2 million thereafter. Certain of these leases contain escalation
clauses and renewal or purchase options. Rental expenses under operating leases,
net of sublease rental income, were $58.5 million in 1999, $82.7 million in 1998
and $89.1 million in 1997.
Hughes is contingently liable under standby letters of credit and bonds in the
amount of $222.0 million at December 31, 1999. In Hughes' past experience, no
material claims have been made against these financial instruments. In
addition, at December 31, 1999 Hughes has guaranteed up to $209.1 million of
bank debt, including $105.0 million related to American Mobile Satellite
Corporation. Of the bank debt guaranteed, $105.0 million matures in March 2003;
$55.4 million matures in September 2007; the remaining $48.7 million is due in
variable amounts over the next five years.
In connection with the DTH broadcast businesses, Hughes has commitments
related to certain programming agreements which are variable based upon the
number of underlying subscribers and market penetration rates. Minimum payments
over the terms of applicable contracts are anticipated to be approximately
$1,000.0 million to $1,150.0 million.
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, DIRECTV,
DIRECTV/AOL TV and DirecDuo.
Hughes is subject to various claims and legal actions which are pending or may
be asserted against it. The aggregate ultimate liability of Hughes under these
claims and actions was not determinable at December 31, 1999. In the opinion of
Hughes management, such liability is not expected to have a material adverse
effect on Hughes' results of operations or financial position.
IV-56
<PAGE>
HUGHES ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - Concluded
Note 21: Subsequent Events
On March 1, 2000, Hughes announced that DIRECTV Japan's operations will be
discontinued and that its subscribers would migrate to SkyPerfecTV, a company in
Japan providing direct-to-home satellite broadcasting. As a result of this
transaction, Hughes will acquire a 6.8% interest in SkyPerfecTV, which is
expected to complete an IPO during its fiscal year ending March 31, 2001. Hughes
will be required to fund a substantial portion of the costs to be incurred over
the next six to nine months to exit the DIRECTV Japan business. Hughes will
accrue such exit costs during the first quarter of fiscal 2000. The first
quarter charge will be offset by the fair value of the SkyPerfecTV interest
received; however the amounts are not yet estimable. In addition, Hughes will
continue to record its share of DIRECTV Japan's operating losses during fiscal
2000.
EchoStar Communications Corporation and others commenced an action in the U.S.
District Court in Colorado on February 1, 2000 against DIRECTV, Hughes Network
Systems and Thomson Consumer Electronics, Inc. seeking, among other things,
injunctive relief and unspecified damages, including treble damages, in
connection with allegations that the defendants have entered into agreements
with retailers and program providers and engaged in other conduct that violates
the antitrust laws and constitutes unfair competition. DIRECTV believes that the
complaint is without merit and intends to vigorously defend against the
allegations raised. Although an amount of loss, if any, cannot be estimated at
this time, an unfavorable outcome could be reached that could be material to
Hughes' results of operations or financial position.
* * *
IV-57
<PAGE>
<TABLE>
HUGHES ELECTRONICS CORPORATION
SUPPLEMENTAL INFORMATION
<CAPTION>
Selected Quarterly Data (Unaudited)
1st 2nd 3rd 4th
- -------------------------------------------------------------------------------------------------
(Dollars in Millions)
1999 Quarters
- -------------
<S> <C> <C> <C> <C>
Revenues $918.4 $1,316.1 $1,627.8 $1,698.0
------ -------- -------- --------
Loss from continuing operations before
income taxes and minority interests $(31.0) $ (70.8) $ (87.4) $ (470.8)
Income tax benefit (13.4) (9.5) (36.8) (177.2)
Minority interests in net losses of subsidiaries 6.5 6.8 8.8 9.9
Income from discontinued operations 84.1 (43.1) 6.9 51.9
------ -------- -------- --------
Net income (loss) 73.0 (97.6) (34.9) (231.8)
Earnings (Loss) used for computation of
available separate consolidated net income
(loss) $ 78.3 $ (93.9) $ (54.3) $ (251.3)
====== ======== ======== ========
Average number of shares of
General Motors Class H common stock
outstanding (in millions) 106.3 121.0 135.1 136.3
Average Class H dividend base (in millions) 400.2 414.9 428.9 430.1
Available separate consolidated net income (loss) $ 20.8 $ (27.4) $ (17.1) $ (79.6)
Stock price range of General Motors Class
H common stock
High $53.00 $ 63.88 $ 62.44 $ 97.63
Low $38.50 $ 48.94 $ 48.75 $ 55.94
</TABLE>
IV-58
<PAGE>
<TABLE>
HUGHES ELECTRONICS CORPORATION
SUPPLEMENTAL INFORMATION
<CAPTION>
Selected Quarterly Data (Unaudited) - Concluded
1st 2nd 3rd 4th
- --------------------------------------------------------------------------------------------
(Dollars in Millions)
1998 Quarters
- -------------
<S> <C> <C> <C> <C>
Revenues $739.7 $780.5 $855.2 $1,105.2
------ ------ ------ --------
Income (Loss) from continuing operations before
income taxes, minority interests and
cumulative effect of accounting
change $ 19.9 $(26.3) $(19.8) $ (77.0)
Income tax provision (benefit) 12.9 (8.5) (3.7) (143.0)
Minority interests in net losses of subsidiaries 1.3 8.6 9.3 5.2
Income from discontinued operations 40.1 60.0 44.4 51.9
Cumulative effect of accounting change (1) (9.2) - - -
------ ------ ------ --------
Net income 39.2 50.8 37.6 123.1
Earnings used for computation of available
separate consolidated net income $ 44.5 $ 56.1 $ 42.9 $ 128.2
====== ====== ====== ========
Average number of shares of
General Motors Class H common stock
outstanding (in millions) 104.1 105.2 105.7 105.9
Average Class H dividend base (in millions) 399.9 399.9 399.9 399.9
Available separate consolidated
net income $ 11.5 $ 14.7 $ 11.4 $ 33.9
Stock price range of General Motors Class
H common stock
High $48.00 $57.88 $50.81 $ 42.38
Low $31.50 $42.75 $35.00 $ 30.38
</TABLE>
- --------------
(1) Hughes adopted SOP 98-5, Reporting on the Costs of Start-Up Activities,
effective January 1, 1998. The unfavorable cumulative effect of adopting
SOP 98-5 was $9.2 million. The impact on the second, third and fourth
quarters of 1998 was not significant.
* * * * * * * * *
IV-59
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from General
Motors Corporation December 31, 1999 Consolidated Financial Statements and is
qualified in its entirety by reference to Annual Report on Form 10-K.
</LEGEND>
<CIK> 0000040730
<NAME> General Motors Corporation
<MULTIPLIER> 1,000,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 10,442
<SECURITIES> 10,808
<RECEIVABLES> 85,720
<ALLOWANCES> 0
<INVENTORY> 10,638
<CURRENT-ASSETS> 41,909
<PP&E> 67,142
<DEPRECIATION> 34,363
<TOTAL-ASSETS> 274,730
<CURRENT-LIABILITIES> 53,100
<BONDS> 131,688
218
0
<COMMON> 1,047
<OTHER-SE> 19,597
<TOTAL-LIABILITY-AND-EQUITY> 274,730
<SALES> 152,635
<TOTAL-REVENUES> 176,558
<CGS> 126,809
<TOTAL-COSTS> 157,972
<OTHER-EXPENSES> 1,789
<LOSS-PROVISION> 404
<INTEREST-EXPENSE> 7,750
<INCOME-PRETAX> 9,047
<INCOME-TAX> 3,118
<INCOME-CONTINUING> 5,576
<DISCONTINUED> 426
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,002
<EPS-BASIC> 9.36
<EPS-DILUTED> 9.18
</TABLE>
